Local governments' expenditures efficiencies and determinants: the case of Indonesia

Abstract

This paper investigates the efficiency of local governments' expenditures in Indonesia, setting Human Development as the designated outputs. Annual data of 34 provinces in Indonesia during 2013-2016 are collected for conducting this research. Data envelopment analysis (DEA) is used to measure the efficiency levels. In addition, the efficiencies' performance also measured by using Malmquist index. We found that, during the analysis period, the efficiency levels of local government expenditures of provinces outside of Java Island are still deficient. DKI Jakarta, DI Yogyakarta, and West Java Province are always located in the efficient frontiers. However, East Kalimantan, Papua, and South Sumatera have been the most improved provinces among others. Further study on the impact of exogenous factors affecting the efficiency scores through Tobit regression yields that Population, Government accountability, Democratic Index, number of universities and local investments have a positive-significant impact on the efficiency scores whereas Area coverage correlates negatively.