Federalism and Economic Reform: Comparative Studies of China and Indonesia

At different historical periods China and Indonesia have both had political institutions dominated by prominent leaders, and experienced economic disasters where development was severely impeded. Retreating from institutional structures of extreme political power concentration, both countries experienced decades of rapid economic growth, combined with deepening integration with the global economy. During its reform period China has become fiscally decentralized. Indonesia did not experience major political change until decentralization and democratization was triggered by the Asian Financial Crisis in 1997-8. Since the turn of the century it has transformed itself from a centralised government into a highly decentralized one. This chapter investigates the evolution of configurations of political power and the economic performance of both countries. The experiences of China and Indonesia highlight the critical role that political institutions play in shaping economic management and overall economic performance.