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Determinants of cross regional disparity in financial deepening: Evidence from Indonesian provinces

Author

Listed:
  • Irwan Trinugroho

    (Faculty of Economics and Business, Universitas Sebelas Maret)

  • Agusman Agusman

    (Bank Indonesia)

  • Mochammad Doddy Ariefianto

    (Indonesia Deposit Insurance Corporation)

  • Darsono Darsono

    (Faculty of Agriculture, Universitas Sebelas Maret)

  • Amine Tarazi

    (Université de Limoges, LAPE,)

Abstract

This paper investigates the determinants of financial deepening across regions in Indonesia after the institutional reforms which brought the country to become more decentralized. Using provincial-level data for 33 provinces from 2004 to 2010, we find that poor local governance significantly impedes financial deepening. Our results also conclude that in the socioeconomically less developed regions, the level of financial deepening is lower than that of more developed regions. Various policy implications are provided. Even though decentralization has been implemented, regional disparity in the form of financial deepening still exists. Improving local governance should be imposed to facilitate favorable business environment. Moreover, regulators have to reconsider regulations that have constrained bank lending.

Suggested Citation

  • Irwan Trinugroho & Agusman Agusman & Mochammad Doddy Ariefianto & Darsono Darsono & Amine Tarazi, 2015. "Determinants of cross regional disparity in financial deepening: Evidence from Indonesian provinces," Economics Bulletin, AccessEcon, vol. 35(2), pages 896-910.
    • Handle: RePEc:ebl:ecbull:eb-14-00990
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    Cited by:

    1. Putra Pamungkas & Clovis Rugemintwari & Amine Tarazi & Irwan Trinugroho, 2016. "Bank Lending and Income Inequality: Evidence from Indonesia," Working Papers hal-01251500, HAL.
    2. Soedarmono, Wahyoe & Trinugroho, Irwan & Sergi, Bruno S., 2019. "Thresholds in the nexus between financial deepening and firm performance: Evidence from Indonesia," Global Finance Journal, Elsevier, vol. 40(C), pages 1-12.
    3. Agus Widarjono & Diana Wijayanti & Suharto Suharto, 2022. "Funding liquidity risk and asset risk of Indonesian Islamic rural banks," Cogent Economics & Finance, Taylor & Francis Journals, vol. 10(1), pages 2059911-205, December.

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    More about this item

    Keywords

    Financial deepening; Local governance; Socioeconomic; Indonesia;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services

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