Why fiscal spending and banking credit fail to drive local growth? Evidence from West Kalimantan Province of Indonesia

Economic Annals-XXI: Volume 214, Issue (3-4), Pages: 95-100

Citation information Rosyadi, R., Jamaliah, Yanto, & Nugroho, F. A. (2025). Why fiscal spending and banking credit fail to drive local growth? Evidence from West Kalimantan Province of Indonesia. Economic Annals-XXI, 214(3-4), 95-100. doi: https://doi.org/10.21003/ea.V214-14

Rosyadi Rosyadi
PhD (Economic),
Faculty of Economics and Business,
Tanjungpura University
Bansir Laut, Kec. Pontianak Tenggara, Kota Pontianak, Kalimantan Barat, 78124, Indonesia
rosyadi@ekonomi.untan.ac.id
ORCID ID: https://orcid.org/0000-0002-8962-931X
Corresponding author

Jamaliah
MA (Economic),
Faculty of Economics and Business,
Tanjungpura University
Bansir Laut, Kec. Pontianak Tenggara, Kota Pontianak, Kalimantan Barat, 78124, Indonesia
jamaliah@ekonomi.untan.ac.id
ORCID ID: https://orcid.org/0000-0001-5110-5986

Yanto
MA (Economic),
Faculty of Economics and Business,
Tanjungpura University
Bansir Laut, Kec. Pontianak Tenggara, Kota Pontianak, Kalimantan Barat, 78124, Indonesia
yanto@ekonomi.untan.ac.id
ORCID ID: https://orcid.org/0009-0000-4655-0460

Fajar A Nugroho
MA (Economic),
Faculty of Economics and Business,
Tanjungpura University
Bansir Laut, Kec. Pontianak Tenggara, Kota Pontianak, Kalimantan Barat, 78124, Indonesia
fajaradinugrowo@gmail.com
ORCID ID: https://orcid.org/0009-0002-0848-8605

Why fiscal spending and banking credit fail to drive local growth? Evidence from West Kalimantan Province of Indonesia

Abstract. This study analyzes the influence of government spending, investment, and bank credit expansion on the Gross Regional Domestic Product (GRDP) in districts/cities of West Kalimantan Province of Indonesia during the 2015–2023 period using the Vector Autoregressive (VAR) approach. This research aims to fill the literature gap regarding the determinants of economic growth at the regional level in Indonesia. The results of the stationarity test showed that all the variables were stationary at the first difference, but the cointegration test did not find a long-term relationship between the variables. The VAR model estimates show that GRDP is significantly influenced by its own historical value, while investment, government spending, and banking credit do not show a significant influence in the short term on economic growth. Impulse response and variance decomposition analyses show that GRDP has a highly autoregressive nature, with external contributions from credit, investment, and government spending relatively small but gradually increasing over time. These findings show that in the short term, government credit and spending have not been the main drivers of regional economic growth. In addition, results show the need for improvement in effectiveness of fiscal allocation & credit expansion policies. This research provides valuable insights into the limitations as well as the potential for increasing the effectiveness of fiscal and monetary policies at the regional level.

Keywords: VAR; GRDP; Credit; Investment; Government Spending

JEL Classifications: Е24; Е41; Е64; I18; J28; J31

Acknowledgements and Funding: The authors would like to express their deepest gratitude to Universitas Tanjungpura, particularly the Faculty of Economics and Business, for providing academic and research support throughout this study. We also extend appreciation to the Central Statistics Agency (BPS) of West Kalimantan for providing access to the necessary data. Special thanks go to colleagues and reviewers whose constructive comments have significantly improved the quality of this manuscript. The authors received no direct funding for this research.

Contribution: The authors contributed equally to this work.

Data Availability Statement: The dataset is available from the authors upon request.

DOI: https://doi.org/10.21003/ea.V214-14

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Received 15.01.2025
Received in revised form 10.02.2025
Accepted 16.02.2025
Available online 29.04.2025