Linking regional investments and revenues at the provincial level to investment loan decisions by local government banks in Indonesia
-
DOIhttp://dx.doi.org/10.21511/pmf.13(2).2024.04
-
Article InfoVolume 13 2024, Issue #2, pp. 31-43
- 131 Views
-
26 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
This study aims to analyze how two different types of investments (local domestic and foreign direct investments at the provincial level) and revenues (booked by the provincial governments, general allocation funds, special allocation funds, local taxes, and retribution) affect investment loan decisions by local government banks in Indonesia. The study uses panel data applying ordinary least squares and multiple linear regression. Thus, 144 data were sampled from 2013 to 2021 from 16 local government banks out of Java Island in 21 provinces in Indonesia. The study found that local domestic investment at the provincial level affects investment loan decisions by local government banks. In contrast, foreign direct investment did not affect lending decisions, indicating that local domestic investment contributes to the real local economy at the provincial level. Different results were found in provincial revenues in the form of general and special allocation funds, which negatively affected loan investment decisions, possibly due to provincial revenues utilized to cover the financial deficit and capital expenditure spent chiefly on imported goods. Additionally, local taxes at the provincial level also negatively affect investment loan decisions, possibly due to fluctuations in local tax collection during COVID-19. However, the study found that local retribution contributes to predicting loan investment decisions, suggesting revenue collection by the governments considering local economic conditions. The study findings suggest that provincial governments should direct investments that can impact the local economy and spend their revenues on goods and services that can drive local economic growth.
Acknowledgment
The investment loan made by local government banks, which is associated with local investment and revenue, is part of a research grant project from the Economics and Business Faculty of Hasanuddin University. This project is a result of collaboration with national and international researchers. In carrying out this research, some inputs from people working in local government banks, financial service authorities, and provincial and regency governments are addressed.
Thanks to Ahmadi Usman for secondary data and Syahidah Ulhaq for some application programs enabling mapping literature, as well as Israa Natiq Jabar for supervising the result and applied some inputs in the section of research method.
- Keywords
-
JEL Classification (Paper profile tab)G21, H71
-
References50
-
Tables4
-
Figures0
-
- Table 1. Descriptive statistics of main variables
- Table 2. Statistical results of OLS regression
- Table 3. Hypotheses testing
- Table A1. Characteristics of local government banks
-
- Abidin, Z., Prabantarikso, R. M., Wardhani, R. A., & Endri, E. (2021). Analysis of bank efficiency between conventional banks and regional development banks in Indonesia. Journal of Asian Finance, Economics and Business, 8(1), 741-750.
- Abuka, C., Alinda, R. K., Minoiu, C., Peydró, J. L., & Presbitero, A. F. (2019). Monetary policy and bank lending in developing countries: Loan applications, rates, and real effects. Journal of Development Economics, 139, 185-202.
- Akita, T., Riadi, A. A., & Rizal, A. (2021). Fiscal disparities in Indonesia in the decentralization era: Does general allocation fund equalize fiscal revenues? Regional Science Policy & Practice, 13(6), 1842-1866.
- Alfaro, L., García-Santana, M., & Moral-Benito, E. (2021). On the direct and indirect real effects of credit supply shocks. Journal of Financial Economics, 139(3), 895-921.
- Ansori, A., Nasir, N., Diantimala, Y., & Abdullah, S. (2021). The role of revenues in reducing local government fiscal distress: An empirical study in Indonesia. Journal of Asian Finance, Economics and Business, 8(6), 597-607.
- Aryanto, M. F., Sumarsono, H., & Rahmawati, F. (2019). Analysis of market retribution toward local income in Malang (Case study in Oro-oro Dowo Market after revitalization). Proceedings of the 2nd Padang International Conference on Education, Economics, Business and Accounting (PICEEBA-2 2018).
- Ashraf, D., Rizwan, M. S., Adiwibowo, D. H., & Yusan, R. I. (2022). Loan portfolio composition of Islamic and conventional banks pre- and post-Covid-19 pandemic? Case of Indonesia. Journal of Islamic Monetary Economics and Finance, 8(3).
- Astuti, S. Y., Basyah, M. A., & Niswah, F. M. (2021). The effect of PAD, DAU and DAK on poverty rates in Java. International Journal of Science, Technology & Management, 2(5), 1668-1683.
- Aswan, A., Jusni, & Possumah, B. T. (2019). The strategy to leverage financing disbursement: Bank owned by regional banks Indonesia. Opcion, 35(19), 1717-1730.
- Azis, I., & Thorbecke, W. (2002). Macroeconomic shocks and bank lending in Indonesia. Asian Development Bank Institute (ADB-I).
- Bassett, W., Chosak, M., Driscoll, J., & Zakrajˇsek, E. (2010). Identifying the macroeconomic effects of bank lending supply shocks. Federal Reserve Board.
- Cakranegara, P. A. (2020). Effects of pandemic Covid 19 on Indonesia banking. Ilomata International Journal of Management, 1(4), 191-197.
- Choi, S. (2021). Bank lending standards, loan demand, and the macroeconomy: Evidence from the Korean Bank Loan Officer Survey. International Journal of Central Banking, 17(71), 1-45.
- Damayanthi, I. G. A. E., Wiagustini, N. L. P., Suartana, I. W., & Rahyuda, H. (2022). Loan restructuring as a banking solution in the COVID-19 pandemic: Based on contingency theory. Banks and Bank Systems, 17(1), 196-206.
- Desdiani, N. A., Sabrina, S., Husna, M., Budiman, A. C., Afifi, F. A. R., & Halimatussadiah, A. (2022). Local budget resilience in times of COVID-19 crisis: Evidence from Indonesia. Economies, 10(5), Article 108.
- Doumpos, M., Lemonakis, C., Niklis, D., & Zopounidis, C. (2019). Introduction to credit risk modeling and assessment. In Analytical Techniques in the Assessment of Credit Risk (pp. 1-21). Cham: Springer.
- Farida, N., Suman, A., & Sakti, R. K. (2021). Fiscal decentralization, economic growth and regional development inequality in Eastern Indonesia. Journal of Indonesian Applied Economics, 9(2).
- Fazaalloh, A. M. (2024). FDI and economic growth in Indonesia: A provincial and sectoral analysis. Journal of Economic Structures, 13(1), Article 3.
- Gökçeli, E., Fidrmuc, J., & Ghosh, S. (2022). Effect of foreign direct investment on economic growth and domestic investment: Evidence from OECD countries. European Journal of Business Science and Technology, 8(2), 190-216.
- Huynh, J., & Dang, V. D. (2022). Exploring the asymmetric effects of loan portfolio diversification on bank profitability. Journal of Economic Asymmetries, 26, Article e00250.
- Ismail, Y. R., Arham, M. A., & Dai, S. I. S. (2020). Analysis of village Dau, Dak, and funds on inequality distribution income and growth in Indonesia 2015–2018. Jambura Equilibrium Journal, 1(2).
- Jusni, Aswan, A., Reni Syamsuddin, A., & Taufiq Possumah, B. (2019). Financing profitability optimization: Case study on sharia business unit of regional development banks in Indonesia. Banks and Bank Systems, 14(1), 1-10.
- Jusni, J., Aswan, A., Baharuddin, G., & Abdul Rahim, H. (2022). The role of product and service quality in a competitive position: Depositors’ satisfaction. Jurnal Economia, 18(2), 274-288.
- Juwita, R. (2023). The role of local taxes and local retributions to provincial government local own-source revenue (Pad) in Indonesia in 2019-2021 (Before and during the Covid-19 pandemic). International Journal of Social Science and Human Research, 06(04).
- Koçak, S., & Barış-Tüzemen, Ö. (2022). Impact of the COVID-19 on foreign direct investment inflows in emerging economies: Evidence from panel quantile regression. Future Business Journal, 8(1), Article 22.
- Kuncoro, H., & Pambudi, D. (2014). The economic impacts of government spending cut: The case of Indonesia. Journal of Advanced Research in Law and Economics, 5(2), 120-135.
- Lewis, B. D. (2023). Indonesia’s new fiscal decentralisation law: A critical assessment. Bulletin of Indonesian Economic Studies, 59(1), 1-28.
- Lewis, B. D., & Oosterman, A. (2011). Sub-national government capital spending in Indonesia: Level, structure, and financing. Public Administration and Development, 31(3), 149-158.
- Liu, G., & Zhang, C. (2020). Economic policy uncertainty and firms’ investment and financing decisions in China. China Economic Review, 63, Article 101279.
- Martínez, J., & Rodríguez, G. (2021). Macroeconomic effects of loan supply shocks: Empirical evidence for Peru. Latin American Economic Review, 30.
- Nguyen, H. T., Luu, H. N., & Do, N. H. (2021). The dynamic relationship between greenfield investments, cross-border M&As, domestic investment and economic growth in Vietnam. Economic Change and Restructuring, 54(4), 1065-1089.
- Nugraha, A. C., & Setyowati, E. (2023). Economic growth in the special region of Yogyakarta from 2013 to 2020: The impact of DAU, DAK, and PAD. Ekonomis: Journal of Economics and Business, 7(1).
- Ombuh, I. W., & Pontoh, J. X. (2022). Soundness level of the regional development banks using REGC method during COVID-19 pandemic. Journal of International Conference Proceedings, 5(2).
- Prastiwi, I. E., & Anik, A. (2020). The impact of credit diversification on credit risk and performance of Indonesian banks. Global Review of Islamic Economics and Business, 8(1).
- Purbadharmaja, I. B. P., Maryunani, I. B. P., Ananda, C. F., & Santoso, D. B. (2019). The implications of fiscal decentralization and budget governance on economic capacity and community welfare. Foresight, 21(2), 227-249.
- Purwanto, S., Perkasa, D. H., & Abadi, F. (2023). Assessment of banking conditions on financial distress during the period of COVID-19 in Indonesia. WSEAS Transactions on Business and Economics, 20, 467-474.
- Rachman, E. (2024). Enhancing local retribution as a key source of local revenue. Journal of Indonesian Scholars for Social Research, 4(1).
- Rampini, A. A., & Viswanathan, S. (2019). Financial intermediary capital. Review of Economic Studies, 86(1), 413-455.
- Santos, J. A. C., & Winton, A. (2019). Bank capital, borrower power, and loan rates. The Review of Financial Studies, 32(11), 4501-4541.
- Satyagraha, F. T., Purwono, R., & Sari, D. W. (2022). An analysis of the performance of regional development banks (RDB) in Indonesia: Stochastic frontier analysis approach. Economies, 10(9), Article 228.
- Setyowati, M., Widiarto, A., & Indriani, I. (2020). Development of DKI Jakarta regional fiscal capacity in 2014–2019. Proceedings of the 2nd International Conference of Business, Accounting and Economics, ICBAE 2020. Purwokerto, Indonesia.
- Shim, J. (2019). Loan portfolio diversification, market structure and bank stability. Journal of Banking & Finance, 104, 103-115.
- Simanjuntak, A., Ginting, M. C., & Situmorang, D. R. (2021). The influence of local tax, local retribution, general allocation fund, and special allocation funds on capital expenditure. Proceedings of the 2nd Economics and Business International Conference EBIC (pp. 170-177). Medan. Indonesia.
- Siregar, R. Y., Gunawan, A. H., & Saputro, A. N. (2021). Impact of the Covid-19 shock on banking and corporate sector vulnerabilities in Indonesia. Bulletin of Indonesian Economic Studies, 57(2), 147-173.
- Sugeng, Rohman, A. N., Romasindah, W., & Saiful, S. (2022). Regulatory and policy arrangement of the textile industry and national textile products for clothing resilience. International Journal of Research and Innovation in Social Science, 6(9).
- Syarifuddin, F., & Setiawan, M. (2022). The relationship between COVID-19 pandemic, foreign direct investment, and gross domestic product in Indonesia. Sustainability, 14(5), Article 2786.
- Utami, D., & Ilyas, W. B. (2021). The role of tax in COVID-19 response in Indonesia: The principles of flexibility, solidarity, and transparency. Asian Politics & Policy, 13(2), 280-283.
- Yin, C., Jiang, C., Jain, H. K., & Wang, Z. (2020). Evaluating the credit risk of SMEs using legal judgments. Decision Support Systems, 136, Article 113364.
- Yudaruddin, R. (2023). Bank lending during the COVID-19 pandemic: Do alliances and digital strategies matter? Managerial Finance, 49(7), 1221-1238.
- Zulkarnaen, W., Erfiansyah, E., Syahril, Amin, N. N., & Leonandri, D. G. (2020). Comparative study of tax policy related to COVID-19 in ASEAN countries. Test Engineering and Management Journal, 83, 6519-6528.