Increase financial independence

Oct 13, 2025 by windailys.com 105 views

The Effect of Regional Financial Ratios on Regional Economic Growth through the Allocation of Capital Expenditure in the Regency and City of Aceh Province

Introduction

Economic growth is a crucial indicator that reflects the progress of a region. It is influenced by the ability of the region to manage resources, both in terms of potential and finance. In Aceh Province, regional financial ratios play a vital role in encouraging economic growth through the allocation of capital expenditure. This study aims to analyze the effect of various financial ratios, including the ratio of regional financial independence, effectiveness ratio, efficiency ratio, spending harmony ratio, and employee expenditure ratio, on capital expenditure and its impact on economic growth.

The Importance of Regional Financial Ratios

Regional financial ratios are essential in determining the financial health of a region. They reflect how well an area manages its budget and financial resources. The ratio of regional financial independence, for example, shows how much the proportion of Regional Original Revenue (PAD) in total revenue, which is crucial to ensure the sustainability of development financing. In this context, financial independence is very influential on the allocation of capital expenditure, which functions to build infrastructure and public services.

The Role of Capital Expenditure in Economic Growth

Capital expenditure is a crucial instrument in stimulating the growth of local economic sectors. It is essential for building infrastructure and public services that can contribute to economic growth. The allocation of capital expenditure is very important in determining the success of a region in achieving economic growth. In this case, the increase in Gross Regional Domestic Product (GRDP) is a reflection of the success of the local government in planning and implementing development programs.

The Effect of Regional Financial Ratios on Capital Expenditure

This study uses a saturated sampling method, where all population units are used as samples. The analysis techniques used include statistical analysis and path analysis. The results showed that simultaneously, regional financial ratios had a significant influence on capital expenditure. Partially, the ratio of regional financial independence, the ratio of effectiveness, the ratio of expenditure harmony, and the ratio of employee expenditure proved to have a significant effect on capital expenditure, while the efficiency ratio does not show a significant effect.

The Impact of Capital Expenditure on Economic Growth

Capital expenditure has a significant impact on economic growth. The ratio of regional financial independence is also proven to contribute significantly to economic growth, while the ratio of effectiveness, efficiency ratio, expenditure harmony ratio, and employee expenditure ratios do not show significant effects. Thus, the effect of regional financial ratios on economic growth can be seen as a whole through its influence on capital expenditure.

Additional Analysis

The regional financial ratio reflects how well an area in managing its budget and financial resources. The ratio of regional financial independence, for example, shows how much the proportion of Regional Original Revenue (PAD) in total revenue, which is important to ensure the sustainability of development financing. In this context, financial independence is very influential on the allocation of capital expenditure, which functions to build infrastructure and public services.

The ratio of effectiveness indicates the extent to which the specified budget can be realized in programs that have a positive impact on the community. This also has implications for capital expenditure, because effective allocation will produce better results in regional development. However, the efficiency ratio that does not show a significant effect needs to be evaluated, because low budget efficiency can be a barrier to capital expenditure optimization.

Conclusion

The management of good regional financial ratios will not only improve capital expenditure, but also contribute to increasing sustainable economic growth. This study provides empirical evidence that attention to financial ratios can be an effective strategy in supporting regional development in Aceh Province. Local governments in Aceh must focus on increasing financial independence and expenditure effectiveness in order to maximize economic growth through appropriate investment.

Recommendations

Based on the findings of this study, the following recommendations are made:

Increase financial independence: Local governments in Aceh must focus on increasing financial independence to ensure the sustainability of development financing.
Improve expenditure effectiveness: Local governments in Aceh must improve expenditure effectiveness to produce better results in regional development.
Optimize capital expenditure: Local governments in Aceh must optimize capital expenditure to stimulate the growth of local economic sectors.
Monitor and evaluate financial ratios: Local governments in Aceh must monitor and evaluate financial ratios to ensure that they are effective in supporting regional development.

Limitations of the Study

This study has several limitations, including:

Sample size: The sample size of this study is limited to 23 districts/cities in Aceh Province.
Data availability: The data used in this study is limited to the available data from the Aceh Provincial Government.
Methodology: The methodology used in this study is limited to statistical analysis and path analysis.

Future Research Directions

Future research directions include:

Investigating the impact of other factors on economic growth: Future research can investigate the impact of other factors, such as human capital and institutional factors, on economic growth.
Developing a more comprehensive model: Future research can develop a more comprehensive model that includes other factors that influence economic growth.
Investigating the impact of regional financial ratios on other outcomes: Future research can investigate the impact of regional financial ratios on other outcomes, such as poverty reduction and income inequality.
Frequently Asked Questions (FAQs) about the Effect of Regional Financial Ratios on Regional Economic Growth

Q: What are regional financial ratios?

A: Regional financial ratios are indicators that reflect how well a region manages its budget and financial resources. They include ratios such as regional financial independence, effectiveness ratio, efficiency ratio, spending harmony ratio, and employee expenditure ratio.

Q: Why are regional financial ratios important?

A: Regional financial ratios are important because they reflect the financial health of a region. They can indicate whether a region is able to manage its finances effectively and make informed decisions about investments and resource allocation.

Q: What is the relationship between regional financial ratios and capital expenditure?

A: Regional financial ratios have a significant influence on capital expenditure. Capital expenditure is a crucial instrument in stimulating the growth of local economic sectors, and regional financial ratios can determine the success of a region in achieving economic growth.

Q: What is the impact of capital expenditure on economic growth?

A: Capital expenditure has a significant impact on economic growth. It is essential for building infrastructure and public services that can contribute to economic growth.

Q: What are the key findings of this study?

A: The key findings of this study are:

Regional financial ratios have a significant influence on capital expenditure.
The ratio of regional financial independence, the ratio of effectiveness, the ratio of expenditure harmony, and the ratio of employee expenditure proved to have a significant effect on capital expenditure.
Capital expenditure has a significant impact on economic growth.
The ratio of regional financial independence is also proven to contribute significantly to economic growth.

Q: What are the implications of this study?

A: The implications of this study are:

Local governments in Aceh must focus on increasing financial independence and expenditure effectiveness to maximize economic growth through appropriate investment.
The management of good regional financial ratios will not only improve capital expenditure, but also contribute to increasing sustainable economic growth.
Attention to financial ratios can be an effective strategy in supporting regional development in Aceh Province.

Q: What are the limitations of this study?

A: The limitations of this study are:

The sample size of this study is limited to 23 districts/cities in Aceh Province.
The data used in this study is limited to the available data from the Aceh Provincial Government.
The methodology used in this study is limited to statistical analysis and path analysis.

Q: What are the future research directions?

A: The future research directions are:

Investigating the impact of other factors on economic growth, such as human capital and institutional factors.
Developing a more comprehensive model that includes other factors that influence economic growth.
Investigating the impact of regional financial ratios on other outcomes, such as poverty reduction and income inequality.

Q: What are the policy implications of this study?

A: The policy implications of this study are:

Local governments in Aceh must prioritize increasing financial independence and expenditure effectiveness to maximize economic growth.
The management of good regional financial ratios should be a key focus of regional development policies.
Attention to financial ratios can be an effective strategy in supporting regional development in Aceh Province.

Q: What are the practical implications of this study?

A: The practical implications of this study are:

Local governments in Aceh must develop and implement policies that prioritize financial independence and expenditure effectiveness.
Regional financial ratios should be regularly monitored and evaluated to ensure that they are effective in supporting regional development.
Local governments in Aceh must invest in infrastructure and public services that can contribute to economic growth.