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THE ROLE OF LOCAL GOVERNMENT EXPENDITURE ON ECONOMIC GROWTH: A REVIEW OF PANEL DATA IN INDONESIA
Corresponding Author(s) : Agus Tri Basuki
Humanities & Social Sciences Reviews,
Vol. 7 No. 5 (2019): September
Abstract
Purpose of the study: This research aims to empirically prove the composition of local government expenditure (education, health, marine and fisheries, agriculture, and general allocation fund) on economic growth in 18 provinces in Indonesia from 2010 to 2015.
Methodology: The model used in this research is panel data regression. The use of panel data in regression can provide more information that cannot be provided by cross-section or time-series data, and provides the best solution for inferring dynamic changes than cross-section data.
Main Findings: The findings in this study are foreign investment has no influence on economic growth. Fiscal policies that are carried out are not effective in encouraging economic growth, and the use of the General Allocation Fund is not on target.
Applications of this study: Foreign investment must be a trigger for the local economy and the national economy by means of foreign investment in Indonesia which is prioritized using raw materials and local labour, so that dependence on imported raw materials can be minimized. To overcome leakage of development budget must implement a budgeting system that is oriented towards organizational output and is very closely related to the organization's vision, mission, and strategic plan. The use of general allocation funds needs to be monitored by certain institutions and prioritizing public interest.
Keywords
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- Abala, D.O., 2014. Foreign direct investment and economic growth: an empirical analysis of Kenyan data. DBA Africa Management Review, 4(1), pp.62-83.
- Agrawal, G., 2015. Foreign direct investment and economic growth in BRICS economies: A panel data analysis. Journal of Economics, Business and Management, 3(4), pp.421-424. https://doi.org/10.7763/JOEBM.2015.V3.221 DOI: https://doi.org/10.7763/JOEBM.2015.V3.221
- Agustine, A.D., 2014. Pengembangan Sektor Kelautan dan Perikanan Untuk Meningkatkan Pendapatan Asli Daerah (Studi di Dinas Kelautan dan Perikanan Kabupaten Banyuwangi). Jurnal Administrasi Publik, 2(2), pp.276-280.
- Ahmad, E., Ullah, M. A., & Arfeen, M. I. (2012). Does corruption affect economic growth?. Latin american journal of economics, 49(2), 277-305. https://doi.org/10.7764/LAJE.49.2.277 DOI: https://doi.org/10.7764/LAJE.49.2.277
- Ahmad, I., 2011. Regional Fiscal Independence In East Java Province Post Regional Autonomy. Economic Journal of Emerging Markets, 3(2), pp.189-198.
- Ali, Sher, Amjad Ali, and Amjad Amin., 2013. The Impact of Population Growth on Economic Development in Pakistan. Middle-East Journal of Scientific Research 18, no. 4: 483-491.
- Al-Shatti, A.S., 2014. The Impact of Public Expenditures on Economic Growth in Jordan. International Journal of economics and Finance, 6(10), p.157. https://doi.org/10.5539/ijef.v6n10p157 DOI: https://doi.org/10.5539/ijef.v6n10p157
- Armas, E.B., Osorio, C.G., Moreno-Dodson, B. and Abriningrum, D.E., 2012. Agriculture public spending and growth in Indonesia. The World Bank. https://doi.org/10.1596/1813-9450-5977 DOI: https://doi.org/10.1596/1813-9450-5977
- Arsyad, L., 2014. Ekonomi pembangunan.
- Aruwa, S., 2010. Public finances and economic growth in Nigeria. In Faculty Conference Proceeding, available at http://nsukonline. academia. edu/nsukedungacademiaedu/Papers [Accessed 14.04. 2012].
- Astria, S. A. (2014). Analisis Pengaruh Dana Alokasi Umum Dan Belanja Modal Terhadap Pertumbuhan Ekonomi Di Sumatera Selatan. Journal of Economics & Development Policy, 12(1), 41-54.
- Boediono, 1999. Teori Pertumbuhan Ekonomi. BPFE.
- Chidinma, E. and Kemisola, C.O., 2012. Government Expenditure on Agriculture and Economic Growth in Nigeria. International Journal of Science and Research, 3(358).
- Dada, M.A., 2013. Composition effects of government expenditure on private consumption and output growth in Nigeria: A single-equation error correction modelling. Romanian Journal of Fiscal Policy (RJFP), 4(2), pp.18-34.
- Dao, M.Q., 2012. Population and economic growth in developing countries. International Journal of Academic Research in Business and Social Sciences, 2(1), p.6.
- Djojohadikusumo, S., 1994. Perkembangan pemikiran ekonomi: dasar teori ekonomi pertumbuhan dan ekonomi pembangunan. LP3ES.
- Gisore, N., Kiprop, S., Kalio, A., Ochieng, J. and Kibet, L., 2014. Effect of government expenditure on economic growth in East Africa: A disaggregated model. European Journal of Business and Social Sciences, 3(8), pp.289-304.
- Grabova, P., 2014. Corruption impact on Economic Growth: An empirical analysis. Journal of Economic Development, Management, IT, Finance, and Marketing, 6(2), p.57. Greene, W.H., 2003. Econometric analysis. Pearson Education India.
- Gujarati, D.N., 2003. Basic Econometrics, McGraw-Hill. New York.
- Headey, D.D. and Hodge, A., 2009. The effect of population growth on economic growth: A metaâ€regression analysis of the macroeconomic literature. Population and Development Review, 35(2), pp.221-248. https://doi.org/10.1111/j.1728-4457.2009.00274.x DOI: https://doi.org/10.1111/j.1728-4457.2009.00274.x
- Hendarmin, 2012. Pengaruh Belanja Modal Pemerintah Daerah dan Investasi Swasta terhadap Pertumbuhan Ekonomi, Kesempatan Kerja dan Kesejahteraan Masyarakat di Kabupaten/Kota Provinsi Kalimantan Barat . Jurnal EKSOS, Volume 8, Nomor 3, p.144-155.
- Huda, H.M., Purnamadewi, Y.L. and Firdaus, M., 2015. Industrialisasi Perikanan Dalam Pengembangan Wilayah di Jawa Timur. Tataloka, 17(2), pp.99-112. https://doi.org/10.14710/tataloka.17.2.99-112 DOI: https://doi.org/10.14710/tataloka.17.2.99-112
- Idrees, A.S. and Siddiqi, M.W., 2013. Does public education expenditure cause economic growth? Comparison of developed and developing countries. Pakistan Journal of Commerce and Social Sciences, 7(1), p.174.
- Kolawole, B. O. (2016). Government spending and inclusive-growth relationship in Nigeria: An empirical investigation. Zagreb International Review of Economics and Business, 19(2), 33-56. https://doi.org/10.1515/zireb-2016-0007 DOI: https://doi.org/10.1515/zireb-2016-0007
- Kurt, S., 2015. Government health expenditures and economic growth: a Feder-Ram approach for the case of Turkey. International Journal of Economics and Financial Issues, 5(2), pp.441-447.
- Louzi, B.M. and Abadi, A., 2011. The impact of foreign direct investment on economic growth in Jordan. IJRRAS-International Journal of Research and Reviews in Applied Sciences, 8(2), pp.253-258.
- Mamingi, N. and Perch, J., 2013. Population Growth and Economic Growth/Development: An Empirical Investigation for Barbados. Population, 4(4).
- Manik, R.E. and Hidayat, P., 2010. Analisis Dampak Desentralisasi Fiskal Terhadap Pertumbuhan Ekonomi Kabupaten/kota Pemekaran di Sumatera Utara. Jurnal Keuangan & Bisnis Program Studi Magister Manajemen Sekolah Tinggi Ilmu Ekonomi Harapan, 2(3), pp.217-226.
- Mauro, P., 1995. Corruption and growth. The quarterly journal of economics, 110(3), pp.681-712. https://doi.org/10.2307/2946696 DOI: https://doi.org/10.2307/2946696
- Mekdad, Y., Dahmani, A. and Louaj, M., 2014. Public spending on education and economic growth in Algeria: Causality test. International Journal of Business and Management, 2(3), p.55.
- Melnyk, L.H., Kubatko, O.V. and Pysarenko, S., 2014. The impact of foreign direct investment on economic growth: case of post communism transition economies.
- Mursidah, M., Effendi, M. and Zaini, A., 2017. Analisis Dampak Penggunaan Anggaran Sektor Pertanian Terhadap Pertumbuhan Ekonomi Sektor Pertanian di Provinsi Kalimantan Timur. Jurnal Pertanian Terpadu, pp.58-69. DOI: https://doi.org/10.36084/jpt..v5i2.127
- Muthui, J.N., Kosimbei, G., Maingi, J. and Thuku, G.K., 2013. The Impact of Public Expenditure Components on Economic Growth in Kenya 1964-2011. International Journal of business and social Science, 4(4).
- Muti’ah. 2017. The Effect of Regional Revenue, Revenue Sharing Fund, General Allocation Fund and Special Allocation Fund on Regional Economic Growth (Empirical Study In the 33 provinces in Indonesia Year 2011-2014), Research Journal of Finance and Accounting. Vol.8. No.8. 2017.
- Nawatmi, S., 2013. KORUPSI DAN PERTUMBUHAN EKONOMI-STUDI EMPIRIS 33 PROVINSI DI INDONESIA. Dinamika Akuntansi Keuangan dan Perbankan, 2(1). https://doi.org/10.34202/imanensi.2.2.2017.33-44 DOI: https://doi.org/10.34202/imanensi.2.2.2017.33-44
- Novianti, T., Rifin, A., Panjaitan, Dian V., and Sri Retno WN. 2014. The Infrastructure’s Influence on the Asean Countries’ Economic Growth, Journal of Economics and Development Studies December 2014, Vol. 2. N. https://doi.org/10.15640/jeds.v2n4a17 DOI: https://doi.org/10.15640/jeds.v2n4a17
- Nurhemi, N., & Suryani, G. (2015). DAMPAK OTONOMI KEUANGAN DAERAH TERHADAP PERTUMBUHAN EKONOMI DI INDONESIA. Buletin Ekonomi Moneter dan Perbankan, 18(2), 183-206. https://doi.org/10.21098/bemp.v18i2.522 DOI: https://doi.org/10.21098/bemp.v18i2.522
- Olabisi, A. S., & Oloni, E. F. (2012). Composition of public expenditure and economic growth in Nigeria. Journal of Emerging Trends in Economics and Management Sciences, 3(4), 403-407.
- Oyinbo, O., Zakari, A. and Rekwot, G.Z., 2013. Agricultural budgetary allocation and economic growth in Nigeria: implications for agricultural transformation in Nigeria. Journal of Sustainable Development, 10(1), pp.16-27.
- Park, S. Y., & Bera, A. K. (2009). Maximum entropy autoregressive conditional heteroskedasticity model. Journal of Econometrics, 150(2), 219-230. https://doi.org/10.1016/j.jeconom.2008.12.014 DOI: https://doi.org/10.1016/j.jeconom.2008.12.014
- Rostow, W. W. (1962). The process of economic. Growth, 2a. ed. Nueva York.
- Rustan, A., 2013. Desentralisasi Fiskal dan Pertumbuhan Ekonomi, serta Kaitannya dengan Otonomi Daerah. Jurnal Borneo Administrator, 9(3).
- Sadono, S. (2006). Ekonomi Pembangunan: Proses, Masalah dan Dasar Kebijakan. Edisi II. Jakarta: Kencana.
- Shuaib, I.M., Igbinosun, F.E. and Ahmed, A.E., 2015. Impact of Government agricultural expenditure on the growth of the Nigerian economy. Asian Journal of Agricultural Extension, Economics and Sociology, 6(1), pp.23-33. https://doi.org/10.9734/AJAEES/2015/15369 DOI: https://doi.org/10.9734/AJAEES/2015/15369
- Sumodiningrat, G. (1994). Pengantar Ekonometrika. BPFE-UGM. Yogyakarta.
- Suryana, E.P., 2000. Problematika dan Pendekatan. Edisi Pertama, Jakarta: Salemba Empat.
- Sylwester, K., 2000. Income inequality, education expenditures, and growth. Journal of development economics, 63(2), pp.379-398. https://doi.org/10.1016/S0304-3878(00)00113-9 DOI: https://doi.org/10.1016/S0304-3878(00)00113-9
- Tajuddin, I., Hasanuddin, B. and Rahmatia, P.U., 2014. The Effects Of General Allocation Funds, Special Allocation Funds And Revenue-Sharing Funds On Investment, Economic Growth, Economic Structure, And Employment. University Of Hassanudin, Indonesia.
- Todaro, M. P., & Stephen, C. S. (2015). Economic Development, New York University, The George Washington, University.
- Todaro, M.P., 2000. Economic Development, New York, Addition Wesley Longman.
- White, H. (1980). A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. econometrica, 48(4), 817-838. https://doi.org/10.2307/1912934 DOI: https://doi.org/10.2307/1912934
References
Abala, D.O., 2014. Foreign direct investment and economic growth: an empirical analysis of Kenyan data. DBA Africa Management Review, 4(1), pp.62-83.
Agrawal, G., 2015. Foreign direct investment and economic growth in BRICS economies: A panel data analysis. Journal of Economics, Business and Management, 3(4), pp.421-424. https://doi.org/10.7763/JOEBM.2015.V3.221 DOI: https://doi.org/10.7763/JOEBM.2015.V3.221
Agustine, A.D., 2014. Pengembangan Sektor Kelautan dan Perikanan Untuk Meningkatkan Pendapatan Asli Daerah (Studi di Dinas Kelautan dan Perikanan Kabupaten Banyuwangi). Jurnal Administrasi Publik, 2(2), pp.276-280.
Ahmad, E., Ullah, M. A., & Arfeen, M. I. (2012). Does corruption affect economic growth?. Latin american journal of economics, 49(2), 277-305. https://doi.org/10.7764/LAJE.49.2.277 DOI: https://doi.org/10.7764/LAJE.49.2.277
Ahmad, I., 2011. Regional Fiscal Independence In East Java Province Post Regional Autonomy. Economic Journal of Emerging Markets, 3(2), pp.189-198.
Ali, Sher, Amjad Ali, and Amjad Amin., 2013. The Impact of Population Growth on Economic Development in Pakistan. Middle-East Journal of Scientific Research 18, no. 4: 483-491.
Al-Shatti, A.S., 2014. The Impact of Public Expenditures on Economic Growth in Jordan. International Journal of economics and Finance, 6(10), p.157. https://doi.org/10.5539/ijef.v6n10p157 DOI: https://doi.org/10.5539/ijef.v6n10p157
Armas, E.B., Osorio, C.G., Moreno-Dodson, B. and Abriningrum, D.E., 2012. Agriculture public spending and growth in Indonesia. The World Bank. https://doi.org/10.1596/1813-9450-5977 DOI: https://doi.org/10.1596/1813-9450-5977
Arsyad, L., 2014. Ekonomi pembangunan.
Aruwa, S., 2010. Public finances and economic growth in Nigeria. In Faculty Conference Proceeding, available at http://nsukonline. academia. edu/nsukedungacademiaedu/Papers [Accessed 14.04. 2012].
Astria, S. A. (2014). Analisis Pengaruh Dana Alokasi Umum Dan Belanja Modal Terhadap Pertumbuhan Ekonomi Di Sumatera Selatan. Journal of Economics & Development Policy, 12(1), 41-54.
Boediono, 1999. Teori Pertumbuhan Ekonomi. BPFE.
Chidinma, E. and Kemisola, C.O., 2012. Government Expenditure on Agriculture and Economic Growth in Nigeria. International Journal of Science and Research, 3(358).
Dada, M.A., 2013. Composition effects of government expenditure on private consumption and output growth in Nigeria: A single-equation error correction modelling. Romanian Journal of Fiscal Policy (RJFP), 4(2), pp.18-34.
Dao, M.Q., 2012. Population and economic growth in developing countries. International Journal of Academic Research in Business and Social Sciences, 2(1), p.6.
Djojohadikusumo, S., 1994. Perkembangan pemikiran ekonomi: dasar teori ekonomi pertumbuhan dan ekonomi pembangunan. LP3ES.
Gisore, N., Kiprop, S., Kalio, A., Ochieng, J. and Kibet, L., 2014. Effect of government expenditure on economic growth in East Africa: A disaggregated model. European Journal of Business and Social Sciences, 3(8), pp.289-304.
Grabova, P., 2014. Corruption impact on Economic Growth: An empirical analysis. Journal of Economic Development, Management, IT, Finance, and Marketing, 6(2), p.57. Greene, W.H., 2003. Econometric analysis. Pearson Education India.
Gujarati, D.N., 2003. Basic Econometrics, McGraw-Hill. New York.
Headey, D.D. and Hodge, A., 2009. The effect of population growth on economic growth: A metaâ€regression analysis of the macroeconomic literature. Population and Development Review, 35(2), pp.221-248. https://doi.org/10.1111/j.1728-4457.2009.00274.x DOI: https://doi.org/10.1111/j.1728-4457.2009.00274.x
Hendarmin, 2012. Pengaruh Belanja Modal Pemerintah Daerah dan Investasi Swasta terhadap Pertumbuhan Ekonomi, Kesempatan Kerja dan Kesejahteraan Masyarakat di Kabupaten/Kota Provinsi Kalimantan Barat . Jurnal EKSOS, Volume 8, Nomor 3, p.144-155.
Huda, H.M., Purnamadewi, Y.L. and Firdaus, M., 2015. Industrialisasi Perikanan Dalam Pengembangan Wilayah di Jawa Timur. Tataloka, 17(2), pp.99-112. https://doi.org/10.14710/tataloka.17.2.99-112 DOI: https://doi.org/10.14710/tataloka.17.2.99-112
Idrees, A.S. and Siddiqi, M.W., 2013. Does public education expenditure cause economic growth? Comparison of developed and developing countries. Pakistan Journal of Commerce and Social Sciences, 7(1), p.174.
Kolawole, B. O. (2016). Government spending and inclusive-growth relationship in Nigeria: An empirical investigation. Zagreb International Review of Economics and Business, 19(2), 33-56. https://doi.org/10.1515/zireb-2016-0007 DOI: https://doi.org/10.1515/zireb-2016-0007
Kurt, S., 2015. Government health expenditures and economic growth: a Feder-Ram approach for the case of Turkey. International Journal of Economics and Financial Issues, 5(2), pp.441-447.
Louzi, B.M. and Abadi, A., 2011. The impact of foreign direct investment on economic growth in Jordan. IJRRAS-International Journal of Research and Reviews in Applied Sciences, 8(2), pp.253-258.
Mamingi, N. and Perch, J., 2013. Population Growth and Economic Growth/Development: An Empirical Investigation for Barbados. Population, 4(4).
Manik, R.E. and Hidayat, P., 2010. Analisis Dampak Desentralisasi Fiskal Terhadap Pertumbuhan Ekonomi Kabupaten/kota Pemekaran di Sumatera Utara. Jurnal Keuangan & Bisnis Program Studi Magister Manajemen Sekolah Tinggi Ilmu Ekonomi Harapan, 2(3), pp.217-226.
Mauro, P., 1995. Corruption and growth. The quarterly journal of economics, 110(3), pp.681-712. https://doi.org/10.2307/2946696 DOI: https://doi.org/10.2307/2946696
Mekdad, Y., Dahmani, A. and Louaj, M., 2014. Public spending on education and economic growth in Algeria: Causality test. International Journal of Business and Management, 2(3), p.55.
Melnyk, L.H., Kubatko, O.V. and Pysarenko, S., 2014. The impact of foreign direct investment on economic growth: case of post communism transition economies.
Mursidah, M., Effendi, M. and Zaini, A., 2017. Analisis Dampak Penggunaan Anggaran Sektor Pertanian Terhadap Pertumbuhan Ekonomi Sektor Pertanian di Provinsi Kalimantan Timur. Jurnal Pertanian Terpadu, pp.58-69. DOI: https://doi.org/10.36084/jpt..v5i2.127
Muthui, J.N., Kosimbei, G., Maingi, J. and Thuku, G.K., 2013. The Impact of Public Expenditure Components on Economic Growth in Kenya 1964-2011. International Journal of business and social Science, 4(4).
Muti’ah. 2017. The Effect of Regional Revenue, Revenue Sharing Fund, General Allocation Fund and Special Allocation Fund on Regional Economic Growth (Empirical Study In the 33 provinces in Indonesia Year 2011-2014), Research Journal of Finance and Accounting. Vol.8. No.8. 2017.
Nawatmi, S., 2013. KORUPSI DAN PERTUMBUHAN EKONOMI-STUDI EMPIRIS 33 PROVINSI DI INDONESIA. Dinamika Akuntansi Keuangan dan Perbankan, 2(1). https://doi.org/10.34202/imanensi.2.2.2017.33-44 DOI: https://doi.org/10.34202/imanensi.2.2.2017.33-44
Novianti, T., Rifin, A., Panjaitan, Dian V., and Sri Retno WN. 2014. The Infrastructure’s Influence on the Asean Countries’ Economic Growth, Journal of Economics and Development Studies December 2014, Vol. 2. N. https://doi.org/10.15640/jeds.v2n4a17 DOI: https://doi.org/10.15640/jeds.v2n4a17
Nurhemi, N., & Suryani, G. (2015). DAMPAK OTONOMI KEUANGAN DAERAH TERHADAP PERTUMBUHAN EKONOMI DI INDONESIA. Buletin Ekonomi Moneter dan Perbankan, 18(2), 183-206. https://doi.org/10.21098/bemp.v18i2.522 DOI: https://doi.org/10.21098/bemp.v18i2.522
Olabisi, A. S., & Oloni, E. F. (2012). Composition of public expenditure and economic growth in Nigeria. Journal of Emerging Trends in Economics and Management Sciences, 3(4), 403-407.
Oyinbo, O., Zakari, A. and Rekwot, G.Z., 2013. Agricultural budgetary allocation and economic growth in Nigeria: implications for agricultural transformation in Nigeria. Journal of Sustainable Development, 10(1), pp.16-27.
Park, S. Y., & Bera, A. K. (2009). Maximum entropy autoregressive conditional heteroskedasticity model. Journal of Econometrics, 150(2), 219-230. https://doi.org/10.1016/j.jeconom.2008.12.014 DOI: https://doi.org/10.1016/j.jeconom.2008.12.014
Rostow, W. W. (1962). The process of economic. Growth, 2a. ed. Nueva York.
Rustan, A., 2013. Desentralisasi Fiskal dan Pertumbuhan Ekonomi, serta Kaitannya dengan Otonomi Daerah. Jurnal Borneo Administrator, 9(3).
Sadono, S. (2006). Ekonomi Pembangunan: Proses, Masalah dan Dasar Kebijakan. Edisi II. Jakarta: Kencana.
Shuaib, I.M., Igbinosun, F.E. and Ahmed, A.E., 2015. Impact of Government agricultural expenditure on the growth of the Nigerian economy. Asian Journal of Agricultural Extension, Economics and Sociology, 6(1), pp.23-33. https://doi.org/10.9734/AJAEES/2015/15369 DOI: https://doi.org/10.9734/AJAEES/2015/15369
Sumodiningrat, G. (1994). Pengantar Ekonometrika. BPFE-UGM. Yogyakarta.
Suryana, E.P., 2000. Problematika dan Pendekatan. Edisi Pertama, Jakarta: Salemba Empat.
Sylwester, K., 2000. Income inequality, education expenditures, and growth. Journal of development economics, 63(2), pp.379-398. https://doi.org/10.1016/S0304-3878(00)00113-9 DOI: https://doi.org/10.1016/S0304-3878(00)00113-9
Tajuddin, I., Hasanuddin, B. and Rahmatia, P.U., 2014. The Effects Of General Allocation Funds, Special Allocation Funds And Revenue-Sharing Funds On Investment, Economic Growth, Economic Structure, And Employment. University Of Hassanudin, Indonesia.
Todaro, M. P., & Stephen, C. S. (2015). Economic Development, New York University, The George Washington, University.
Todaro, M.P., 2000. Economic Development, New York, Addition Wesley Longman.
White, H. (1980). A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. econometrica, 48(4), 817-838. https://doi.org/10.2307/1912934 DOI: https://doi.org/10.2307/1912934