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Economic Growth And Government Size In Indonesia: Some Lessons For The Local Authorities

  • Arief Ramayandi


    (Department of Economics, Padjadjaran University)

The relationship between economic growth and government spending (the size of the government involvement in economic activity) is an interesting issue that has been a subject of controversy and debate. The direction of how government size associates with economic growth has so far been inconclusive. This paper attempts to examine the relationship between both variables for the case of Indonesia. The issue would be of interest for it provides room to examine the impact of government size on economic growth in the country. Furthermore, in the light of the undergoing process of fiscal decentralization in Indonesia, it also provides some lessons for the local authorities in the provincial and district level. To investigate the relationship, a sample of time series data from 1969 to 1999 on Indonesia is being used. The result of the econometric estimation suggests that economic growth is negatively associated with government size both in the long run and in the short run. Some possible explanations and interpretations on the finding are provided for this tendency of growth impeding nature of the relative government size in the economy. Then, some lessons for the local authorities in managing their own budget are being drawn as a note of cautions.

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Paper provided by Department of Economics, Padjadjaran University in its series Working Papers in Economics and Development Studies (WoPEDS) with number 200302.

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Length: 12 pages
Date of creation: Jul 2003
Date of revision: Jul 2003
Handle: RePEc:unp:wpaper:200302
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  1. Alesina, Alberto F & Ardagna, Silvia & Perotti, Roberto & Schiantarelli, Fabio, 1999. "Fiscal Policy, Profits and Investment," CEPR Discussion Papers 2250, C.E.P.R. Discussion Papers.
  2. Agell, Jonas & Lindh, Thomas & Ohlsson, Henry, 1999. "Growth and the public sector: A reply," European Journal of Political Economy, Elsevier, vol. 15(2), pages 359-366, June.
  3. Fölster, Stefan & Henrekson, Magnus, 1997. "Growth and the Public Sector: A Critique of the Critics," Working Paper Series 492, Research Institute of Industrial Economics, revised 10 Jun 1998.
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