Climate Change, Agriculture Growth, and Fiscal Policy of Local Governments: The Case of Lampung

Research originality — The climate change has impacted several sectors, mainly the agriculture sector. The government of Indonesia has issued public policies to achieve a national target regarding climate change by allocating budgets to regional governments at both province and regency/city levels. While most existing studies focus on national or provincial levels, this paper offers a novel contribution by analyzing the effect of climate-related expenditures at the regency level, specifically in Lampung Province. Research objectives — The paper aims to observe the relationship between the spending on climate change in regency/city governments in Lampung by examining the correlation between the spending and the growth of local GRDP in agriculture in Lampung. Research methods — We utilize pooled ordinary least square panel data analysis on 13 regencies and two cities in Lampung from 2015 to 2023. This localized panel data approach provides a more granular understanding of public spending outcomes. Empirical Result — The analysis reveals a significant positive correlation between climate-related expenditures and agricultural growth, particularly through investments in irrigation and infrastructure. These spendings directly enhance agricultural productivity by improving water management, mitigating the effects of extreme weather, and ensuring the resilience of critical agricultural systems. Implications — However, the findings also highlight that while irrigation and infrastructure spending are essential, their correlation with agricultural performance may reflect their direct purpose in enhancing agricultural productivity. This underscores the importance of optimizing budget allocation towards initiatives that offer broader, less obvious benefits, such as sustainability and long-term resilience. The findings aim to inform policy improvements for more effective use of climate-related budgets at the local level.