Fiscal Policy and Investment as Determinants of Regional Economic Resilience In Indonesia

Nurnaningsih Nurnaningsih; Patta Tope; Suparman Suparman; Yunus Sading

doi:10.62794/je3s.v7i2.199

Authors

Nurnaningsih Universitas Tadulako, Indonesia
Patta Tope Universitas Tadulako, Indonesia
Suparman Universitas Tadulako, Indonesia
Yunus Sading Universitas Tadulako, Indonesia

DOI:

https://doi.org/10.62794/je3s.v7i2.199

Keywords:

regional economic resilience, fiscal policy, aggregate demand, foreign investment, panel data

Abstract

Economic resilience has been a major concern in economic development studies, especially when there are recurrent macroeconomic shocks and structural vulnerabilities. Although fiscal and investment policies are widely recognized as drivers of economic growth, empirical evidence linking fiscal and investment policies to regional economic resilience from an aggregate demand perspective is limited. This study examines the impact of these two variables on economic resilience in 34 provinces in Indonesia during the period 2012-2024. Regional resilience is measured using real aggregate consumption relative to counterfactual long-term trends, thereby capturing the capacity of regions to withstand shocks and recover over time. The analysis used a Fixed Effects panel model, selected based on the Chow and Hausman tests. The findings show that disaster-related spending through contingency significantly increases the region's economic resilience in the short term, while capital expenditure also has a positive short-term effect, albeit on a smaller scale. In addition, foreign direct investment and domestic investment show statistically significant and consistent positive effects on economic resilience. These results extend Keynesian aggregate demand theory by showing that fiscal and investment policy instruments not only stabilize output but also strengthen adaptive regional resilience, offering important policy insights for disaster-prone developing countries.

References

Aghion, P., & Howitt, P. (1990). A Model of Growth Through Creative Destruction. NBER Working Paper, 3223.

Alfaro, L., Chanda, A., Kalemli-Ozcan, S., & Sayek, S. (2004). FDI and economic growth: the role of local financial markets. Journal of International Economics, 64(1), 89–112. https://doi.org/10.1016/S0022-1996(03)00081-3

Arellano, M., & Bond, S. (1991). Some Tests of Specification for Panel Carlo Application to Data : Evidence and an Employment Equations. The Review of Economic Studies, 58(2), 277–297.

Arifah, K. F., & Kim, J. (2022). The Importance of Agricultural Export Performance on the Economic Growth of Indonesia: The Impact of the COVID-19 Pandemic. Sustainability, 14(24), 16534. https://doi.org/10.3390/su142416534

Aschauer, D. A. (1989). Is public expenditure productive? Journal of Monetary Economics, 23(2), 177–200. https://doi.org/10.1016/0304-3932(89)90047-0

Auerbach, A. J., & Gorodnichenko, Y. (2011). Fiscal Multipliers in Recession and Expansion. In the NBER Working Paper Series. National Bureau of Economic Research. Working Paper 17447.

Baltagi, B. H. (2021). Econometric Analysis of Panel Data (6th ed.). Springer Nature.

Blanchard, O. (2017). Macroeconomics (7th ed.). Pearson. 2017. In Macroeconomics (7th ed.). Pearson.

Blanchard, O., & Perotti, R. (1999). An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output. In NBER Working Paper Series (Issue July). https://doi.org/10.3386/w7269

Borensztein, E., De Gregorio, J., & Lee, J.-W. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45(1), 115–135. https://doi.org/10.1016/S0022-1996(97)00033-0

Briguglio, L., Cordina, G., Farrugia, N., & Vella, S. (2009). Economic Vulnerability and Resilience: Concepts and Measurements. Oxford Development Studies, 37(3), 229–247. https://doi.org/10.1080/13600810903089893

Bruneau, M., Chang, S. E., Eguchi, R. T., Lee, G. C., O’Rourke, T. D., Reinhorn, A. M., Shinozuka, M., Tierney, K., Wallace, W. A., & Von Winterfeldt, D. (2003). A Framework to Quantitatively Assess and Enhance the Seismic Resilience of Communities. Earthquake Spectra, 19(4), 733–752. https://doi.org/10.1193/1.1623497

Cavallo, E., & Noy, I. (2011). Natural Disasters and the Economy — A Survey. International Review of Environmental and Resource Economics, 5(1), 63–102. https://doi.org/10.1561/101.00000039

Cerra, V., & Saxena, S. C. (2008). Growth Dynamics: The Myth of Economic Recovery. American Economic Review, 98(1), 439–457. https://doi.org/10.1257/aer.98.1.439

Guerrieri, V., Lorenzoni, G., Straub, L., & Werning, I. (2022). Macroeconomic Implications of COVID-19: Can Negative Supply Shocks Cause Demand Shortages? American Economic Review, 112(5), 1437–1474. https://doi.org/10.1257/aer.20201063

Hallegatte, S., Rentschler, J., & Walsh, B. (2018). “Building back better: Achieving resilience through stronger, faster, and more inclusive post-disaster reconstruction”. (Vol. 27, Issue 6).

Keynes, J. M. (2018). The General Theory of Employment, Interest, and Money. Springer International Publishing. https://doi.org/10.1007/978-3-319-70344-2

Mankiw, N. G. (2010). Macroeconomics (Seventh Ed). Worth Publishers.

Mankiw, N. G. (2021). Principles Of Economics, Ninth Edition. In Cengage.

Martin, R., & Sunley, P. (2015). On the notion of regional economic resilience: conceptualization and explanation. Journal of Economic Geography, 15(1), 1–42. https://doi.org/10.1093/jeg/lbu015

Mukherjee, S., & Hastak, M. (2018). A Novel Methodological Approach to Estimate the Impact of Natural Hazard-Induced Disasters on Country/Region-Level Economic Growth. International Journal of Disaster Risk Science, 9(1), 74–85. https://doi.org/10.1007/s13753-017-0156-3

Noy, I., & Yonson, R. (2018). Economic Vulnerability and Resilience to Natural Hazards: A Survey of Concepts and Measurements. Sustainability, 10(8), 2850. https://doi.org/10.3390/su10082850

Rose, A. (2004). Defining and measuring economic resilience to disasters. Disaster Prevention and Management: An International Journal, 13(4), 307–314. https://doi.org/10.1108/09653560410556528

Rose, A. (2007). Economic resilience to natural and man-made disasters: Multidisciplinary origins and contextual dimensions. Environmental Hazards, 7(4), 383–398. https://doi.org/10.1016/j.envhaz.2007.10.001

Suparman. (2023). Ekonomi Bencana; Prinsip-prinsip dasar dan Model Pemulihan Ekonomi Dampak Bencana (A. Febriyanti (ed.)). Edu Publisher.

Suppasri, A., Maly, E., Kitamura, M., Syamsidik, Pescaroli, G., Alexander, D., & Imamura, F. (2021). Cascading disasters triggered by tsunami hazards: A perspective for critical infrastructure resilience and disaster risk reduction. International Journal of Disaster Risk Reduction, 66, 102597. https://doi.org/10.1016/j.ijdrr.2021.102597

Tope, P., Ichwan, M., Tenge, E., & Suparman. (2022). Social Economic Index Analysis of Palu Disaster Recovery. Environment and Ecology Research, 10(6), 728–737. https://doi.org/10.13189/eer.2022.100608

Wooldridge, J. M. (2010). Econometric Analysis of Cross-Section and Panel Data. In The MIT Press. Cambridge, Massachusetts (Second Edition). Massachusetts Institute of Technology. https://doi.org/10.2307/j.ctv5rdzwc.1

Yusuf, A. A., Anglingkusumo, R., & Sumner, A. (2021). A direct test of Kuznets in a developing economy: a cross-district analysis of structural transformation and inequality in Indonesia. Regional Studies, Regional Science, 8(1), 184–206. https://doi.org/10.1080/21681376.2021.1924850