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Does Government Expenditure Affect Regional Inclusive Growth? An Experience of Implementing Village Fund Policy in Indonesia

Author

Listed:
  • Ernawati Ernawati

    (Department of Economics and Development Studies, Halu Oleo University, Kampus Hijau Bumi Tridharma Anduonohu, Kendari City 93232, Indonesia)

  • Tajuddin Tajuddin

    (Department of Economics and Development Studies, Halu Oleo University, Kampus Hijau Bumi Tridharma Anduonohu, Kendari City 93232, Indonesia)

  • Syamsir Nur

    (Department of Economics and Development Studies, Halu Oleo University, Kampus Hijau Bumi Tridharma Anduonohu, Kendari City 93232, Indonesia)

Abstract

The village fund allocation is a policy strategy of the government of Indonesia for development in rural areas. Each village has funds sourced from the State Revenue and Expenditure Budget. The uniqueness of this strategy is the community’s involvement in determining the allocation expenditure of funds. Therefore, the program is carried out in line with the needs of the community. Rural areas generally rely on agriculture, which has lower productivity than other sectors, so they need support to achieve inclusive growth. This study analyzes whether the village fund allocation is a pro-poor, pro-equality, and pro-job policy. It uses secondary data from the Ministry of Finance, Statistics Indonesia, and the National Development Planning Agency from the period of 2015–2019 for 33 provinces of Indonesia. The data were analyzed using panel regression with three models: income inequality, poverty levels, and unemployment rates. Other variables supporting inclusive growth, including economic growth, infrastructure, and the expansion of public services, were examined. The results showed that government expenditure through village fund allocation encourages inclusive growth as a policy that is pro-poor and pro-job but not pro-equality. Economic growth, on the other hand, reduces income inequality but increases poverty. Economic infrastructure increases income inequality, while increasing access to public services reduces poverty levels and increases unemployment.

Suggested Citation

  • Ernawati Ernawati & Tajuddin Tajuddin & Syamsir Nur, 2021. "Does Government Expenditure Affect Regional Inclusive Growth? An Experience of Implementing Village Fund Policy in Indonesia," Economies, MDPI, vol. 9(4), pages 1-12, November.
    • Handle: RePEc:gam:jecomi:v:9:y:2021:i:4:p:164-:d:670602
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    References listed on IDEAS

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    1. Ichraf Ouechtati, 2020. "The Contribution of Financial Inclusion in Reducing Poverty and Income Inequality in Developing Countries," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 10(9), pages 1051-1061.
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    3. Bayu Agung Prasetyo & Dominicus Savio Priyarsono & Sri Mulatsih, 2013. "Infrastructure, Economic Growth And Inequality In Indonesia Land Borders," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 5(2), pages 99-108.
    4. Bayu Agung Prasetyo & Dominicus Savio Priyarsono & Sri Mulatsih, 2013. "Infrastructure, economic growth and inequality in Indonesia land borders," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 5(2), pages 99-108, April.
    5. Ichraf Ouechtati, 2020. "The Contribution of Financial Inclusion in Reducing Poverty and Income Inequality in Developing Countries," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 10(9), pages 1051-1061, September.
    6. Swamy, Vighneswara, 2014. "Financial Inclusion, Gender Dimension, and Economic Impact on Poor Households," World Development, Elsevier, vol. 56(C), pages 1-15.
    7. Md Abdullah Omar & Kazuo Inaba, 2020. "Does financial inclusion reduce poverty and income inequality in developing countries? A panel data analysis," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 9(1), pages 1-25, December.
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    Cited by:

    1. Cut Risya Varlitya & Raja Masbar & Abd. Jamal & Muhammad Nasir, 2023. "Do Regional Macroeconomics Variables Influence the Income Inequality in Indonesia?," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 180-199.
    2. Etian Ngobeni & Chiedza L. Muchopa, 2022. "The Impact of Government Expenditure in Agriculture and Other Selected Variables on the Value of Agricultural Production in South Africa (1983–2019): Vector Autoregressive Approach," Economies, MDPI, vol. 10(9), pages 1-17, August.

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