The Impact of Fiscal Equalization Funds on Regional Key Economic Sectors in Indonesia
Keywords:
equalization funds, key sectors, fiscal decentralization, Location Quotient, OLS regression
Abstract
This study aims to analyze the impact of the Special Allocation Fund (DAK), the General Allocation Fund (DAU), and the Revenue Sharing Fund (DBH) on the output of regional flagship sectors in 508 regencies and cities in Indonesia in 2015 and 2024. This explanatory quantitative study uses secondary data and separate ordinary least squares (OLS) regression models for each year, corrected with the Huber White Hinkley (HC1) standard error. The study identifies leading sectors based on a Location Quotient (LQ > 1), using the Human Development Index (IPM), investment, and labor force serving as control variables. The results show that in 2015, only DBH had a positive and significant effect, whereas in 2024, all three components had positive and significant effects, with the highest elasticity observed for DAU (0.794). The novelty of this study lies in the separation of the effects of each fiscal equalization fund component on the output of LQ based leading sectors and the comparison of these effects across years.
References
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Sudhipongpracha, T., & Wongpredee, A. (2017). Fiscal decentralization in a comparative perspective: Analysis of the intergovernmental grant systems in Indonesia and Thailand. Journal of Comparative Policy Analysis: Research and Practice, 19(3), 245–261. https://doi.org/10.1080/13876988.2016.1138659
Sulaeman, A. S., & Silvia, V. (2019). Local revenue, regional transfers, and capital expenditures: Their impact on regional economic growth in Indonesia. Journal of Accounting Applications, 4(1), 97–112.
Utomo, F. S., & Wulandari, D. (2021). Analysis of key sectors and products in the southern region of East Java, 2015–2020. Journal of Economics, Business, and Education, 1(11), 1058–1070. https://doi.org/10.17977/um066v1i112021p1058-1070
Andayani, K. D., Muljaningsih, S., & Asmara, K. (2021). Analysis of the economic structure and identification of key sectors in Tuban Regency. Al-Buhuts, 17(1), 52–64.
Anggono, P. (2020). The effect of fiscal balance funds on local economic growth in Indonesia. Journal of Public Administration, 6(2), 297–304.
Central Statistics Agency of the Bangka Belitung Islands Province. (2018). Training on the disaggregation of gross domestic product (GDP). https://babel.bps.go.id/id/news/2018/03/12/69/pelatihan-pencacahan-disagregasi-pmtb.html
Chandra, D., Hidayat, S., & Rosmeli, R. (2017). The impact of fiscal equalization funds on economic growth and interregional inequality in Jambi Province. Paradigma Ekonomika Journal, 12(2), 67–76.
Devi, N., & Darsana, I. B. (2019). Analysis of leading sectors as the basis for regional development planning in Bangli Regency. Udayana University E-Journal of Development Economics, 8(10), 2405–2436.
Hanifah, H. I., & Sulaeman, A. S. (2022). Economic growth and local revenue: An empirical study of reciprocal correlation. Journal of Developmental Economic Dynamics, 5(2), 146–172.
Hasyadi, K., Nurhayati, I., & Royadi, A. A. (2023). Analysis of key sectors in Trenggalek Regency, East Java Province. Jurnal Cendekia Keuangan, 2(1), 1–9.
Hirschman, A. O. (1958). The Strategy of Economic Development. Yale University Press.
Husen, M., Mubarak, D., Rusmanto, H., Wahyudi, M. I., Oktavia, D., & Saputra, O. (2024). Analysis of the impact of the number of MSMEs and the labor force on economic growth in regencies and cities in Jambi Province for the 2021–2023 period. Jurnal Development, 12(1), 80–88.
Isyanto, A. Y., Sudrajat, S., & Sujaya, D. H. (2018). Economic development in Ciamis Regency based on livestock commodities. Mimbar Agribisnis: Journal of Agribusiness-Oriented Scientific Thought, 4(2), 109–120.
Jarque, C. M., & Bera, A. K. (1987). A test for normality of observations and regression residuals. International Statistical Review, 55(2), 163–172.
Ministry of Finance of the Republic of Indonesia. (2021). Definition of the Special Allocation Fund (DAK). https://jdih.kemenkeu.go.id/kamus-hukum/dana-alokasi-khusus?id=0c57ee59b29539c8511a7b0138164d2f
Khairi, H. (2021). The balance between the devolution of authority and the devolution of local revenue sources in Indonesia. Jurnal Bina Praja, 13(3), 431–443.
Marasabessy, R. N., Rumkel, L., Susiati, S., Masniati, A., Tuasalamony, K., Amir, N. F., Iye, R., & Hatuwe, R. S. M. (2021). Analysis of the potential and strategies for coastal tourism in Buru Regency. Sang Pencerah: Scientific Journal of Muhammadiyah Buton University, 7(1), 149–164.
Martinez-Vazquez, J., Lago-Peñas, S., & Sacchi, A. (2017). The impact of fiscal decentralization: A survey. Journal of Economic Surveys, 31(4), 1095–1129. https://doi.org/10.1111/joes.12182
Mukiwihando, R. (2020). The impact of the Special Allocation Fund for agriculture policy on economic growth in the agricultural sector in Indonesia. Journal of Public Financial Management, 4(1), 72–80. https://doi.org/10.31092/jmkp.v4i1.805
Mulyati, S., & Yusriadi, Y. (2018). Revenue-sharing funds and general allocation funds in relation to local government spending in Aceh Province. Agregat, 2(1), 55–66.
Ningsih, K. S., Frinaldi, A., & Magriasti, L. (2023). Fiscal decentralization in the implementation of regional autonomy in Indonesia. Journal of Social Sciences and Education (JISIP), 7(3), 2606–2614.
Nugraha, D. A., Agung, I. G., & Apsari, A. (2026). The effect of local revenue on the economic growth of regencies and cities in Bali Province. Journal of Information Systems and Business Management, 5(1), 503–517.
Oates, W. E. (1999). An essay on fiscal federalism. Journal of Economic Literature, 37(3), 1120–1149.
Rasyid, M. (2018). The effect of general allocation funds, special allocation funds, revenue-sharing funds, and local original revenue on regional expenditures in regencies and cities in Central Sulawesi Province. Katalogis, 6(5), 68–80.
Republic of Indonesia. (2004). Law No. 33 of 2004 on Fiscal Balancing Between the Central Government and Local Governments.
Soeyatno, R. F. (2018). Analysis of the Impact of Key Sectors on the Regional Economy of Bogor City, West Java Province, 2012–2016. Jurnal Semarak, 1(3), 1–19.
Solow, R. M. (1956). A contribution to the theory of economic growth. The Quarterly Journal of Economics, 70(1), 65–94.
Sudhipongpracha, T., & Wongpredee, A. (2017). Fiscal decentralization in a comparative perspective: Analysis of the intergovernmental grant systems in Indonesia and Thailand. Journal of Comparative Policy Analysis: Research and Practice, 19(3), 245–261. https://doi.org/10.1080/13876988.2016.1138659
Sulaeman, A. S., & Silvia, V. (2019). Local revenue, regional transfers, and capital expenditures: Their impact on regional economic growth in Indonesia. Journal of Accounting Applications, 4(1), 97–112.
Utomo, F. S., & Wulandari, D. (2021). Analysis of key sectors and products in the southern region of East Java, 2015–2020. Journal of Economics, Business, and Education, 1(11), 1058–1070. https://doi.org/10.17977/um066v1i112021p1058-1070
Published
2026-11-04
How to Cite
Anggely, A., & Doni Satria. (2026). The Impact of Fiscal Equalization Funds on Regional Key Economic Sectors in Indonesia. International Journal of Economics, Business and Innovation Research, 5(06), 2911-2927. https://doi.org/10.63922/ijebir.v5i06.7160
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