Analysis of the Effect of Regional Finance on Promoting Gross Regional Domestic Product in East Java Province

This study examines the effects of Local Own-Source Revenue (PAD), Intergovernmental Transfers, and Capital Expenditure on Gross Regional Domestic Product (GRDP) across the regencies and municipalities of East Java Province during the 2019–2024 period. A quantitative approach was employed using panel data regression analysis based on 228 observations from 38 regencies and municipalities. The Chow and Hausman tests identified the Fixed Effect Model (FEM) with robust standard errors as the most appropriate estimation model. The findings reveal that Local Own-Source Revenue and Intergovernmental Transfers have positive and statistically significant effects on GRDP, whereas Capital Expenditure does not have a significant effect. Collectively, the three fiscal variables significantly influence GRDP. These results suggest that improving regional fiscal capacity through enhanced local revenue generation and the effective allocation of intergovernmental transfers can stimulate regional economic growth. In contrast, the economic impact of Capital Expenditure is likely to emerge only over a longer time horizon. This study provides empirical evidence that may assist local governments in designing more effective, efficient, and sustainable regional fiscal management policies.