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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Indonesian Journal of Social Sciences, Vol. 5, No. 12, December 2024 3135
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 Sulawesia region
that has received less attention in the existing literaturethis 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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Indonesian Journal of Social Sciences, Vol. 5, No. 12, December 2024 3136
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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Indonesian Journal of Social Sciences, Vol. 5, No. 12, December 2024 3139
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. T