Quality in regional financial
management is a primary driver of sustainable economic growth across Indonesian
provinces. This key conclusion comes from a comprehensive empirical study
published in 2026 by researchers Surti and Ernawati from Achmad Yani Banjarmasin
University, along with Mohammad Adhiya Riswandha from Universitas Lambung
Mangkurat.
The multi-year study evaluated
how local fiscal decisions directly impact provincial gross regional domestic
product (GRDP) growth across 34 Indonesian provinces between 2018 and 2024. The
researchers discovered that higher allocations toward capital expenditure and
strong fiscal independence ratio metrics significantly boost regional economic
growth. Conversely, heavy reliance on central government financial transfers
tends to diminish subnational economic dynamism.
Fiscal Decentralization and
Public Money Management
Indonesia initiated major fiscal
decentralization reforms nearly three decades ago, granting regional
authorities significant governance power to foster local economic development.
Despite these statutory changes, translating public budget resources into
long-term, equitable economic progress has produced mixed results across
different provinces.
Evaluating regional financial
management is crucial for supporting the United Nations' Sustainable
Development Goals (SDGs), particularly SDG 8 (Decent Work and Economic Growth),
SDG 9 (Industry, Innovation, and Infrastructure), and SDG 16 (Peace, Justice,
and Strong Institutions). Prior fiscal studies often treated decentralization
as a basic binary condition or focused exclusively on intergovernmental
transfers. To address this gap, Surti and Ernawati from Achmad Yani Banjarmasin
University and Mohammad Adhiya Riswandha from Universitas Lambung Mangkurat
analyzed a comprehensive multi-dimensional index that accounts for
locally-generated revenue (PAD), capital spending ratios, transfer dependence,
and transparent audit performance.
Methodological Approach
The researchers examined an
unbalanced panel dataset of 34 Indonesian provinces spanning seven consecutive
years (2018–2024), resulting in 238 province-year observations. Financial data
were gathered directly from the Directorate General of Fiscal Balance (DJPK)
under the Ministry of Finance of the Republic of Indonesia, while provincial
GRDP figures were obtained from Statistics Indonesia (BPS). Institutional
governance indicators were built using audit opinions from the Audit Board of
Indonesia (BPK).
To evaluate the causal
relationship between fiscal indicators and economic performance, the team
implemented a fixed-effects panel data regression model. This statistical
strategy controls for unobserved province-specific variations over time.
Robustness tests, including two-stage least squares (2SLS) estimations and
Driscoll-Kraay standard error corrections, were applied to confirm the
statistical validity of the findings.
Core Research Findings
The empirical findings highlight
several decisive relationships between regional budget management and economic
expansion:
- Capital Expenditure Leads Growth: Capital
expenditure ratio emerged as the single strongest positive predictor of
provincial GRDP growth. Spending allocated toward physical infrastructure
(such as roads, ports, and irrigation) and social infrastructure
(including healthcare facilities and schools) generates lasting economic
productivity.
- Local Revenue Boosts Dynamism:
Locally-generated revenue (PAD) demonstrated a significant positive effect
on growth. A 1% increase in locally raised revenue is associated with a
0.32 percentage point increase in provincial GRDP growth.
- Fiscal Autonomy Pays Dividends: A higher
fiscal independence ratio positively reinforces growth. Provinces with
greater fiscal autonomy retain stronger incentives to manage budget
resources productively.
- Transfer Dependency Slows Progress:
Over-reliance on central government transfers, such as the General
Allocation Fund (DAU), negatively impacts provincial growth. High transfer
reliance often lowers spending efficiency and dampens local fiscal
innovation.
- Governance Quality Matters: High governance
quality—measured through clean audit opinions (WTP) from the Audit Board
of Indonesia—positively correlates with economic growth by attracting
private investment and strengthening public accountability.
Real-World Impact and Policy
Implications
The findings provide concrete
guidance for policymakers aiming to enhance economic sustainability across
Indonesian provinces. To reduce reliance on central transfers, regional
institutions can implement digital tax administration tools (e-tax) and
modernize local state-owned enterprises (BUMD). Furthermore, the central
government can link intergovernmental transfer disbursements to strict
performance benchmarks, encouraging subnational leaders to maintain healthy
capital expenditure ratios.
In their publication, Surti and
Ernawati of Achmad Yani Banjarmasin University, together with Mohammad Adhiya
Riswandha of Universitas Lambung Mangkurat, emphasized the broader
developmental impact of public financial oversight:
"Quality financial
management, characterized by transparency, accountability, and output-oriented
budgeting, acts as a mediating mechanism through which fiscal resources are
transformed into sustainable developmental outcomes."
Author Profiles
- Surti, S.E., M.M. is a researcher and
academic affiliated with Achmad Yani Banjarmasin University, specializing
in regional financial management and subnational public finance.
- Ernawati, S.E., M.Si. is an academic at
Achmad Yani Banjarmasin University, with expertise in public sector
accounting, fiscal policy, and institutional governance.
- Mohammad Adhiya Riswandha, S.E., M.E. is an
economist and researcher at Universitas Lambung Mangkurat, focusing on
applied econometrics, regional economics, and fiscal decentralization.
Source Article Information
- Article Title: The Role of Regional
Financial Management in Supporting Sustainable Economic Growth: Evidence
from Indonesian Provinces
- Journal Name: International Journal of
Global Sustainable Research (IJGSR)
- Publication Year: 2026 (Volume 4, Issue 7,
Pages 725–734)
- DOI: https://doi.org/10.59890/ijgsr.v4i7.270
- Official URL: https://slamultitechpublisher.my.id/index.php/ijgsr/index
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