Impact of Regional Government Expenditure and Investment on Internal Migration and Economy in Sulawesi Selatan, Indonesia
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International Journal of Sciences: Basic and Applied Research (IJSBAR) ISSN 2307-4531 (Print & Online) http://gssrr.org/index.php?journal=JournalOfBasicAndApplied --------------------------------------------------------------------------------------------------------------------------- Impact of Regional Government Expenditure and Investment on Internal Migration and Economy in Sulawesi Selatan, Indonesia Ambar Dwi Santosoa*, Bonar M. Sinagab, Sri Hartoyoc, M. Parulian Hutagaold aEducation and Training Center BPS, Jagakarsa-South Jakarta 12620, Indonesia b,c,dFaculty of Economics and Management, Bagor Agricultural University, Dramaga-Bogor 16680, Indonesia aEmail: [email protected] Abstract Government spending and investment are capital in economic development so that the number and composition are important to set properly. This study aims to analyze the impact of regional government expenditure and investments in internal migration and economy in Sulawesi Selatan, Indonesia. The analysis used regional series data from 1995 to 2015. The simultaneous equations model consisting 43 structural equations and 30 identity equations were estimated by the two-stage least squares method. The results of this study indicate that the economic development in the region Makassar is higher compared to other regions in Sulawesi Selatan, as well as internal migration flows to the region Makassar have increased. Through the policy of increasing the value of investments in the agricultural sector by 25 percent can improve the overall economy in the outside of Makassar region, and can reduce the flow of migration into Makassar at 0.050 percent. Keywords: regional government expenditure; investmen; internal migration; regional economy. ------------------------------------------------------------------------ * Corresponding author. 169 International Journal of Sciences: Basic and Applied Research (IJSBAR)(2017) Volume 32, No 1, pp 169-180 1. Introduction Government spending and investment is a capital to achieve the goals of economic development, so that the number and composition should be well established [5]. Regional government expenditure during the era of decentralization continues to increase, but the agricultural sector only gets a small part of total regional expenditure [9]. This could lead to increasing backwardness of economic development in areas that are agricultural sector still dominant. Difference among the regional economic development progress of non- agricultural and agricultural areas lead to migration flows. According to Todaro [10] that economic development is closely related to migration, where migration plays relocate labor from the agricultural areas to non- agricultural area which has greater economic opportunities. In the regional context, the economy of Sulawesi Selatan shows concentrated in Makassar region. Contributions of Makassar region reached 45.4 percent of the total economy of Sulawesi Selatan with 41.4 percent is the share of non-agricultural sectors, while agriculture still plays a major role in other regions [4]. Difference the structure and economic development among the Makassar region with other regions, make Makassar region as a major destination of internal migration in Sulawesi Selatan. Migration flows into the region of Makassar overload can cause a surplus of labor, increasing unemployment, and negative implications for economic growth and development efforts. According to Mellor [8] empirically countries have adopted development policies with a focus on the agricultural sector tends to be more successful in promoting economic growth compared to development that emphasizes non-agricultural sectors. Todaro [11] states the program of rural development and economic diversification in rural agricultural areas can be a solution to reduces the flow of excessive migration to urban areas. This indicates the importance of increasing capital development priorities in the region are still dominant agricultural sector. This study aimed to examine the impact of the increase in local government spending and investments on internal migration and the economy in areas that are still dominant agricultural sector. 2. Material and Methods This study used a series of data from 1995 to 2015 from several sources such as the BPS-Statistics Indonesia, the Ministry of Finance, the Ministry of Labor and the Investment Coordinating Board (BKPM). In this study, Sulawesi Selatan region covering 24 districts/cities grouped into five regions, each region includes several districts/cities nearby. The five region are the region of Makassar in Southwest, Parepare in the West, Palopo in the North, Bone in the East and Bulukumba in the southeastern. Internal migration used in the study is limited to recent migration in the province of Sulawesi Selatan. A person is classified as migrants where the region district/city of residence when the survey was different from the region district/city of residence 5 years ago before the survey [3]. To estimate the impact of government expenditure and investments in internal migration and economy in Sulawesi Selatan, in this study built econometric models in the form of a system of simultaneous equations, consisting of 43 structural equations and 30 identity equations. Structural models are arranged in three blocks namely; (1) migration, (2) labor market, and (3) output. From the formulation of the model is known that there were 58 variables predetermined variables in the model so that the total amount to as much as 131 (K = 131). The maximum number of variables in the equation is 7 (M = 7), so that the 170 International Journal of Sciences: Basic and Applied Research (IJSBAR)(2017) Volume 32, No 1, pp 169-180 identification of the above model is (131-7) > (73-1). Based on the criteria order condition then identify existing structural equation model is over-identified, hence the model estimation can be done using a two-stage least squares method (2SLS). Statistical criteria for validating the estimated value of the econometric model used: Root Mean Squares Percent Error (RMSPE) and Theil's Inequality Coefficient (U). Policy simulations performed with historical simulation (ex-post) in the period from 2011 to 2015, and is intended to evaluate the policy at that time so it can be used as input for future policy implications. Impact analysis and policy alternatives to the economic model of migration consists of (1) changes in local government spending and (2) changes in the investment, each distinguished by agriculture and non-agriculture. 3. Results 3.1. Result for model validation Model validation procedures performed to assess whether the model is valid enough to make a policy simulation. The criteria for a good estimation model is a model that generates value RMSPE and U-Theil getting smaller. U-Theil coefficient (U) ranges between 0 and 1. If the value of U is 0, it means that the estimation of the model is perfect, whereas if U is 1, the model is rated naive [6]. RMSPE indicators show that 90.4 per cent of the variable has a value below 30 percent and the remainder have percentages below 10 percent. This shows that during the observation period 2011-2015 the value of endogenous variable estimation result is quite close to the actual values. Based on the validation indicator U-Theil, almost all variables have a U-Theil values below 0.3, there are only 2 of the 73 variables worth over 0.3. The number of variables that have the U-theil value below 0.1 by 65 variables. Table 1 presents the results of validation for the 35 variables selected from 73 models of endogenous variable. Based on the above indicators met criteria for a good model, and the model can be used to simulate the impact of policies on a number of variables that are the core of this research.. 3.2. Internal migration and economic development in Sulawesi Selatan Economic development of a region can be described through the development of the gross domestic product (GDRP) and employment opportunities. Figure 1 shows the development of the GDRP and employment in the agricultural and non-agricultural sector in Sulawesi Selatan in 2000-2015. The GDRP agricultural sector in Sulawesi Selatan showed a rising trend each year, but the number of its agricultural sector employment tends to decrease in recent years. On the other hand, the GDRP and employment in the non-agricultural sector is likely to increase and the increase is higher than the agricultural sector. This is an indication, the economic development of the agricultural sector is not accompanied by the creation of new employment opportunities in the agricultural sector. Development of the agricultural sector seems more directed at activities that capital intensive than labor intensive [1]. Table 2 shows the GDRP, employment and internal migration in Sulawesi Selatan 2005-2015. The economic structure of Sulawesi Selatan is concentrated in the region Makassar. Nearly half the economy of Sulawesi Selatan (45.4 percent) came from Makassar region, and 41.4 percent were non-agricultural sector contribution. Likewise with labor, Makassar region is a region with the largest accommodating workers in Sulawesi Selatan. Although the non-agricultural sector has dominated the agricultural sector is still the sector base in Sulawesi Selatan, mainly outside the region Makassar. The agricultural sector still holds a lot of manpower and sensitive has been linked to non-agricultural sector [2]. Reduced employment agricultural sector 171 International Journal of Sciences: Basic and Applied