Neil McCulloch, Arianto A. Patunru and Christian von Luebke
Many countries have implemented investment climate reforms to try and boost growth and investment. But similar reforms have often given rise to quite different results in different countries. We hypothesize that success depends critically on the ability of local political actors to forge effective relations with the private sector. We explore this hypothesis through a detailed qualitative case study of the political economy of investment in the city of Manado, Indonesia. We find that the city bureaucracy and local parliament are largely focused on rent-seeking from the local private sector and that city planning is poorly implemented. Despite poor governance, investment is booming. Apart from exogenous factors, we find that local investment growth is sustained by hand-in-hand relationships between Manado’s government leadership and large retail and property investors.