Local governments in Riau Province should prioritize economic growth and local revenue

Oct 13, 2025 by recoveryshake.com 62 views

Effect of Economic Growth, Regional Original Revenue, General Allocation Funds and Profit Sharing Funds on the Level of Regional Financial Independence in Regency/City Government in Riau Province in 2012-2015

Introduction

The concept of regional financial independence has become a crucial aspect of governance in Indonesia, particularly in the context of regency/city governments. The ability of local governments to manage their finances independently is essential for effective development and service delivery. In this regard, the role of economic growth, regional original revenue, general allocation funds, and profit sharing funds cannot be overstated. This study aims to analyze the effect of these variables on the level of regional financial independence in regency/city governments in Riau Province during the 2012-2015 period.

Methodology

This study employed a quantitative approach, using secondary data from 12 districts/cities in Riau Province that published their Regional Revenue and Expenditure Budget Report (APBD) and APBD realization report on the official website of the Ministry of Finance of the Republic of Indonesia. The population used in this study consisted of 12 districts/cities that met the specified criteria. The independent variables in this study were economic growth (PE), Regional Original Revenue (PAD), General Allocation Funds (DAU), and Profit Sharing Funds (DBH), while the dependent variable studied was the level of regional financial independence.

The data analysis technique used in this study was multiple linear regression, where hypothesis testing was carried out using the F test and t test. The purposive sampling method was employed to select the samples, and secondary data were used as the type of data.

Results

The results of this study showed that:

Economic growth (PE) has a positive and significant influence on the level of regional financial independence. This indicates that increasing economic growth will contribute to increasing regional financial independence, where regions with good economic growth tend to have higher income. In other words, economic growth is a key driver of regional financial independence.
Regional Original Revenue (PAD) also shows a positive and significant influence on regional financial independence. Increased Regional Original Revenues can provide more resources for local governments to manage and run development programs. This suggests that local revenue is an essential component of regional financial independence.
General Allocation Fund (DAU) shows a positive but not significant influence on the level of regional financial independence. Although this fund can contribute, the effect is not strong enough to significantly affect the level of regional financial independence. This implies that while DAU can provide some benefits, it is not a critical factor in achieving regional financial independence.
Similar to DAU, although DBH provides additional income for the region, the impact on financial independence is less significant. This suggests that while DBH can provide some benefits, it is not a critical factor in achieving regional financial independence.
Overall, Economic growth, local revenue, general allocation funds, and profit sharing funds simultaneously have a significant and positive effect on the level of regional financial independence. That is, the combination of these four variables can increase the overall regional financial independence. This implies that a multi-faceted approach is necessary to achieve regional financial independence.

Conclusion

From the results of this study, it can be concluded that to increase regional financial independence, local governments in Riau Province need to focus on efforts to increase economic growth and increase local revenue. Policies that support local economic development and effective PAD management are very important to achieve these goals. With the increasing financial independence, the regions will be better able to manage their finances independently, reduce dependence on central funds, and be able to design policies that are more in accordance with local needs. This study provides a clear picture that the management of resources and regional economic potential is a key factor in achieving better financial independence.

Recommendations

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

Local governments in Riau Province should prioritize economic growth and local revenue. This can be achieved through policies that support local economic development, such as investing in infrastructure, human capital, and innovation.
Effective PAD management is crucial. Local governments should ensure that PAD is managed efficiently and effectively to maximize its impact on regional financial independence.
DAU and DBH should be used strategically. While these funds can provide some benefits, they should be used in conjunction with other variables to achieve regional financial independence.
Regional financial independence should be a key priority. Local governments should strive to achieve regional financial independence through a multi-faceted approach that includes economic growth, local revenue, DAU, and DBH.

By implementing these recommendations, local governments in Riau Province can increase their regional financial independence and achieve better development outcomes.
Frequently Asked Questions (FAQs) on the Effect of Economic Growth, Regional Original Revenue, General Allocation Funds and Profit Sharing Funds on the Level of Regional Financial Independence in Regency/City Government in Riau Province in 2012-2015

Q1: What is the main objective of this study?

A1: The main objective of this study is to analyze the effect of economic growth, regional original revenue, general allocation funds, and profit sharing funds on the level of regional financial independence in regency/city governments in Riau Province during the 2012-2015 period.

Q2: What are the independent variables in this study?

A2: The independent variables in this study are economic growth (PE), Regional Original Revenue (PAD), General Allocation Funds (DAU), and Profit Sharing Funds (DBH).

Q3: What is the dependent variable in this study?

A3: The dependent variable in this study is the level of regional financial independence.

Q4: What is the data analysis technique used in this study?

A4: The data analysis technique used in this study is multiple linear regression, where hypothesis testing is carried out using the F test and t test.

Q5: What are the results of this study?

A5: The results of this study show that:

Economic growth (PE) has a positive and significant influence on the level of regional financial independence.
Regional Original Revenue (PAD) also shows a positive and significant influence on regional financial independence.
General Allocation Fund (DAU) shows a positive but not significant influence on the level of regional financial independence.
Profit Sharing Funds (DBH) also shows a less significant influence on the level of regional financial independence.
Overall, Economic growth, local revenue, general allocation funds, and profit sharing funds simultaneously have a significant and positive effect on the level of regional financial independence.

Q6: What are the implications of this study?

A6: The implications of this study are that local governments in Riau Province need to focus on efforts to increase economic growth and increase local revenue. Policies that support local economic development and effective PAD management are very important to achieve these goals.

Q7: What are the recommendations of this study?

A7: The recommendations of this study are:

Local governments in Riau Province should prioritize economic growth and local revenue.
Effective PAD management is crucial.
DAU and DBH should be used strategically.
Regional financial independence should be a key priority.

Q8: What are the limitations of this study?

A8: The limitations of this study are:

The study only focuses on regency/city governments in Riau Province.
The study only uses secondary data.
The study only analyzes the effect of economic growth, regional original revenue, general allocation funds, and profit sharing funds on the level of regional financial independence.

Q9: What are the future research directions?

A9: The future research directions are:

To conduct a similar study in other provinces in Indonesia.
To analyze the effect of other variables on the level of regional financial independence.
To conduct a qualitative study to gain a deeper understanding of the factors that affect regional financial independence.

Q10: What are the contributions of this study?

A10: The contributions of this study are:

The study provides a clear picture of the effect of economic growth, regional original revenue, general allocation funds, and profit sharing funds on the level of regional financial independence.
The study provides recommendations for local governments in Riau Province to increase their regional financial independence.
The study contributes to the existing literature on regional financial independence in Indonesia.