Iranian Economic Review

Iranian Economic Review

Assessing the Impact of Regional Government Loans on Human Development Index: An Empirical Analysis from Indonesia

Document Type : Research Paper

Authors
Nizwan Zukhri
Muhammad Faisal Akbar
Muhammad Qomaruddin Ridwan
Faculty of Economics and Business, Bangka Belitung University, Kabupaten Bangka, Indonesia.
10.22059/ier.2024.373910.1007969
Abstract
This study analyzes the impact of regional government loans and expenditures on Human Development Index (HDI) components across Indonesian provinces and regencies/cities from 2013 to 2022. Utilizing panel data from 1441 observations, Ordinary Least Squares (OLS) with panel-corrected standard errors (PCSE) was applied to account for heteroskedasticity and serial correlation. The findings reveal significant positive effects of government economic expenditures on per capita income, as well as strong correlations between government spending and education expectancy, as well as between health expenditure and life expectancy. Conversely, regional government loans exhibit ambiguous or adverse effects on these indicators, highlighting the complex dynamics of fiscal policy impacts over time. To enhance robustness, an Instrumental Variables (IV) regression using a two-stage least squares (2SLS) approach was employed to address potential endogeneity. The results indicate that while government loans and expenditures positively influence socioeconomic metrics, their effectiveness depends on strategic allocation and management. This underscores the necessity for sustained and targeted investments in the economic, educational, and health sectors to improve HDI components. This rigorous econometric framework and robust methodologies provide valuable insights into public finance and regional development. The findings suggest that well-targeted fiscal policies and prudent management of public borrowing are crucial for enhancing socioeconomic outcomes and achieving sustainable development, emphasizing a balanced approach to regional financing that prioritizes long-term human development goals.
Keywords
fiscal deficit policy
government loans
human development
panel data analysis
socioeconomic outcomes.
Subjects
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Iranian Economic Review
Volume 30, Issue 3
Summer 2026
Pages 863-907