The Impact of Decentralization on Educational Attainment in Indonesia

Abstract

This study contributes to our knowledge on the impact of decentralization of the education sector in Indonesia. We extend existing research by examining the influence of both municipal factors and other explanatory variables on educational attainment in Indonesia. We focus on mean years of schooling as an indicator of educational attainment. We hypothesize that after decentralization, (1) educational attainment is higher compared to the pre-decentralization era, (2) regional variations in educational attainment will have increased, and (3) the fiscal capacity, degree of urbanization, and development will be higher, the higher the municipality’s mean year of schooling. The latter is also expected for the newly created municipalities of the past years. We test the hypotheses with panel data on 5,541,983 respondents aggregated to 3880 observations nested in 491 districts/cities nested in 32 provinces for the pre- and post-decentralization era. The results reveal the following. First, after decentralization, the length of schooling slightly increased, but progress in the length of schooling has slowed down a bit. Second, educational attainment variation between provinces slightly decreased, but the variation among municipalities increased. Third, the degree of municipalities’ development and urbanization has a significantly positive impact on improving educational attainment, while the fiscal capacity and the status of being a new municipality do not have a significant effect on extending the length of schooling. Our findings suggest that especially rural areas and less developed municipalities have lagged behind in the attempt to improve Indonesia’s educational attainment.