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Jurnal Ekonomi dan Studi Pembangunan

Abstract

This study examines whether village funds promote rural industrialization in Indonesia by estimating their association with the number of micro and small industries at the village level. We construct a balanced village-level panel of 71,526 villages observed in four waves of the Village Potential Statistics (PODES) — 2018, 2020, 2021 and 2024 — merged with village fund realization data from the Ministry of Finance, yielding 286,104 village-year observations. Employing a fixed effects model, the analysis finds that village funds are positively and significantly associated with the number of micro and small industries. The results remain robust across multiple specifications. However, the magnitude of the effect varies across regions, with stronger impacts observed in areas characterized by more developed economic ecosystems. These findings suggest that while village funds can stimulate rural industrial activity, their effectiveness depends critically on complementary factors such as infrastructure, human capital, and institutional capacity. The study contributes to the literature on fiscal decentralization by providing village-level evidence on the role of intergovernmental transfers in supporting structural transformation. Policy implications highlight the need for more targeted allocation, stronger local institutions, and integrated infrastructure development to maximize the impact of village funds.

First Page

80

Last Page

103

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