The effect of government expenditures on Indonesia economic growth

Abstract

The debate on the effect of government expenditure on economic growth has still happened in relation to classical groups and Keynesians view. The aim of this study confirms the relationship, with the application of the case in Indonesia. Gov-ernment expenditures are aggregated, while economic growth is measured by gross domestic product. With time series design, the secondary data used covers the period of 2004 to 2013. At first, the data were analyzed descriptive-graphics, while the hypothesis testing using t-test. The results obtained indicate that government spending has a positive and significant influence to economic growth. Thus, spend-ing and investment forms by government as a form of fiscal policy must be done with great caution in order to avoid misallocation or inequality in the distribution of inter-sector development, given the importance of its role as a pending national economic growth.

Do Productive Government Expenditures Affect Economic Growth? Evidence from Provincial Governments across Indonesia

“…Failure to use panel models when appropriate is a model misspecification error resulting in biased estimates and unreliable diagnostic statistics (Baltagi, 2008;Greene, 2008;Wooldridge, 2002). Hence, the use of panel regression also distinguishes the present study from that of Nurlina (2015) and Ramayandi (2003) and helps improve the knowledge and understanding of the association of productive expenditure and economic growth in the context of fiscal decentralization in Indonesia.…”

“…However, two research projects have examined the effects of government expenditures in general on economic growth in the country, namely thoseby Nurlina (2015) and Ramayandi (2003). In her study, Nurlina (2015) examines the effects of government expenditures oneconomic growth between 2004 and 2013 using an OLS approach, with the GDP as the dependent variable and government expenditures (both capital expenditures and routine expenditures) as the independent variables. Nurlina shows a significant positive association between government expenditures and economic growth.…”

“…More specifically, this study focuses on these two goals; (i) to investigate the trends and compositions of productive government expenditures in Indonesia before and after decentralization, and (ii) to analyze the impacts of provincial government productive expenditures on public service, security and public order, economy, environment, housing and public facilities, health, and education sector on on economic growth before and after decentralization in Indonesia. Previous research into public expenditures and economic growth in Indonesia has focused more on the relationship between central government expenditures and national economic growth (among others Nurlina, 2015;Ramayandi, 2003). To the best of the author's knowledge, no study has analyzed the relationship between government expenditures and economic growth at a local level, especially after decentralization.…”

“…Studies by Nurlina (2015) and Ramayandi (2003) analyzed the effect of total government expenditures on economic growth in Indonesia, rather than at the provincial government level. As such, their findings do not reveal any of the implications of fiscal decentralization implementation for public financing.…”

Associative Study on Government Spending, Inflation, Trade Balance, and Gross Domestic Product

“…Expenditures by the government have a relationship with GDP that can be identified through the equation, namely: Y = C + I + G + (X -M), where the budget intervention policy on government spending policies that can affect the Gross Domestic Product. According to Anggraeni (2017); Azwar (2016;Nasir & Sari (2015); Nurlina (2015) there is evidence that there is a positive influence between government spending on GDP.…”