Rural Development Policy and Poverty Alleviation: The Case of Village Funds in Aceh Province, Indonesia

Abstract

Village funds is still a new fiscal policy that was initially launched in 2015 by the seventh president of Indonesia, “Joko Widodo”, as his pilot project. Some villages have significantly benefited from developments and improvements initiated by the policy. However, it also has been identified through various investigative analysis that not all village funds allocations transferred to local governments have been implemented effectively and efficiently. This research examines the relationship between the village funds allocations and poverty alleviation in Aceh province, Indonesia. Using a panel data model that provides random-effects estimations, it concludes the village funds allocations from the period of 2015 to 2018 cannot reduce the poverty rate in 23 regencies/municipalities in Aceh. Fiscal variables such as government expenditure and government own revenue have also shown a positive relationship with the poverty rate. Furthermore, with fixed-effects estimation, village funds allocations also show the same result of its relationship with the number of people living in poverty. Meanwhile, one fiscal variable, GDRP has a negative and significant relationship with the number of people living in poverty. Some social variables, such as education and population have also had significant and negative effects on the poverty rate and the number of people living in poverty.