Improving the effectiveness of government spending

Oct 13, 2025 by recoveryshake.com 18 views

Analysis of the Relationship between Cointegration and Causality between Government Expenditure and Poverty in North Sumatra Province

Introduction

The relationship between government expenditure and poverty has been a topic of interest for researchers and policymakers in recent years. In North Sumatra Province, Indonesia, government expenditure has been allocated to various sectors, including education, healthcare, and infrastructure, with the aim of reducing poverty. However, the effectiveness of government expenditure in reducing poverty is still a subject of debate. This study aims to analyze the cointegration and causality between government expenditure and poverty in North Sumatra Province using data from 1980 to 2014.

Methodology

The methodology used in this study includes cointegration tests to investigate long-term relationships and Granger causality tests to analyze causal relationships between government expenditure and poverty. The data used in this study includes government spending and poverty rates in North Sumatra Province annually during the 1980-2014 period. The analysis was carried out using EViews 7 software.

Stationarity Test

Before conducting a cointegration analysis, the first stage is to test the root unit. The results show that indirect expenditure, direct expenditure, total government expenditure, and poverty have stationary at the second difference with a level of confidence of 1%. This shows that the data has a consistent pattern and can be used for further analysis.

Cointegration Test

The results of the cointegration test showed that there was a consistent relationship between government expenditure and poverty in North Sumatra Province in the long run. That is, changes in government spending have the potential to affect the level of poverty, even though this relationship is not direct.

Granger Causality Test

However, the results of the Granger causality test showed that there was no significant causal relationship between government spending and poverty levels in the province. This means that even though there is a long-term relationship, government expenditure does not directly affect changes in the level of poverty. Other factors may play a role in regulating poverty that need to be further investigated.

Implications of the Study

This study provides important insights on the dynamics between government spending and poverty. The existence of cointegration shows that a better fiscal strategy can be needed to increase the effectiveness of government spending in poverty alleviation. In addition, the results showing the lack of causality relationships highlighted the need for more in-depth analysis of other factors that influence poverty in North Sumatra.

Conclusion

Overall, this research contributes to an understanding of the role of government spending in overcoming poverty and opening the way for further studies to investigate other elements that can contribute to poverty reduction in North Sumatra Province. This is very important for policymakers in formulating more effective strategies to achieve sustainable development goals.

Recommendations

Based on the findings of this study, the following recommendations are made:

Improving the effectiveness of government spending: The existence of cointegration between government expenditure and poverty suggests that a better fiscal strategy can be needed to increase the effectiveness of government spending in poverty alleviation.
Investigating other factors that influence poverty: The lack of causality relationships between government spending and poverty levels highlights the need for more in-depth analysis of other factors that influence poverty in North Sumatra.
Formulating more effective strategies: The findings of this study suggest that policymakers need to formulate more effective strategies to achieve sustainable development goals, taking into account the complex relationships between government expenditure and poverty.

Limitations of the Study

This study has several limitations that need to be acknowledged. Firstly, the data used in this study is limited to government spending and poverty rates in North Sumatra Province, and may not be representative of other provinces in Indonesia. Secondly, the study only analyzed the relationship between government expenditure and poverty, and did not consider other factors that may influence poverty, such as education, healthcare, and infrastructure.

Future Research Directions

This study provides a foundation for further research on the relationship between government expenditure and poverty in North Sumatra Province. Future studies could investigate the following:

The impact of government expenditure on poverty reduction: This study could investigate the impact of government expenditure on poverty reduction in North Sumatra Province, using data from 2015 to 2020.
The role of other factors in poverty reduction: This study could investigate the role of other factors, such as education, healthcare, and infrastructure, in poverty reduction in North Sumatra Province.
The effectiveness of different fiscal strategies: This study could investigate the effectiveness of different fiscal strategies, such as increasing government spending or reducing taxes, in poverty alleviation in North Sumatra Province.

Conclusion

In conclusion, this study provides important insights on the dynamics between government spending and poverty in North Sumatra Province. The existence of cointegration between government expenditure and poverty suggests that a better fiscal strategy can be needed to increase the effectiveness of government spending in poverty alleviation. The lack of causality relationships between government spending and poverty levels highlights the need for more in-depth analysis of other factors that influence poverty in North Sumatra. This study contributes to an understanding of the role of government spending in overcoming poverty and opens the way for further studies to investigate other elements that can contribute to poverty reduction in North Sumatra Province.
Frequently Asked Questions (FAQs) about the Relationship between Cointegration and Causality between Government Expenditure and Poverty in North Sumatra Province

Q: What is cointegration, and how does it relate to government expenditure and poverty?

A: Cointegration is a statistical concept that describes the long-term relationship between two or more time series. In the context of this study, cointegration between government expenditure and poverty means that there is a long-term relationship between the two variables, such that changes in government spending have the potential to affect the level of poverty.

Q: What is Granger causality, and how does it relate to government expenditure and poverty?

A: Granger causality is a statistical concept that describes the causal relationship between two or more time series. In the context of this study, Granger causality between government expenditure and poverty means that government spending has a direct impact on poverty levels.

Q: What were the findings of the cointegration test in this study?

A: The results of the cointegration test showed that there was a consistent relationship between government expenditure and poverty in North Sumatra Province in the long run. This means that changes in government spending have the potential to affect the level of poverty.

Q: What were the findings of the Granger causality test in this study?

A: The results of the Granger causality test showed that there was no significant causal relationship between government spending and poverty levels in the province. This means that even though there is a long-term relationship, government expenditure does not directly affect changes in the level of poverty.

Q: What are the implications of the study's findings?

A: The study's findings suggest that a better fiscal strategy can be needed to increase the effectiveness of government spending in poverty alleviation. Additionally, the lack of causality relationships between government spending and poverty levels highlights the need for more in-depth analysis of other factors that influence poverty in North Sumatra.

Q: What are the limitations of the study?

A: The study has several limitations, including the use of limited data and the failure to consider other factors that may influence poverty, such as education, healthcare, and infrastructure.

Q: What are the recommendations of the study?

A: The study recommends that policymakers need to formulate more effective strategies to achieve sustainable development goals, taking into account the complex relationships between government expenditure and poverty. Additionally, the study suggests that more in-depth analysis of other factors that influence poverty is needed.

Q: What are the future research directions suggested by the study?

A: The study suggests several future research directions, including investigating the impact of government expenditure on poverty reduction, the role of other factors in poverty reduction, and the effectiveness of different fiscal strategies.

Q: What are the policy implications of the study's findings?

A: The study's findings suggest that policymakers need to consider the complex relationships between government expenditure and poverty when formulating policies to reduce poverty. Additionally, the study suggests that policymakers need to consider other factors that may influence poverty, such as education, healthcare, and infrastructure.

Q: What are the implications of the study for sustainable development goals?

A: The study's findings suggest that policymakers need to formulate more effective strategies to achieve sustainable development goals, taking into account the complex relationships between government expenditure and poverty. Additionally, the study suggests that more in-depth analysis of other factors that influence poverty is needed to achieve sustainable development goals.

Q: What are the implications of the study for poverty reduction in North Sumatra Province?

A: The study's findings suggest that policymakers need to consider the complex relationships between government expenditure and poverty when formulating policies to reduce poverty in North Sumatra Province. Additionally, the study suggests that more in-depth analysis of other factors that influence poverty is needed to reduce poverty in the province.