Mediating Role of the Human Development Index in the Relationship between Transfer Funds on Unemployment and Income Inequality in Aceh Province, Indonesia

Abstract

The transfer of funds from the central government to Aceh Province tends to increase from 2013 to 2022. However, the high transfer funds have led to a lack of regional independence in Aceh, and problems such as unemployment and income inequality still need to be fully resolved. This study aims to investigate the effect of transfer funds on unemployment and income inequality with HDI as a mediator in Aceh Province. This study uses panel data from 23 districts/cities of Aceh Province from 2011-2022. The data were processed using panel regression and path analysis methods. The findings show that transfer funds have a positive and significant effect on HDI and income inequality and a significant negative effect on unemployment. Transfer funds indirectly affect the unemployment rate and income inequality through the human development index. The Aceh Provincial Government is advised to conduct more intensive policies to reduce the unemployment rate and income inequality in Aceh Province, especially through transfer funds.