In 2016, the central government of Indonesia issued a presidential decree that centralised the management of Batam Free Trade Zone (FTZ). The policy was mainly directed to improving the business climate in the zone that was deemed underperformed due to prolonged central-local conflict. This paper aims to investigate the policy change in the zone with the change in firms’ productivity. I use survey data from the Statistics of Indonesia covering the years of 2015 and 2017. Difference-in-difference estimator is employed to measure the impact, with firms located in neighboring provinces are set as the control group. I find that the policy has led to a productivity loss at around 32% in the main model, with similar large drop in terms of growth. I further find that locational choice, investment origin, as well as export orientation determine their resiliency against the policy change. Policymakers, whether at the central or local level, need to pay attention to this negative impact when deciding future institutional arrangement of the Batam FTZ.