Does Funding Decentralization Can Influence The Local Economic Growth?


1 Faculty of Economica and Business, State University of Surabaya, East Java, Indonesia

2 Faculty of Economics, University of Islamic Mojokerto, East Java, Indonesia


Experiences often by many countries slowing economic growth as a result of central government-centered funding policies. The concern about slowing economic growth is motivating the need for a decentralized approach to development funding to foster economic growth. The research aims to describe the policy influence of decentralizing funding sources between central and local governments to boost economic growth in East Java. This research method uses an explanation design with a quantitative approach. Data panels are collected from 38 cities/counties from 2009 to 2018 years, in East Java, with analysis using regression technique with SPSS version 23. This study showed that the decentralization of funding sources could significantly increase local economic activities and affect the increase in regional economic growth. Increasing local economic activity can substantially increase economic growth. At the same time, local economic growth can significantly increase society's welfare in East Java. These findings remind the importance of the policy that decentralized funding will contribute positively to the growth of local economies. More importantly, if the local government regulates the sources of fiscal income and effective expenditure, decentralized funding will encourage the growth of the local economy, eventually improving the welfare of the people in East Java.