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Determinants of Cross Regional Disparity in Financial Deepening: Evidence from Indonesian provinces

Author

Listed:
  • Irwan Trinugroho

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

  • Agusman Agusman

    (bank indonesia - bank indonesia)

  • Moch Doddy Ariefianto

    (Indonesia Deposit Insurance Corporation)

  • Darsono Darsono

    (Faculty of Agriculture - UNS - Universitas Sebelas Maret)

  • Amine Tarazi

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

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 & Moch Doddy Ariefianto & Darsono Darsono & Amine Tarazi, 2015. "Determinants of Cross Regional Disparity in Financial Deepening: Evidence from Indonesian provinces," Post-Print hal-01140209, HAL.
    • Handle: RePEc:hal:journl:hal-01140209
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    Cited by:

    1. 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.
    2. Putra Pamungkas & Clovis Rugemintwari & Amine Tarazi & Irwan Trinugroho, 2016. "Bank Lending and Income Inequality: Evidence from Indonesia," Working Papers hal-01251500, HAL.
    3. Fickry Widya Nugraha, 2017. "Local Financial Development And Firm Performance: Does Financial Outreach Really Matters Within Indonesian Archipelago?," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 19(3), pages 287-318, January.
    4. 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.

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    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services

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