The impact of local governance and regional own-source revenue on economic growth at the district level in Indonesia

This study investigates the effects of regional governance quality and regional own-source revenue on economic growth at the district level in Indonesia, covering the years 2015 to 2020. Employing a two-step GMM analysis, the relationship between governance indicators (SPIP, SAKIP, and BPK Audit Opinion) and the ratio of regional own-source revenue to total budget on economic performance is scrutinized. Control variables such as education, population size, and foreign direct investment (FDI) are also considered. The findings reveal that while an improved SPIP index positively correlates with growth, a higher SAKIP score inversely affects it, indicating potential inefficiencies. As evidenced by the revenue ratio, local fiscal capacity emerges as a crucial determinant of growth. The study also finds that higher levels of education and larger populations detrimentally impact growth, suggesting an educational surplus and demographic pressures. The impact of FDI on growth is found to be ambiguous. These insights provide critical guidance for refining governance, fiscal strategy, education policy, and demographic management to enhance economic advancement in Indonesia's districts.