The Effect Of Regional Expenditure On Economic Growth In 34 Provinces In Indonesia

Okti Diyah Fatmawati, Ratna Setyawati Gunawan, Muhammad Farid Alfarisy, Tri Ananto Putro

Abstract


Regional expenditure is one of the strategies employed to boost regional economic growth. According to Keynesian economics, higher government expenditure leads to higher economic growth. However, in Indonesia, the 10 provinces with the highest regional expenditures are not among the 10 provinces with the highest economic growth rates. This study aims to analyze the effect of regional expenditure, namely operational expenditure, capital expenditure, and transfer expenditure, on economic growth in 34 provinces in Indonesia from 2015 to 2022, with central government transfers as a control variable. The study utilizes secondary data from the Central Statistics Agency (BPS) and employs panel data regression as the analytical tool. The findings revealed that capital expenditure and transfer expenditure had a positive and significant effect on economic growth in the 34 provinces in Indonesia from 2015 to 2022. On the other hand, operational expenditure and central government transfers had a positive but insignificant effect on economic growth in the 34 provinces in Indonesia from 2015 to 2022. The implications of these findings suggest that the government needs to evaluate the allocation of operational expenditure and central government transfers to ensure that expenditure allocations are targeted and effective in achieving their goals. Additionally, regional governments can reduce the allocation of funds in operational expenditure if deemed wasteful, allowing more funds to be allocated for capital expenditure and transfer expenditure, which have a positive and significant effect on economic growth.

 

Keywords: Economic Growth, Operational Expenditure, Capital Expenditure, Transfer Expenditure, Central Government Transfer


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