EXTRACTIVE INDUSTRIES, FISCAL CAPACITY, AND LOCAL ECONOMIC GROWTH: A SPATIAL ANALYSIS OF EAST KALIMANTAN PROVINCES

This study examines the relationship between extractive industries—coal mining, oil and gas, and palm oil and their impact on fiscal capacity and local economic growth across districts in East Kalimantan and North Kalimantan provinces, Indonesia. Using spatial econometric analysis with panel data from 2020–2024, we investigate whether resource abundance translates into sustainable fiscal capacity and economic development at the subnational level. Our findings reveal a paradoxical pattern: while extractive industries contribute substantially to local government revenues (averaging 62.4% of Own-Source Revenue in resource-rich districts in 2024), their correlation with long-term economic growth remains weak and spatially heterogeneous. Districts heavily dependent on coal mining demonstrate fiscal volatility, with revenue fluctuations of 34.7% between 2023 and 2024 due to global commodity price shocks. Spatial autocorrelation analysis indicates significant spillover effects, where economic growth in one district negatively affects neighboring districts, suggesting competitive rather than complementary regional dynamics. The study employs Moran's I statistics, spatial lag models, and geographically weighted regression to capture spatial dependencies. Results demonstrate that fiscal capacity mediates only 23.6% of the relationship between extractive revenues and economic growth, indicating substantial revenue leakage and limited productive investment. Policy implications emphasize the necessity for resource revenue diversification, intergovernmental fiscal transfer reforms, and regional cooperation frameworks to transform resource wealth into inclusive economic development. This research contributes to the resource curse literature by providing district-level empirical evidence from Indonesia's most resource-intensive region during the post-decentralization era.