THE EFFECT OF LOCAL GOVERNMENT CHARACTERISTICS AND FINANCIAL INDEPENDENCE ON ECONOMIC GROWTH AND HUMAN DEVELOPMENT INDEX IN INDONESIA

Abstract

This study is to analyze the effect of local government characteristics consisting of size, age, status, population, number of work units (SKPD), employee expenditure and leverage on local financial independence as well as its impact on economic growth (GDP) and the Human Development Index (HDI) in the districts or cities in Indonesia. The sample used in this study amounted to 1003 financial statements of the local government districts or cities in Indonesia from 2009 to 2013. Samples were selected based on purposive sampling method. Data analysis technique used is Partial Least Square (PLS). The results show that size, age, status, population, number of SKPD, and have leverage positive and significant effect on the local financial independence. Employee expenditure has a positive and insignificant effect on the local financial independence. Local financial independence has negative and significant effect on economic growth. Local financial independence has positive and significant effect on the Human Development Index.