The Effect of Fiscal Decentralization on Economic Growth: An Empirical Study of Regencies/ Cities in Riau Province
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Eva Nur Kumalasari*
Fiscal decentralization involves shifting financial administrative powers from national to regional governments with the goal of improving local financial management efficiency and fostering balanced, long-term economic development. This research investigates how fiscal decentralization influences regional economic development across the districts and municipalities of Riau Province between 2017 and 2021. The study examines four explanatory variables representing fiscal decentralization components: General Allocation Fund (DAU), Revenue Sharing Fund (DBH), Special Allocation Fund (DAK), and Local Government Revenues (PAD) within Riau's regencies and cities. Economic growth serves as the outcome variable of interest. The research utilizes panel data methodology covering all regency and city-level administrative units in Riau Province over the five-year period, with the Fixed Effect Model (FEM) selected as the analytical framework.The research findings indicate that among the fiscal variables examined, only the General Allocation Fund (DAU) demonstrates a statistically significant positive relationship with economic growth. The other three components—Revenue Sharing Fund (DBH), Special Allocation Fund (DAK), and Local Government Revenues (PAD)—do not exhibit significant effects on economic development.Based on these results, the study recommends maximizing the effectiveness of General Allocation Fund utilization and enhancing the quality of regional expenditure strategies to bolster economic performance across Riau's administrative regions during the fiscal decentralization period.
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