A Capital Idea? The Welfare Effects of Relocating Indonesia’s Government to a New City

Author(s)/Creator(s)

Alexander D. Rothenberg, Syracuse UniversityFollow
Radine Rafols, The World BankFollow
Yao Wang, The Ohio State UniversityFollow
Yi Jiang, Asian Development Bank

Description/Abstract

Many developing countries are planning to create new capital cities, a place-making policy designed to alleviate congestion and respond to climate change. To evaluate growth and welfare effects, we specify a dynamic quantitative spatial model with public employment, informality, fiscal transfers, and frictions in trade and migration. We calibrate the model with data from Indonesia and conduct policy experiments studying the creation of Nusantara in East Kalimantan. Despite increasing employment in the new capital region, we find that building Nusantara reduces national growth and welfare. Climate change attenuates its negative welfare effects, but only slightly.

Document Type

Working Paper

Date

11-24-2025

Keywords

Capital relocations, regional development, climate change, local taxes, persistence

Language

English

Series

Working Papers Series

Acknowledgements

Alishan Khan and Marjorie Remolador provided excellent research assistance. We are grateful to seminar participants at the Asian Development Bank (ADB), AREUEA, Boston University, the Chinese Economist Society (CES), Cornell University, Federal Reserve Bank of Philadelphia, HKUST, MWIEDC, Nanjing Audit University, SEA, Singapore Management University, Syracuse University, UEA, UIUC, and the World Bank for helpful comments and suggestions. The views expressed in this paper are those of the authors and do not necessarily reflect the views and policies of ADB, its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequence of their use. All errors remain our own.

Disciplines

Economic Policy | Economics | Public Affairs, Public Policy and Public Administration | Public Policy | Regional Economics | Taxation

ISSN

1525-3066

Additional Information

CPR Working Paper No. 278

Recommended Citation

Rothenberg, Alexander D.; Rafols, Radine; Wang, Yao; and Jiang, Yi, "A Capital Idea? The Welfare Effects of Relocating Indonesia’s Government to a New City" (2025). Center for Policy Research. 515.
https://surface.syr.edu/cpr/515

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.