Does Local Spending Matter? Fiscal Allocation in Basic Services and Human Development across the Sumatra Region, Indonesia
Keywords:
Fiscal decentralization; Government expenditure; Basic Service Sectors; Human Development Index; GRDPAbstract
Fiscal decentralization is intended to achieve equitable regional economic development by granting local governments autonomy over revenue and expenditure management, with Gross Regional Domestic Product (GRDP) as a key indicator. However, the Southern Sumatra region continues to show relatively lower GRDP contributions compared to Northern Sumatra. This study aims to examine the role of district and city government expenditures in basic service sectors; education, health, and infrastructure, on GRDP growth in both the short and long term, while also considering the influence of the Human Development Index (HDI), labor force, and the COVID-19 pandemic. The novelty of this research lies in the integration of sectoral fiscal spending, human development, labor factors, and pandemic effects within a dynamic panel data framework. This comprehensive approach is expected to provide deeper insights for improving regional fiscal policy and enhancing sustainable economic development. This study employs a quantitative approach using a dynamic panel data regression model estimated through the Generalized Method of Moments (GMM). The data consist of 60 districts and cities across five provinces in Southern Sumatra: Lampung, Bengkulu, South Sumatra, Bangka Belitung, and Jambi. The results reveal that, in both the short and long term, infrastructure spending and the COVID-19 pandemic have a negative and significant effect on GRDP. Conversely, HDI has a positive and significant impact on GRDP. Meanwhile, education spending, health spending, and labor force variables do not have a significant effect on GRDP. The implications of this study highlight the importance of optimizing regional budget allocation, particularly in infrastructure and human development, to effectively promote regional economic growth.
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