Rural Development Policy and Poverty Alleviation: The Case of Village Funds in Aceh Province, Indonesia

Abstract

Village funds is still a new fiscal policy that was initially launched in 2015 by the seventh president of Indonesia, “Joko Widodo”, as his pilot project. Some villages have significantly benefited from developments and improvements initiated by the policy. However, it also has been identified through various investigative analysis that not all village funds allocations transferred to local governments have been implemented effectively and efficiently. This research examines the relationship between the village funds allocations and poverty alleviation in Aceh province, Indonesia. Using a panel data model that provides random-effects estimations, it concludes the village funds allocations from the period of 2015 to 2018 cannot reduce the poverty rate in 23 regencies/municipalities in Aceh. Fiscal variables, government expenditure and government own revenue have also shown a positive relationship with the poverty rate. Furthermore, with fixed-effects estimation, village funds allocations also show the same result of its relationship with the number of people living in poverty. Meanwhile, one fiscal variable, GDRP has a negative and significant relationship with the number of people living in poverty. Some social variables, such as education and population have also had significant and negative effects on the poverty rate and the number of people living in poverty.

Does Government Expenditure Affect Regional Inclusive Growth? An Experience of Implementing Village Fund Policy in Indonesia

“…Every 1 percent addition to the village fund reduces poverty by 0.57% (Sari and Abdullah 2017). However, other findings have shown that the fund does not significantly reduce poverty (Azmi et al 2020;Sihite 2021).…”

Pengaruh Pembangunan Desa terhadap Penanggulangan Kemiskinan di Indonesia

“…Di sisi lain, hasil penelitian ini mendukung temuan Sihite et al (2021), Imawan & Purwanto (2020) dan Azmi et al (2020) yang menyoroti peningkatan fasilitas infrastruktur perdesaan dari alokasi dana desa. Temuan ketiga studi tersebut menyatakan bahwa peningkatan fasilitas pelayanan publik dan infrastruktur belum maksimal sehingga belum signifikan berdampak pada upaya penanganan kemiskinan terutama di daerah perdesaan.…”