Vol. 5, No. 12, December 2024
E-ISSN: 2723-6692
P-ISSN: 2723-6595
http://jiss.publikasiindonesia.id/
Indonesian Journal of Social Sciences, Vol. 5, No. 12, December 2024 3134
KEYWORDS
ABSTRACT
Regional Original Revenue;
General Allocation Fund;
Special Allocation Fund;
Capital Expenditure;
Economic Growth; Regional
Financial Independence;
North Sulawesi
Regional financial independence poses a major challenge to
Indonesia's fiscal decentralization due to the nation's heavy reliance
on central government transfers, such as the General Allocation
Fund (DAU) and the Special Allocation Fund (DAK). This issue is
further compounded by inefficient management of local own-source
revenue (PAD) and suboptimal allocation of capital expenditure
(CE), which negatively impact infrastructure development and
economic growth. Fiscal disparities among regions also exacerbate
economic inequalities, hindering progress toward sustainable
financial independence. This study aims to examine the effects of
PAD, DAU, DAK, and CE on regional financial independence through
the lens of economic growth in North Sulawesi Province. Using
secondary data from 2011 to 2023, path analysis was employed to
explore both direct and indirect relationships among the variables.
The findings reveal that PAD significantly and positively influences
both economic growth and regional financial independence. While
DAU and DAK address fiscal requirements, their impacts on
economic growth and financial independence vary. These results
highlight the critical need to optimize PAD and capital expenditure
allocation to foster economic growth and reduce dependency on
central government transfers.
Attribution-ShareAlike 4.0 International (CC BY-SA 4.0)
Introduction
Regional financial independence has become a crucial issue in the global economic landscape.
Many developing countries, including Indonesia, face challenges in achieving fiscal independence due
to their reliance on a centralized financial system. This dependence is further exacerbated by global
crises such as the COVID-19 pandemic, which significantly disrupted economic stability and
The Influence of Regional Own-Source Revenue, General
Allocation Funds, Special Allocation Funds, and Capital
Expenditure on Regional Financial Independence Through
Economic Growth in North Sulawesi Province
George Kevin Tuwaidan, Vecky A.J. Masinambow, George M.V. Kawung
Universitas Sam Ratulangi, Manado, Indonesia
Email: geoscorp31@gmail.com, veckymasin[email protected], georgekaw[email protected]
Correspondence: geoscorp31@gmail.com
*
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highlighted the vulnerability of regions with limited financial independence. Financial
decentralization has emerged as an important strategy to empower local governments, allowing them
to manage resources effectively and support regional development (Halim, 2007). However,
achieving this autonomy is not easy because many factors affect its success.
There are several factors that contribute to the ongoing challenges in achieving regional
financial independence in Indonesia. One of the main factors is the low optimization of Regional
Original Revenue (PAD), which limits the fiscal capacity of local governments. These limitations force
regions to rely heavily on transfers from the central government, such as the General Allocation Fund
(DAU) and the Special Allocation Fund (DAK), which often undermine the expected autonomy of
decentralization policies (Mukaromah & Budhi, 2024; Salampessy, 2011; Zulkifli et al., 2024). In
addition, inefficient allocation of capital expenditure has a negative impact on infrastructure
development, which is a major driver of economic activity and growth (Wong, 2004). The economic
gap between regions, arising from uneven fiscal readiness, further complicates efforts to achieve fiscal
independence because some regions have difficulty managing resources effectively (Adi, 2005).
These factors have a variety of impacts that highlight the importance of systematically
addressing these issues. First, the economic gap between regions remains a significant problem, with
less developed regions having difficulty catching up with more developed regions. This inequality
limits the country's overall growth potential. In addition, excessive reliance on central funding
mechanisms reduces local government accountability and innovation, making it difficult for them to
respond effectively to community needs. The inability to optimize capital expenditure further limits
infrastructure development, which is crucial for improving public services and boosting economic
activity. As a result, regional economic growth often does not reach the national target, as seen in the
data on fluctuations in North Sulawesi's Gross Regional Domestic Product (GDP) (BPS, 2024).
This study focuses on the core variables that shape regional financial independence: PAD, DAU,
DAK, and capital expenditure. Each variable has a different role in the fiscal and economic dynamics
of a region. PAD reflects the intrinsic fiscal strength of an area, which comes from local resources such
as taxes and levies. DAU and DAK, on the other hand, are central transfers aimed at closing fiscal gaps
and funding specific development priorities. Meanwhile, capital expenditure reflects investment in
long-term assets and infrastructure that are essential for sustainable economic growth (Putra &
Usman, 2024; Setiawan et al., 2021). The relationship between these variables significantly
determines the fiscal resilience and autonomy of a region, especially in its ability to face economic
challenges and opportunities.
This research makes a new contribution to the understanding of fiscal decentralization and
regional financial independence. This study uses the latest economic data from 2011 to 2023, thus
providing contemporary insights into the interactions between the variables studied. The use of path
analysis allows for an in-depth examination of the direct and indirect effects of fiscal variables on
financial independence and economic growth. In addition, by focusing on North Sulawesi—a region
that has received less attention in the existing literature—this research aims to fill a critical gap in
understanding the unique challenges and opportunities of fiscal decentralization in Indonesia.
The urgency of this research lies in its potential to provide guidance to policymakers in
optimizing fiscal strategies to achieve regional financial independence. As North Sulawesi continues
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to navigate its economic development amid fluctuating fiscal capacity and dependency, this study
provides timely and important analysis of the path to greater autonomy. By addressing inefficiencies
in PAD excavation, transfer dependence, and capital expenditure utilization, this study can offer
practical recommendations to encourage equitable and sustainable regional development.
The purpose of this study is multifaceted, which aims to provide a comprehensive analysis of
the relationship between PAD, DAU, DAK, and CE with economic growth and regional financial
independence. These findings are expected to contribute to the literature on fiscal decentralization
while providing practical insights for policymakers and local governments in North Sulawesi. By
identifying the mechanisms by which these variables affect fiscal autonomy, this study aims to
increase the capacity of regions to achieve self-reliance and promote sustainable economic growth.
This research is also expected to have significant benefits for various stakeholders. For local
governments, this study provides practical guidance to improve fiscal management and reduce
dependence on central transfers. For academic researchers, this study offers a strong empirical
framework for exploring fiscal decentralization in other emerging economies. For policymakers,
these findings serve as the basis for designing fair and effective economic policies that address
regional disparities and support national growth goals.
Materials and Methods
This study employs a quantitative method with a focus on numerical data to investigate the
causal link between independent and dependent variables. The secondary data used came from the
North Sulawesi Provincial Regional Finance and Assets Agency, the North Sulawesi Central Statistics
Agency (BPS), as well as other sources such as budget realization reports and academic studies. Data
collection techniques include documentation, literature studies, and the use of online information
sources. This study measures the relationship between PAD, DAU, DAK, and CE on the level of regional
financial independence through intervening variables in the form of economic growth.
The research variables include dependent variables, namely the level of regional financial
independence, which represents the region's ability to fund needs without relying on central
transfers, as well as independent variables such as PAD, DAU, DAK, and CE. In addition, economic
growth as an intervening variable is used to explain how independent variables affect regional
independence. Path analysis was applied to identify the direct and indirect influence of each variable,
using the t-test, the sobel test for the mediation effect, and the determination coefficient (R²) analysis
to evaluate the contribution of variables to the research results.
Result and Discussion
Research Equation Model
This study uses a path analysis that measures the direct and indirect impacts of PAD (X1), DAU
(X2), DAK(X3), CE (X4) on Regional Financial Independence (Y) through Economic Growth (Z).
The secondary data was estimated using the OLS (Ordinary Least Square) method of multiple
regression analysis described in the previous chapter and processed using the Eviews 8.0 program.
The regression equation model that can be formulated is as follows:
Z = PZX1 + PZX2 + PZX3 + PZX4 + e1 (1)
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Y = PyX1 + PyX2 + PyX3 + PyX4 + PyZ + e2 (2)
Table 1. Regression Results I
Dependent Variable: Z
Method: Least Squares
Date: 11/14/24 Time: 17:36
Sample: 2009 2023
Included observations: 15
Variable
Coefficient
Std. Error
t-Statistic
Prob.
C
2.829664
26.45917
0.106945
0.9169
X1
0.005356
0.010816
0.495224
0.6311
X2
0.000523
0.020302
0.025736
0.9800
X3
-0.000858
0.002172
-0.395202
0.7010
X4
-0.005599
0.004857
-1.152703
0.2758
R-squared
0.277928
Mean dependent var
1.664667
Adjusted R-squared
-0.010900
S.D. dependent var
0.478075
S.E. of regression
0.480673
Akaike info criterion
1.633942
Sum squared resid
2.310465
Black criterion
1.869959
Log likelihood
-7.254568
Hannan-Quinn criter.
1.631428
F-statistic
0.962261
Durbin-Watson stat
2.048686
Prob(F-statistic)
0.469066
Source: Eviews 8.0 Results
Regression equations formed from the results of eviews data processing
Z = 2.829664 + 0.005356 X1 + 0.000523 X2 - 0.000858 X3 - 0.00559 X4 e1 …… (1)
According to Table 1, the coefficients table above displays the findings of the path analysis
regression equation, which:
1. The constant value of 2.829664 shows that if the variables PAD (X1), DAU (X2), DAK (X3) and
CE (X4) have a value of 0 (zero), then the value of Economic Growth is 2.829664.
2. The regression coefficient of PAD (X1) of 0.005356 means that the PAD variable (X1) shows
that there is an influence on Economic Growth and has a positive pattern so that the more PAD
increases, the higher the Economic Growth. So if PAD (X1) increases by one unit while the
other variables are fixed, it will result in an increase in the value of the Economic Growth
variable by 0.005356 units.
3. The regression coefficient of the DAU (X2) of 0.000523 means that the DAU Variable (X2)
shows that there is an influence on Economic Growth and has a positive pattern so that the
more DAU increases, the higher the Economic Growth. So, if DAU (X2) grows by one unit and
the other variables remain constant, it will result in an increase in the value of the Economic
Growth variable by 0.000523 units.
4. The regression coefficient of DAK (X3) of -0.000858 means that the DAK Variable (X3) shows
that there is an influence on Economic Growth and has a negative pattern so that the more
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DAK increases, the lower the Economic Growth. So, a one-unit rise in DAK (X3), with other
factors held steady, is linked to a -0.000858 unit drop in Economic Growth (Y).
5. The regression coefficient of Capital Expenditure (X4) of -0.005599 means that the Capital
Expenditure Variable (X4) shows that there is an influence on Economic Growth and has a
negative pattern so that the more Capital Expenditure increases, the lower the Economic
Growth. So, if one-unit rise in Capital Expenditure (X4), with other factors held steady, is
linked to a -0.005599 unit drop in Economic Growth (Y).
a. Coefficient of Determination
The results of data processing show that the determination coefficient is 0.277928 or 27.79%.
This shows that the variation in the government's budget/expenditure for PAD (X1), DAU (X2), DAK
(X3) and CE (X4) together has an influence of 27.79% on the variation in changes in Economic Growth
in North Sulawesi Province. While the remaining portion is influenced by exogenous variables not
included in this research framework.
b. Statistical Test F
The F test is used to assess whether all of the independent variables included in the model have
a simultaneous or combined effect on the bound variables. The F-statistic value obtained from the
data processing results is 0.962261 while the F-table is 3.48. The value of the F table is based on the
magnitude of α 5% and df where the magnitude is determined by the numerator (k-1/5-1) = 4 and
the df for the denominator (n-k/15-5) = 10. Thus, the F-statistic is smaller than the F-table indicating
that the variables of PAD (X1), DAU (X2), DAK (X3) and CE (X4) together do not have a significant
influence on Economic Growth or the Z variable.
c. Statistical Test t
Based on the results t in the multiple regression analysis table, it shows that there is a level of
significance variables of PAD, DAU, DAK and CE on Economic Growth in North Sulawesi Province.
1)
Hypothesis Testing 1 (H1) = There is a positive and significant influence of PAD on Economic
Growth.
Based on the results of statistical analysis on PAD variable, a probability of 0.6311 or
significant at = 0.05 with a statistical value = 0.495224 so that a ttable value of 2.22814 was
obtained. The absolute value of tstatistic < ttable (0.495224 < 2.22814), means that H1 is
rejected. It shows that PAD is determined to be statistically insignificant in its relationship with
Economic Growth.
2)
Hypothesis Testing 2 (H2) = DAU exerts a statistically significant and positive influence on
Economic Growth.
Based on the results of statistical analysis on the DAU variable, a probability of 0.9800 or
significant at = 0.50 with a statistical value = 0.025736, so that a ttable value of 0.69981 was
obtained. The absolute value of tstatistical < ttable (0.025736 < 0.69981), means that H2 is
rejected. It shows that the DAU variable has no effect and is not significant to Economic Growth.
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3)
Hypothesis Testing 3 (H3) = There is a positive and significant influence of DAK on Economic
Growth.
Based on the results of statistical analysis on the DAK variable, a probability of 0.7010 or
significant at = 0.50 with a statistical value = 0.395202, so that a ttable value of 0.69981 was
obtained. The absolute value of tstatistical < ttable (0.395202 < 0.69981), means that H3 is
rejected. It shows that the DAK variable is partially insignificant to Economic Growth.
4)
Hypothesis Testing 4 (H4) = A significant and positive relationship exists between Capital
Expenditure and Economic Growth.
Based on the results of statistical analysis on the Capital Expenditure variable, a probability
of 0.2758 or significant at = 0.50 with a statistical value = 1.152703, so that a ttable value of
0.69981 was obtained. The absolute value of tstatistical > ttable (1.152703 > 0.69981), means
that H4 is accepted. It shows that the Capital Expenditure Variable partially affects and
significantly affects Economic Growth.
Table 2. Regression Results II
Dependent Variable: Y
Method: Least Squares
Date: 11/14/24 Time: 22:03
Sample: 2009 2023
Included observations: 15
Variable
Coefficient
Std. Error
t-Statistic
Prob.
C
5.432773
2.234619
2.431186
0.0379
X1
0.005979
0.000924
6.469932
0.0001
X2
-0.005464
0.001714
-3.188166
0.0110
X3
-0.000357
0.000185
-1.934723
0.0850
X4
-0.000852
0.000436
-1.952866
0.0826
With
0.012060
0.026692
0.451842
0.6621
R-squared
0.900864
Mean dependent var
3.572000
Adjusted R-squared
0.845788
S.D. dependent var
0.103316
S.E. of regression
0.040572
Akaike info criterion
-3.282292
Sum squared resid
0.014815
Black criterion
-2.999072
Log likelihood
30.61719
Hannan-Quinn criter.
-3.285309
F-statistic
16.35680
Durbin-Watson stat
1.770074
Prob(F-statistic)
0.000277
Source: Eviews 8.0 Results
Regression equations formed from the results of eviews data processing
Y = 5.432773 + 0.005979 X1 - 0.005464 X2 - 0.000357X3 -0.000852X4 + 0.012060Z + e2 .... (2)
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An examination of Table 2, specifically the regression coefficients derived from the path
analysis, reveals that:
1. The constant value of 5.432773 shows that if the variables of PAD (X1), DAU (X2) and DAK (X3),
CE (X4) and Economic Growth (Z) have a value of 0 (zero), then the value of the regional financial
independence level is 5.432773.
2. The regression coefficient of PAD (X1) of 0.005979 means that the PAD variable (X1) shows that
there is an influence on the level of regional financial independence and has a positive pattern.
So, if PAD (X1) increases by one unit and the other variables remain constant, the variable value
of the regional financial independence level (Y) increases by 0.005979 units.
3. The regression coefficient of the DAU (X2) of - 0.005464 means that the DAU variable (X2) shows
that there is a negative influence on the level of regional financial independence. So if DAU (X2)
increases by one unit while the other variables are fixed, it will result in a decrease in the variable
value of the regional financial independence level by - 0.005464 units.
4. The regression coefficient of DAK (X3) of - 0.000357 means that the DAK Variable (X3) shows
that there is a negative influence on the level of regional financial independence. So if a unit
increase in DAK (X3) is associated with a decrease of 0.000357 units in the level of regional
financial independence (Y).
5. The regression coefficient of CE (X4) of - 0.000852 means that CE (X4) shows that there is a
negative influence on the level of regional financial independence so if a unit increase in Capital
Expenditure (X4) is associated with a decrease of 0.000852 units in the level of regional financial
independence (Y).
6. The regression coefficient of Economic Growth (Z) of 0.012060 means that the Economic Growth
Variable (Z) shows that there is an influence and a positive pattern on the level of regional
financial independence. So, if a unit increase in economic growth (Z) is associated with an
increase of 0.012060 units, the level of regional financial independence (Y) will be increased.
d. Coefficient of Determination
The result shows that the determination coefficient is 0.900864 or 90.09 %. This shows that
the variation in the government's budget/expenditure for PAD (X1), DAU (X2), DAK (X3), CE (X4) and
Economic Growth (Z) together influences the variation in the level of regional financial independence
in North Sulawesi Province by 90.09%. The remaining portion is influenced by exogenous variables
not included in this research framework.
e. Statistical Test F
The F test is utilized to determine whether all independent variables in the model collectively
or simultaneously influence the dependent variable. Based on the data analysis results, the F-statistic
value obtained is 16.35680, while the F-table value is 3.33. The F-table value is determined at a 5%
significance level (α = 0.05) with degrees of freedom calculated as follows: numerator df = (k-1 = 6-
1) = 5 and denominator df = (n-k = 15-5) = 10. Since the F-statistic exceeds the F-table value, it
indicates that the variables PAD (X1), DAU (X2), DAK (X3), CE (X4), and Economic Growth (Z)
collectively have a significant effect on the level of regional financial independence (variable Y).
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f. Statistical Test t
The findings of the multiple regression analysis table indicate a significant level of PAD, DAU,
DAK, CE and Economic Growth to the level of regional financial independence in North Sulawesi
Province.
1. Hypothesis Testing 5 (H5) = PAD has a significant and positive impact on the level of regional
financial independence.
Based on the results of statistical analysis on PAD variable, a probability of 0.0001 or
significant at = 0.05 value with a statistical value = 6.469932, so that a table t-value of 2.26216
was obtained. The absolute value of tstatistical > ttable (6.469932 > 2.26216), means that H5 is
accepted. It shows that PAD Variable partially affects and significantly affects the level of
regional financial independence.
2. Hypothesis Testing 6 (H6) = DAU has a significant and positive impact on the level of regional
financial independence.
Based on the results of statistical analysis on DAU variable, a probability of 0.0110 or
significant at = 0.05 with a statistical value = -3.188166, so that a ttable value of 2.26216 was
obtained. The Absolute value of tstatistical < ttable (-3.188166 < 2.26216), means that H6 is
rejected. It shows that DAU variable partially has a negative and insignificant effect on the level
of regional financial independence.
3. Hypothesis Testing 7 (H7) = DAK has a significant and positive effect on the level of regional
financial independence.
Based on the results of statistical analysis on DAK variable, a probability of 0.0850 or
significant at = 0.05 with a statistical value = -1.934723 so that a ttable value of 2.26216 was
obtained. The absolute value of tstatistical ttable < ttable (-1.934723 < 2.26216), means that H7
is rejected. It shows that DAK Variable partially has a negative and insignificant effect on the
level of regional financial independence.
4. Hypothesis Testing 8 (H8) = CE has a positive and significant impact on the level of regional
financial independence.
Based on the statistical analysis of the CE variable, a probability value of 0.0826 was
obtained, which is significant at = 0.05 with a t-statistic value of -1.952866 and a t-table value
of 2.26216. Since the absolute value of the t-statistic is less than the t-table value (-1.952866 <
2.26216), H8 is rejected. This indicates that the CE variable has a partial negative and
insignificant effect on the level of regional financial independence.
5. Hypothesis Testing 9 (H9) = Economic Growth has a positive and significant impact on the level
of regional financial independence.
The result show taht the Economic Growth variable, a probability of 0.6621 or significant
at = 0.05 with a t-statistical value = 0.451842 so that a t-table value of 2.26216 was obtained.
The Absolute value of the t-statistic < the t-table (0.451842 < 2.26216), means that H9 is
rejected. It shows that the Economic Growth Variable partially has a negative and insignificant
effect on the level of regional financial independence.
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Calculating Path Analysis Methods
a. Regional Original Income
Regional Original Income (X1) ➔ PE (Z) = 0.005356
Regional Original Revenue (X1) ➔ Financial Independence (Y) 0.005979
PE (Z) ➔ Financial Independence (Y) = 0.01260
Direct Effect (PL) , X1 Y = 0.005979
Indirect Influence Value (PTL), X1 Y = 0.005356 x 0.01260
= 0.0000675
Based on the calculations above, it is evident that the value of the indirect effect is smaller than
the value of the direct effect (PTL 0.0000675 < PL 0.005979). Therefore, economic growth does not
serve as an intervening (mediating) variable between Regional Original Revenue and Financial
Independence in the Regional Government of North Sulawesi Province.
b. General Allocation Fund
General Allocation Fund (X2) ➔ PE (Z) = 0.000523
General Allocation Fund (X2) ➔ Financial Independence (Y) = 0.005464
PE (Z) ➔ Financial Independence (Y) = 0.01260
Direct Influence Value (PL) , X2 Y = 0.005464
Indirect Influence Value (PTL), X2 Y = 0.000523 x 0.01260
= 0.00000659
Based on the calculations above, it is observed that the value of the indirect effect is smaller
than the direct effect (PTL = 0.00000659 < PL = 0.005464). This indicates that Economic Growth does
not mediate the relationship between DAU and Financial Independence in the Regional Government
of North Sulawesi Province.
c. Special Allocation Fund
Special Allocation Fund (X3) ➔ PE (Z) = 0.000858
Special Allocation Fund (X3) ➔ Financial Independence (Y) = 0.000357
PE (Z) ➔ Financial Independence (Y) = 0.01260
Direct Influence Value (PL) , X3 Y = 0.000357
Indirect Influence Value (PTL), X3 Y = 0.000858 x 0.01260
= 0.0000108
From the calculations above, it is evident that the indirect effect value is smaller than the direct
effect value (PTL 0.0000108 < PL 0.000357). This indicates that Economic Growth does not mediate
the relationship between DAK and Financial Independence in the Regional Government of North
Sulawesi Province.
d. Capital Expenditure
Bleaching Modal (X4) ➔ PE (Z) = 0.00559
Capital Expenditure (x4) ➔ Financial Independence (Y) = 0.000852
PE (Z) ➔ Financial Independence (Y) = 0.01260
Direct Influence Value (PL) , X4 Y = 0.000852
Indirect Influence Value (PTL), X3 Y = 0.000559 x 0.01260
= 0.0000070434
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The calculations above reveal that the indirect effect value is smaller than the direct effect value
(PTL 0.0000070434 < PL 0.000852). This indicates that Economic Growth does not mediate the
relationship between CE and Financial Independence in the Regional Government of North Sulawesi
Province.
Classical Assumption Test
0
1
2
3
4
5
-0.04 -0.02 0.00 0.02 0.04 0.06
Series: Residuals
Sample 2009 2023
Observations 15
Mean 2.24e-16
Median 0.000649
Maximum 0.057748
Minimum -0.049290
Std. Dev. 0.032530
Skewness 0.377159
Kurtosis 2.304244
Jarque-Bera 0.658170
Probability 0.719582
Figure 1. Normality Test Results
Source: Eviews 8.0 Results
The p-value from the J-B test is 0.7195, which is significantly greater than 0.05. This means that
there is strong evidence to suggest that the data follows a normal distribution.
Table 3. Multicollinearity Test Results
Variance Inflation Factors
Date: 11/14/24 Time: 23:39
Sample: 2009 2023
Included observations: 15
Coefficient
Uncentered
Centered
Variable
Variance
BRIGHT
BRIGHT
C
4.993521
45503.07
ON
X1
8.54E-07
58966.91
1.537878
X2
2.94E-06
204545.4
2.975429
X3
3.41E-08
2127.409
7.433061
X4
1.90E-07
12646.20
5.619762
With
0.000712
19.37554
1.384904
Source: Eviews 8.0 Results
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Table 3 shows that all independent variables meet the multicollinearity criteria with tolerance
values above 0.10 and VIF values below 10. This indicates no multicollinearity among the predictors
in the regression model for financial independence.
Table 4. Heteroscedasticity Test Results
Heteroskedasticity Test: Glees
F-statistic
0.503792
Prob. F (5,9)
0.7670
Obs*R-squared
3.280192
Prob. Chi-Square (5)
0.6569
Scaled explained SS
2.238590
Prob. Chi-Square (5)
0.8152
Source: Eviews 8.0 Results
From the results of the Heteroscedasticity test using Eviews, it can be seen that the probability
value of observation R2 is 0.6569 when compared to the risk of errors taken (used α = 5%), 0.6569 >
0.05, meaning that residual is classified as not having heteroscedasticity.
Table 5. Autocorrelation Test Results
Breusch-Godfrey Serial Correlation LM Test:
F-statistic
0.254776
Prob. F(2,7)
0.7820
Obs*R-squared
1.017809
Prob. Chi-Square(2)
0.6012
Source: Eviews 8.0 Results
The results of autocorrelation with the level of financial independence as a Dependent Variable
using the Breusch-Godfrey test or called the Lagrange Multiplier are known with a significance value
of 0.6012. If the probability value of > α = 5% is free of the autocorrelation test., it means that 0.6012
> 0.05 means that the autocorrelation test is free
The Effect of Regional Original Income on Economic Growth
Statistical analysis of the Regional Original Revenue variable shows a probability value of
0.6311, which is not significant at α = 0.05, with a t-statistic value of 0.495224 compared to a t-table
value of 2.22814. Since the absolute value of the t-statistic is less than the t-table (0.495224 <
2.22814), it indicates no significant relationship between Regional Original Revenue and Economic
Growth.
The hypothesis testing results reveal that Regional Original Revenue does not positively affect
economic growth in the North Sulawesi Provincial Government during the 2009–2023 period. These
findings align with Gustiana's (2014) research, which also found that Regional Original Revenue has
an insignificant impact on economic growth. However, this result contradicts the new growth theory,
which posits that capital accumulation is a primary driver of economic growth. The discrepancy may
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be attributed to the nature of regional revenue, such as taxes, which can reduce consumption. As
consumption decreases, revenue generation may decline, ultimately limiting economic growth.
The Effect of the General Allocation Fund on Economic Growth
The results of the second hypothesis test indicate that the General Allocation Fund (DAU)
negatively impacts economic growth, implying that the size of the DAU does not contribute to
economic growth. The DAU serves as a crucial source of regional income to meet expenditure needs
and reflects the region's level of independence.
Regions receiving larger DAU allocations are often more reliant on the central government,
indicating a lack of financial independence. Conversely, a smaller reliance on the DAU suggests greater
regional autonomy. Allocated from the State Budget, the DAU aims to equalize financial capacity
across regions to support decentralization. The central government, acting as the principal, allocates
funds to local governments, including the DAU, to reduce disparities and ensure financial stability.
Improved public services funded by the DAU are expected to enhance community welfare,
emphasizing the need for development-focused allocation, including Capital Expenditure.
In this study, the DAU positively influences Capital Expenditure. This reflects the importance
of DAU transfers in supporting regional governments, as their primary purpose is to stabilize regional
finances and reduce disparities under the framework of decentralization. However, the findings
reveal that the DAU negatively impacts economic growth, indicating that the second hypothesis is not
supported.
The negative relationship between the DAU and economic growth suggests that the funds
provided by the central government have not been effectively utilized to develop sectors capable of
driving economic growth in North Sulawesi Province. This issue calls for greater attention from
regional governments to optimize the use of the DAU for fostering real-sector development and
improving economic performance.
The Effect of Special Allocation Funds on Economic Growth
The findings of this study demonstrate that the Special Allocation Fund (DAK) has a negative
but insignificant effect on economic growth in the North Sulawesi Provincial Government. As one of
the balance funds, the DAK is sourced from the State Budget and allocated to local governments to
finance specific activities that align with regional needs and national priorities. Its primary purpose
is to alleviate the financial burden of special activities that local governments would otherwise bear.
The DAK is intended to support investment activities related to the development, procurement,
enhancement, and improvement of physical facilities and public service infrastructure with a long-
term economic lifespan. This targeted utilization aims to enhance public services, which are reflected
in capital expenditure. DAK funds are allocated to regions with specific needs to support government
affairs requiring special attention. An increase in the DAK can also lead to higher capital expenditures,
indicating a linkage between central government transfer funds and regional budget allocations,
ultimately impacting economic growth.
However, the study's results indicate that the DAK does not significantly affect economic
growth, meaning the third hypothesis is not supported. The utilization of DAK funds has not been fully
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optimized for investment activities in the development and improvement of public service facilities
and infrastructure with long-term economic benefits. Redirecting DAK funds towards such activities
could enhance public services and contribute to capital expenditure, thereby fostering economic
growth.
The Effect of Capital Expenditure on Economic Growth
This study confirms that capital expenditure has a significant positive impact on economic
growth. This finding aligns with Saragih's (2003) research, which states that when local governments
allocate a larger budget for capital expenditures or development compared to routine expenditures,
such budgetary policies can stimulate regional economic growth.
As a region with substantial potential for self-reliance, provinces formed through expansion
often face challenges related to regional finances, particularly the heavy financial burden of driving
development. The non-linear relationship between capital expenditure and economic growth may
result from inefficiencies in the use of funds. Ineffective planning, inadequate evaluation of
expenditures, or insufficient oversight can lead to expenditures that fail to significantly impact
economic growth. Enhancing the effectiveness of capital expenditure requires active community
involvement in decision-making and development processes. Without sufficient public participation
and support, the development efforts may yield suboptimal results in terms of their contribution to
economic growth.
The Effect of Regional Original Revenue on the Level of Regional Financial Independence
This study demonstrates that Regional Original Revenue significantly and positively
influences the level of regional financial independence. These findings align with research conducted
by Reza Marizka (2013) which highlights a positive relationship between regional original revenue
and regional financial independence.
Based on data obtained by the author regarding the realization of regional revenue in North
Sulawesi Province, it is evident that over the past 15 years, regional revenue has consistently
increased on average each year. Concurrently, the demand for government programs has also grown
annually, leading to higher regional expenditures.
However, the increase in regional original revenue has not been sufficient to fully cover the
rising expenditures, necessitating external financial assistance to bridge the gap. This reliance on
external support continues to influence the level of financial independence in North Sulawesi
Province.
The Effect of General Allocation Funds (DAU) on the Level of Regional Financial Independence
The result show that DAU in North Sulawesi Province negatively affects the level of Regional
Financial Independence. This means that any increase in DAU is significantly inversely proportional
to the level of Regional Financial Independence.
The researcher (2020), attributes this to the inflexible utilization of the DAU, which is intended
to equalize financial capacity among regions within the framework of decentralization. In practice,
this rigidity limits regions from freely planning budget allocations for development activities aligned
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with their economic agendas, often leading to misaligned targets. This inability to effectively allocate
the DAU can hinder the progress of regional economic development.
The results of this study corroborate the findings of Muliana (2009) who similarly observed a
significant and negative impact of DAU on the level of regional financial independence within the
context of regency and city governments across North Sumatra Province.
The Effect of Special Allocation Funds on the Level of Regional Financial Independence
The study results indicate that the DAK does not influence the level of regional financial
independence in North Sulawesi Province. DAK, as part of the balance funds sourced from the State
Budget, is allocated to finance special programs in specific regions aligned with national priorities. Its
primary purpose is to support the fulfillment of basic community service facilities and infrastructure
needs that have not reached established standards, thereby accelerating regional development.
These findings align with research conducted by Muliana (2009), which revealed that larger
transfers of DAK from the central government correlate with lower levels of regional financial
independence, whereas smaller DAK transfers are associated with higher levels of independence. This
suggests that DAK may have a negative effect on regional financial independence. When regions
receive significant DAK allocations from the central government, they tend to rely heavily on these
funds, indicating a lack of financial autonomy.
DAK is specifically designated for regions to finance specialized activities within national
priority programs that fall under regional responsibilities. It also aids in funding physical
infrastructure and facilities across various sectors, including education, health, infrastructure, marine
and fisheries, agriculture, local government infrastructure, and the environment.
The Effect of Capital Expenditure on the Level of Regional Financial Independence
The results of the second hypothesis test reveal that the Capital Expenditure variable has a
negative and insignificant effect on the Level of Regional Financial Independence. In the context of
regional autonomy, governments must enhance the quality of public services, ensuring that capital
expenditures are directed toward facilities and infrastructure that directly benefit the community.
Budget allocations should prioritize activities based on public needs to align with societal demands.
However, in practice, capital expenditures by local governments have not been utilized
effectively or efficiently. This indicates that such spending has failed to achieve its intended public-
interest goals, with limited beneficial outcomes. Furthermore, capital expenditures have not been
sufficiently directed toward public-sector activities that could significantly contribute to regional
revenue. Instead, they have often been allocated to consumptive or speculative activities. As a result,
capital expenditures exhibit a negative impact on the financial independence of local governments.
These results differ from the study by Ariani & Putri (2010) which examined the impact of CE
and DAU on regional financial independence and tax effort (a case study on Regency/City
Governments in the Former Surakarta Region) and found that capital expenditures have a positive
effect on regional financial independence levels.
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The Effect of Economic Growth on the Level of Regional Financial Independence
The test results for the second hypothesis indicate that the Economic Growth variable has a
negative and insignificant effect on the Level of Regional Financial Independence. These findings align
with Tahar and Zakhiya (2017) which concluded that PAD and DAU, supported by regional
independence, do not significantly impact economic growth. This may be attributed to the
government’s inability to fully optimize local potential, such as through streamlining investment
processes.
The findings of this study align with established theories in public finance and fiscal
decentralization. PAD was found to have a significant positive effect on economic growth and financial
independence, confirming previous research by Marizka (2013), which highlighted that PAD
improves fiscal autonomy through increased local resource utilization. This relationship supports the
new growth theory, emphasizing that regions with strong revenue bases can finance development
independently, reducing reliance on central transfers.
However, DAU exhibited a negative effect on economic growth, a finding consistent with
Muliana (2009), who suggested that DAU transfers might induce fiscal dependency rather than
encouraging economic innovation. This dependency arises from the rigid allocation framework of
DAU, limiting regions' discretion in using funds for local economic development priorities.
The Special Allocation Fund (DAK) was found to have no significant impact on economic
growth, reflecting the findings of Gustiana (2014), who argued that DAK allocations are often
misaligned with local development needs. Inefficiencies in the utilization of DAK funds, particularly
in infrastructure projects, further reduce its potential to stimulate regional economies.
The positive impact of capital expenditure on economic growth, as found in this study, aligns
with Saragih's (2003) assertion that increased development budgets contribute to economic progress
. However, as Ariani and Putri (2010) highlighted, ineffective planning and speculative capital
expenditure can diminish its intended economic benefits. This study underscores the necessity for
local governments to enhance budget management and prioritize capital projects that generate long-
term returns.
Economic growth's limited effect on financial independence aligns with the argument made by
Tahar and Zakhiya (2017), who found that even when local revenues increase, weak governance and
inefficient fiscal management can undermine progress. This suggests that boosting economic growth
alone is insufficient; institutional reforms are also critical to achieving fiscal autonomy. Overall, the
study reinforces the argument that financial decentralization requires a multi-faceted approach,
balancing revenue enhancement, efficient fund allocation, and strategic capital investment. Future
research could explore the effects of non-fiscal variables such as governance quality and political
stability on regional financial independence.
Conclusion
The study findings reveal that Capital Expenditure significantly and positively impacts
economic growth, whereas Regional Original Revenue (PAD), the General Allocation Fund (DAU), and
the Special Allocation Fund (DAK) do not affect economic growth. PAD is also found to have a
significant positive effect on regional financial independence, while DAU, DAK, and Capital
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Expenditure do not influence regional financial independence. Additionally, economic growth
negatively affects regional financial independence, although the relationship is not significant. Based
on these results, it is recommended that the North Sulawesi Provincial Government prioritize capital
expenditure over employee and goods/services expenditure. Future research should consider
incorporating a broader range of independent variables and extending the study period to produce
more comprehensive and relevant findings.
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