Institutional conflict in regional development: path dependence in the free trade zone and decentralization of Batam, Indonesia

Developing countries are seeking institutional designs to accelerate regional development. Indonesia implemented a special economic institution in Batam in the 1970s, but layered it with decentralization in 2001. This study applies a neo-institutional perspective to analyze institutional interactions in Batam by tracing their historical roots, examining actors’ responses, and evaluating the initiatives to address the problems. It is found that the historical backgrounds of both institutions, along with their sources of legitimacy, invested resources, and entrenched interests, create a path dependence that locks in their coexistence. Actors from both institutions actively contest the rules, and the governance becomes complex, redundant, inefficient, and uncertain. The recent initiative to unify the leadership improves inter-institutional coordination, but is still questionable as a long-term solution. The case of Batam offers valuable lessons on how states should restructure institutions to effectively accelerate regional development.