The effect of intergovernmental transfers on infrastructure spending in Indonesia

Abstract

This paper examines the impact of own-source revenues and intergovernmental grants on districts’ infrastructure spending in Indonesia. As capacities to generate local revenue are lacking, intergovernmental transfer (IGT) became the main source of local capital spending. This paper uses econometric models to examine the determinants of infrastructure spending. By looking at institutions and economic structure, the study argues for the increasing importance of IGT for local capital spending and shows that specific allocation grants are crucial to ensure local infrastructure spending. This paper calls for a specifically district-tailored IGT fund to accelerate infrastructure development and reduce further regional disparities across Indonesia. This paper contributes to the literature by looking at the effect of IGT on infrastructure spending in different types of regions, including districts in Java, districts with municipality status and metropolitan districts.

Keywords:

• Fiscal decentralisation
• infrastructure
• regional growth
• econometric
• GMM

JEL CODES:

• H72
• H77
• O18

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1 National Medium Term Development Plan (RPJMN), 2015–2019.

2 Infrastructure expenditures comprise the following sub sectors: i) regional development, housing and settlement sector; ii) water resources, irrigation and transportation sector; iii) telecommunication sub-sector and iv) energy sub-sector of mining and energy sector.

3 The data are available at www. djpk.go.id.

4 Tribune News September 4, 2013.

Additional information

Notes on contributors

Adiwan F. Aritenang

Adiwan Aritenang is an Assistant Professor in the Urban and Regional Planning Programme in Institute Technology Bandung (ITB). He completed his PhD from Bartlett School of Planning, University College London (UCL), United Kingdom and was a Postdoctoral Fellow at the Institute of Southeast Asians Studies (ISEAS), Singapore. His research interests are in infrastructure and fiscal decentralisation issues in urban and regional development, regional and digital economics, and trade liberalisation. Dr. Aritenang also has won a few research grants and awards including:

• NWO Dutch – Ministry of Research, Technology and Higher Education Research Grant (250.000 Euro). Collaboration with ITC-University of Twente. 2019–2021British Academy Research Grant (43.000 GBP). Collaboration with University College London. 2017–2018ITB Research Award 2018

His recent publications are:

• Aritenang, A. and Sonn, JW. 2018. The Effect of decentralisation and Free Trade Agreements on Regional Disparity in a Developing Economy: The Case of Indonesia, 1993–2005. International Journal of Urban Sciences (IJUS)

• Hudalah, D. and Aritenang, A. 2018. Industrial economies on the edge of Southeast Asian metropoles: from gated to resilient economies in Andrew McGregor, Lisa Law, Fiona Miller (Eds). Routledge Handbook of Southeast Asian Development

• Wijaya, N., Bisri, M., Aritenang, A. and Mariany, A. 2017. Spatial Planning, Disaster Risk Reduction, and Climate Change Adaptation Integration in Indonesia: Progress, Challenges, and Approach in Djalante, R., Garschagen, M., Thomalla, F., Shaw, R. (Eds.). Disaster Risk Reduction in Indonesia. Springer

• Aritenang, A. 2016. The Impact of State Restructuring on Indonesia's Regional Economic Convergence. ISEAS: Singapore