Nusantara Capital City Development and the Polycentric Approach

Note: This article reflects the personal opinion of the author and does not represent the views of the CNBC Indonesia editorial team.

The development of the Nusantara Capital City (IKN) in East Kalimantan Province has from the outset been projected as an instrument for equalising national development as well as a solution to the high concentration of density on the island of Java.

To date, however, the effectiveness of IKN as a new growth centre continues to face various obstacles. Although infrastructure development is still under way and investment has begun to flow in, its impact on national economic equalisation remains relatively limited.

Amid the less-than-optimal relocation of governmental functions and socio-economic activity, a development approach focused on a single growth centre risks creating new inter-regional disparities if it is not balanced by strengthening other regions.

The IKN development concept emerged as a response to the high concentration of socio-economic activity on Java. According to data from Statistics Indonesia (BPS), as of 2025 Java still accounts for 56.93% of Gross Domestic Product (GDP), a condition showing that the national economic structure remains highly centralised, making regional equalisation one of the government’s new challenges, including through IKN.

From the perspective of regional economics, centripetal development tends to draw capital, investment, skilled labour and public facilities towards one particular area. If the resulting multiplier effect cannot yet reach other supporting regions, the new growth centre will instead create a new socio-economic concentration.

Various regional economics studies show that an overly centripetal development concept risks triggering a backwash effect, whereby capital, labour and economic activity are continuously drawn towards the growth centre. Meanwhile, other regions lose the resources they need to develop, causing areas outside the development centre to experience slowing investment and declining regional economic competitiveness.

A further risk is the growing dependence of the economy on a single growth area. If socio-economic activity is too concentrated in one region, exposure to economic shocks or natural disasters would have a severe impact on the national economy precisely because of its centralised nature.

Research by IPB University (Bogor Agricultural Institute) notes that an Inter-Regional Output (IRO) approach indicates that IKN’s development has the potential to raise economic output, household income and employment absorption. However, maximum benefit can only be achieved if it is accompanied by equalisation and connectivity with surrounding regions.

At present, IKN’s development is still dominated by basic infrastructure and the government district, meaning social activities, private economic activity, industry and supporting sectors have yet to operate, and the expected economic effects remain unrealised. This shows that IKN’s success must be measured not only by physical construction but also by its ability to create new centres of socio-economic activity.

Other risks are also being felt. With state spending concentrated only on certain strategic projects, IKN’s development must be aligned with the acceleration of development in other regions. If not, more advanced regions will become increasingly competitive while lagging areas face shortages of infrastructure and investment. Left unresolved over the long term, such conditions will widen development gaps between regions.

National development should therefore prioritise a polycentric approach, building multiple growth centres interconnected through infrastructure and logistics networks. With such an approach, IKN would not merely be a concentrated region; other regions would also experience equalisation.