Local government expenditure, domestic investment, and employment in Central Java: A panel analysis of real economic output
DOI:
https://doi.org/10.52300/jepp.v6i1.21440Keywords:
local government expenditure, domestic investment, employment, real economic output, panel dataAbstract
Regional economic development depends on the interaction between public expenditure, private investment, and employment. This study examines the associations of local government expenditure, domestic investment, and employment with real economic output across 35 regencies and cities in Central Java Province, Indonesia, during 2019–2023. Secondary data comprised 175 observations and were analysed using a logarithmic fixed effects panel regression selected through Chow and Hausman tests. Economic output was measured using gross regional domestic product at constant 2010 prices. The results show that government expenditure, domestic investment, and employment were positively and statistically significantly associated with real output. Their estimated elasticities were 0.0251, 0.0116, and 0.2670, respectively. The reported model was statistically significant overall, with an R² of 0.9981 that includes the contribution of regional fixed effects. These findings support coordinated development policies that improve expenditure allocation, facilitate domestic investment, and strengthen employment opportunities. However, the dependent variable captures output levels rather than annual economic growth rates, and the observational design does not establish causality. Foreign investment was excluded because of data limitations. Future research should incorporate additional investment sources, distinguish expenditure composition, and examine common temporal shocks and potential endogeneity to strengthen understanding of regional economic performance and inform local policymaking
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