Governance has gone through radical changes over the last twenty five years. Seemingly, it became one of the important strategies, processes, methods and mechanisms in governing countries to achieve economic development goals. The objective of this paper is to observe the local economic governance dynamics in the case of districts/municipalities in Indonesia. First, the dynamics behavior of local governance over time is analyzed by visual inspection of their non-parametric density distribution.

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... More deeply, we use Markov chains to predict a pattern of change in local economic governance toward its steady state. Based on comparison between 2007 and 2011 data delivered by Commission of Regional Autonomy Implementation Watch, we conclude that there is a high level of persistence in the relative position of local governance index, consistent with a low degree of mobility in the index distribution implying the implementation of governance in the districts/municipalities in Indonesia is weak enough. This finding implies that the local economic governance is a key to achieve sustainable regional economic growth in line with fiscal decentralization and regional autonomy. Keywords : Local Economic Governance, Decentralization, Regional Economic Growth, Kernel Densities, Markov ChainsJEL Classification: H70, O43, O56