Regional Financial Performance and Human Development: Empirical Evidence from Regencies and Municipalities in Aceh

Abstract

This study examines the effect of regional financial performance on the Human Development Index (HDI) across all regencies and cities in Aceh Province. Regional financial performance is proxied by five main ratios: fiscal decentralization ratio, regional financial independence ratio, effectiveness ratio of locally generated revenue (PAD), regional financial dependency ratio, and expenditure efficiency ratio. This study utilizes secondary data obtained form regional budget realization reports and HDI statistics published by the Central Statistics Agency (BPS) and the Directorate General of Fiscal Balance (DJPK) for the period 2020–2024. A quantitative approach is employed, using panel data regression on 23 regencies/municipalities, resulting in 115 observations. Model selection is conducted through Chow, Hausman, and Lagrange Multiplier tests, which indicate that the Common Effect Model (CEM) is the most appropriate specification. The findings indicate that the effectiveness ratio of PAD and the degree of fiscal decentralization have a positive and statistically significant effect on HDI, while the other variables are not significant at conventional levels. Collectively, all independent variables significantly influence HDI, with an R-squared value of 41.53 percent. These results highlight that optimal management of locally generated revenue can have a tangible impact on HDI