Analysis of Regional Financial Performance on Capital Expenditure Allocation and Economic Growth in Regencies and Municipalities of Central Java Province

This study aims to analyze the influence of regional financial performance through the regional financial independence ratio, regional financial effectiveness ratio, and regional financial efficiency ratio on capital expenditure allocation and economic growth in Central Java Province during the 2021–2024 period. Furthermore, this study also examines the effect of capital expenditure allocation on economic growth. This study uses secondary data in the form of budget realization reports and Gross Regional Domestic Product (GRDP) data from 35 regencies/cities in Central Java Province. The analytical method used is panel data regression. The results show that the regional financial independence ratio and regional financial effectiveness ratio have a positive and significant effect on capital expenditure allocation, while the regional financial efficiency ratio has a negative but significant effect on capital expenditure allocation. The independence ratio and effectiveness ratio have a positive but insignificant effect on economic growth, while the efficiency ratio has a negative but significant effect on economic growth. The test results also prove that capital expenditure allocation has a positive and significant effect on economic growth in Central Java Province.