development expenditure has a greater impact on economic growth compared to routine expenses

Oct 13, 2025 by talynt.org 8 views

Analysis of the Effect of Local Government Spending on the Economic Growth of the Provinces in Indonesia

The Effect of Regional Government Spending on Economic Growth in Indonesia: Revealing Development Contribution

Background

The success of an regional economic growth is influenced by various factors, including the role of government in encouraging economic activity through its expenditure. This research examines the effect of local government spending on economic growth in Indonesia, both individually in each province and overall. The government's expenditure plays a crucial role in promoting economic growth, and its impact can be seen in various sectors such as infrastructure, education, and health. Understanding the effect of local government spending on economic growth is essential for policymakers to make informed decisions and allocate resources effectively.

Research Methodology

This study uses panel data and shows attractive results. The data used in this study includes the provincial-level data of Indonesia from 2010 to 2020. The data includes the government's expenditure, economic growth, and other relevant variables. The study uses the Fixed Effects Model (FEM) to estimate the effect of government spending on economic growth.

Research Result

At the provincial level, analysis shows that development expenditure has a greater impact on economic growth compared to routine expenses. This shows that government investment in infrastructure, education, and health has an important role in encouraging economic growth at the regional level. The results of this study confirm the importance of development expenditure in promoting economic growth.

Analysis for the whole province in Indonesia shows that the Fixed Effects Model (FEM) model is the most appropriate model for estimating the effect of government spending on economic growth. The estimation results show that both routine expenditure (GR) and development expenditure (GP) have a positive and significant effect on economic growth in Indonesia with a 99 percent confidence level. This suggests that both types of expenditure have a positive impact on economic growth, and policymakers should consider both when making decisions.

Interpretation and Implications

The results of this study confirmed the important role of government spending in encouraging economic growth in Indonesia. Development expenditure proved to be the main driving force for economic growth at the provincial level. This shows that government investment in strategic sectors such as infrastructure, education, and health can create a significant long-term impact on economic growth. On the other hand, routine expenditure, despite having a smaller role than development expenditure, also has a positive influence on economic growth. This shows that government spending on operations such as employee salaries and infrastructure maintenance remains important to maintain the stability and smoothness of the economy.

Recommendation

The results of this study provide several recommendations for local governments:

Prioritizing Development Expenditures: Regional Government needs to allocate a greater budget for development expenditure that focuses on strategic sectors such as infrastructure, education, and health. This will help to create a significant long-term impact on economic growth.

Increasing the efficiency of routine expenditure: Increased efficiency in routine expenditure can maximize its positive impact on economic growth. This can be achieved by implementing a transparent and accountable financial management system, and minimizing budget leakage.

Strengthening coordination between institutions: Good coordination between central and regional government institutions can strengthen the synergy and effectiveness of development programs, so that it can be more effective in encouraging economic growth.

Conclusion

This study shows that government spending, especially development expenditure, has an important role in encouraging economic growth in Indonesia. Local governments are expected to be able to take advantage of the results of this study as a basis for increasing the effectiveness of fiscal policies, so as to achieve sustainable and equitable economic growth goals throughout Indonesia. The study's findings provide valuable insights for policymakers to make informed decisions and allocate resources effectively.

Limitation of the Study

This study has several limitations. Firstly, the study uses panel data from 2010 to 2020, which may not reflect the current economic situation. Secondly, the study only examines the effect of government spending on economic growth and does not consider other factors that may influence economic growth. Finally, the study only focuses on the provincial level and does not consider the national level.

Future Research Direction

This study provides several directions for future research. Firstly, future studies can examine the effect of government spending on economic growth at the national level. Secondly, future studies can consider other factors that may influence economic growth, such as private investment and trade. Finally, future studies can examine the impact of government spending on economic growth in other countries.

Policy Implication

The study's findings have several policy implications. Firstly, policymakers should prioritize development expenditure that focuses on strategic sectors such as infrastructure, education, and health. Secondly, policymakers should increase the efficiency of routine expenditure by implementing a transparent and accountable financial management system. Finally, policymakers should strengthen coordination between central and regional government institutions to strengthen the synergy and effectiveness of development programs.

Conclusion

In conclusion, this study shows that government spending, especially development expenditure, has an important role in encouraging economic growth in Indonesia. Local governments are expected to be able to take advantage of the results of this study as a basis for increasing the effectiveness of fiscal policies, so as to achieve sustainable and equitable economic growth goals throughout Indonesia. The study's findings provide valuable insights for policymakers to make informed decisions and allocate resources effectively.
Frequently Asked Questions (FAQs) about the Effect of Local Government Spending on Economic Growth in Indonesia

Q: What is the main finding of this study?

A: The main finding of this study is that development expenditure has a greater impact on economic growth compared to routine expenses at the provincial level in Indonesia.

Q: What are the implications of this study for policymakers?

A: The study's findings have several implications for policymakers. Firstly, policymakers should prioritize development expenditure that focuses on strategic sectors such as infrastructure, education, and health. Secondly, policymakers should increase the efficiency of routine expenditure by implementing a transparent and accountable financial management system. Finally, policymakers should strengthen coordination between central and regional government institutions to strengthen the synergy and effectiveness of development programs.

Q: What are the limitations of this study?

A: This study has several limitations. Firstly, the study uses panel data from 2010 to 2020, which may not reflect the current economic situation. Secondly, the study only examines the effect of government spending on economic growth and does not consider other factors that may influence economic growth. Finally, the study only focuses on the provincial level and does not consider the national level.

Q: What are the policy implications of this study?

A: The study's findings have several policy implications. Firstly, policymakers should prioritize development expenditure that focuses on strategic sectors such as infrastructure, education, and health. Secondly, policymakers should increase the efficiency of routine expenditure by implementing a transparent and accountable financial management system. Finally, policymakers should strengthen coordination between central and regional government institutions to strengthen the synergy and effectiveness of development programs.

Q: What are the future research directions based on this study?

A: This study provides several directions for future research. Firstly, future studies can examine the effect of government spending on economic growth at the national level. Secondly, future studies can consider other factors that may influence economic growth, such as private investment and trade. Finally, future studies can examine the impact of government spending on economic growth in other countries.

Q: What are the benefits of this study for local governments?

A: The study's findings provide valuable insights for local governments to increase the effectiveness of fiscal policies and achieve sustainable and equitable economic growth goals. Local governments can use the study's findings to prioritize development expenditure, increase the efficiency of routine expenditure, and strengthen coordination between institutions.

Q: What are the benefits of this study for policymakers?

A: The study's findings provide valuable insights for policymakers to make informed decisions and allocate resources effectively. Policymakers can use the study's findings to prioritize development expenditure, increase the efficiency of routine expenditure, and strengthen coordination between institutions.

Q: What are the benefits of this study for the economy of Indonesia?

A: The study's findings provide valuable insights for policymakers to increase the effectiveness of fiscal policies and achieve sustainable and equitable economic growth goals. The study's findings can help to promote economic growth, reduce poverty, and improve the standard of living of the people of Indonesia.