The impact of government spending spillovers on regional economic growth

Abstract

The purpose of this study is to analyze the spatial effects that occur on inter-provincial regional government expenditure on regional economic growth in Indonesia. Its analyzed data from 33 provinces in Indonesia for the 2007-2018 period. This study implements a spatial panel data model that can generate spillover effects on regional government expenditure models. The implementation of the spatial panel data model in this study uses the Spatial Durbin Model (SDM) which utilizes the Maximum Likelihood Estimation Approach. The results of this study indicate that regional internal effects of government expenditure, investment, and education variables on regional economic growth in Indonesia are positive and significant. Further analysis in the form of spatial effects on the model empirically reveals that the abundant effects of economic growth, government spending, investment, and education contribute positively to the economic growth of neighbouring regions. This result contributes to the interdependence of local government poli-cies, which implies that every policy made by a local government correlates with other neighbouring local governments.