Infrastructure Investment in Indonesia: Process and Impact

University of Groningen

Infrastructure investment in Indonesia Mustajab, M.

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Publication date: 2009

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Infrastructure Investment in Indonesia: Process and Impact

ISBN: 978-90-367-3888-0 978-90-367-3887-3 (e-book)

Cover design by: Ahsin Photo credit: Dessy Sulistyowati Hidayat

RIJKSUNIVERSITEIT GRONINGEN

Infrastructure Investment in Indonesia: Process and Impact

Proefschrift

ter verkrijging van het doctoraat in de Ruimtelijke Wetenschappen aan de Rijksuniversiteit Groningen op gezag van de Rector Magnificus, dr. F. Zwarts, in het openbaar te verdedigen op maandag 29 juni 2009 om 11.00 uur

door

Mohammad Mustajab

geboren op 22 maart 1975 te Pati, Indonesia

Promotores : Prof. dr. J. van Dijk Prof. dr. P.H. Pellenbarg Copromotor : Dr. K. Sugiana

Beoordelingscommissie : Prof. dr. E.J.J.M. Arts Prof. dr. L.J.G. van Wissen Prof. dr. D. Strijker

Preface and Acknowledgement

The process of writing a PhD thesis is not merely an engagement with scientific analysis, but rather it calls for multiple skills in order to achieve the goal. One of the most critical elements is how to sustain one’s spirit. Like a rollercoaster, the writer’s motivation will sometimes rise and sometimes fall. I have recognized this dynamic since I first wrote the proposal. However, managing the motivation in real life is not as easy as I imagined. Writing a thesis is also related to the strategy of managing time and how one works. Initially, my strategy was somehow influenced by my past experience and knowledge. I took my masters degree in Seoul, South Korea, a country that is well known for its culture of hard work. Koreans work very hard, and it was wired into me that hard work is a prerequisite for success. In the Netherlands, on the other hand, it is quite the opposite. Relatively, people work less. But, surprisingly, in spite of that, they get optimal results. It led me to assume that people here work in more effective and efficient ways. Furthermore, it inspired me to adopt their work culture. In reality, both experiments were not such an easy task for me. I found that adopting a new way of working was linked to a learning process. However, working more effectively and efficiently is much more difficult than just working hard. The social environment in which one lives also influences the process of writing a PhD dissertation. I was fortunate to have lived in Groningen when writing my thesis. I much enjoy the city and its overall ambience. (Little wonder that according to the European Commission’s survey in 2007, people in Groningen are the happiest in Europe with their city!) I was also fortunate to have been surrounded by people who inspired me to find the right track. I would like to thank my supervisors: Prof. Jouke van Dijk, Prof. Piet H. Pellenbarg and Pak Kawik Sugiana for their guidance. They were extremely supportive and gave me the freedom to learn, always providing a new perspective when I seemed to have reached a dead end. vi Preface

I would like to thank the members of the graduation committee for their willingness to be part of this committee and allowing me to defend my dissertation. I would like to thank Prof. Gerard Linden, who initiated the program and offered me this opportunity. I would also like to express my gratitude to Pak Dedy Priatna, who also initiated the program, and Pak Avip, who succeeded Pak Dedy in managing the program and staff at Pusbindiklatren Bappenas. Additionally, there are a few others who helped me during my research who I would like to thank. First, I would like to thank Dr. Jan Jacobs, who assisted me and shared his knowledge in time series econometrics, Dr. Paul Elhorst, who helped me in spatial econometric estimation, Prof. Henk Folmer, who gave critical and constructive feedback on the theoretical and conceptual framework, and Pak Gunawan from BI, Ninuk from Bakosurtanal, staff from Badan Pusat Statistik (BPS), and my colleagues at Bappenas who shared their data with me. I would like to express my appreciation to Zhao Pengjun and my other former roommates in the WSN building, to Inge Noback, Miriam Klaassens, and Rixt Bijker, my former roommates in the DRS building and Dr. Lourens Broersma, my roommate in the Landleven building for their patience and understanding. It gives me great pleasure to thank Sierdjan Koster, Inge Noback, Victor Vernhorst, An Liu, and Petra de Jong, my colleagues in the Economic Geography Department and also my colleagues and other PhD students in other departments. Among the important things necessary to complete a research study successfully is financial and administrative support. In this regards, I would like to thank the Bernouilli Scholarship Foundation and the people behind it who provided me with a two-year scholarship. In addition, I would like to thank especially Stiny Tiggelaar and also Dorina Antoons and other officers in the faculty who helped me with administrative matters. It gives me great pleasure to thank my family, my colleagues and my friends, who have indirectly supported me, creating a conducive environment for me to study. Among them are: my family in Indonesia (especially my brother), my girlfriend Ratih Kusuma Dewi, my senior colleagues at Bappenas, Pak Lukita, Pak Bambang Prijambodo, my colleagues at directorate for balance of payments and international economic cooperation and directorate for macroeconomic affairs Bappenas, my housemates at Nieuwe Kerkhof (Pak Ali, Robby, Arramel, Wahyudin, and Petit), my Indonesian Preface vii colleagues at the faculty (Pak Miming and Delik), members of the Indonesian moslem society in Groningen (deGromiest), members of the Indonesian student association in Groningen, and Ahsin, Hakim, Muslihin and Febriyani Miala Sari, my best friends in Jakarta. Finally, above all, I would like to say “Alhamdulillah” (Praise to God) that I have completed this dissertation. I hope that this work will benefit others, even if it is only a little.

Groningen, January 2009 Mustajab

Contents

Preface and Acknowledgement v List of Figures xi List of Tables xiii Abbreviations xv

Chapter 1 Introduction 1

1.1 Background and Setting of The Problem 1 1.2 Context 3 1.3 Research Objectives and Questions 4 1.4 Approach 4 1.5 Contributions 6 1.6 Structure of the Thesis 6 References 8

Chapter 2 Indonesian Infrastructure: Condition, Problem and Policy 9

2.1 Condition of Indonesian Infrastructure 10 2.1.1 National View of Infrastructure Condition 10 2.1.2 Sector-based View o