IMPACT OF THE VILLAGE FUND PROGRAM ON POVERTY ALLEVIATION IN INDONESIA

초록

High poverty incidence and stagnant decrease in poverty rates have always been a big challenge for developing countries. To address this issue, the Government of Indonesia made a breakthrough by implementing a program called Village Fund Transfer in 2015. The government is committed to enhancing its economy and development, especially in the rural and outermost regions, by granting funds and authority to each of over seventy thousand villages in Indonesia. This study explores the causal effect of the Village Fund Program on poverty alleviation in Indonesia using an Impact Evaluation approach by applying the Difference-in-Difference Event Study Framework. Due to data limitation, the study uses approximately 500 district-level data and compares the poverty rates of districts receiving the program funds and those not receiving the program funds between 2011 and 2021. By employing this identification strategy, this study is able to provide more robust estimates of the program’s impact and its dynamic variation yet is unable to consider the intensity variations within the recipient districts. In addition, the observed districts were divided into three groups based on their geographical conditions using a Construction Cost Index. The empirical results on all districts data found a significant impact of the Village Fund Program on reducing poverty four years after the program’s inception in 2015. A significant impact was also seen starting in 2017 for districts with low geographical disadvantage, and from 2018 for districts with intermediate geographical disadvantage. However, the study also revealed that this program has no significant impact in highly geographically disadvantaged districts. This emphasizes the importance of initial geographical and infrastructure conditions. Therefore, it is argued that the highly geographically disadvantaged regions should prioritize their village fund on infrastructure development rather than community empowerment programs.

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