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All Journal Journal of Regional Economics Indonesia
Gunawan Prasetio
Department of Islamic Economics, Faculty of Islamic Economics and Business, Universitas Islam Negeri Sumatera Utara Medan
Economics, Econometrics & Finance

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Beyond Capital Accumulation: Investment, Islamic Finance, and Labor Force Participation as Drivers of Regional Economic Growth in Indonesia Gunawan Prasetio; Isnaini Harahap; Aqwa Naser Daulay
Journal of Regional Economics Indonesia Vol. 7 No. 2 (2026): Agustus 2026
Publisher : University Merdeka Malang

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.26905/jrei.v7i2.17607

Abstract

Regional disparities in economic growth across Indonesian provinces highlight the need to identify key drivers of inclusive and sustainable development. This study examines the effects of investment, Islamic financing, and labor force participation rate (LFPR) on regional economic growth across 34 Indonesian provinces during 2020–2025. Using balanced panel data obtained from Statistics Indonesia (BPS), the Financial Services Authority (OJK), and the Investment Coordinating Board (BKPM), the analysis employs a Fixed Effects Model selected through Chow and Hausman tests. The findings reveal that investment and Islamic financing exert positive and statistically significant effects on regional economic growth, with investment emerging as the most influential determinant. In contrast, LFPR shows a negative but statistically insignificant relationship, suggesting that labor quantity alone is insufficient to stimulate growth without improvements in productivity and formal-sector absorption. Collectively, the three variables significantly explain regional growth dynamics. These findings underscore the importance of strengthening productive investment, expanding access to Islamic finance, and enhancing labor quality to achieve more balanced and sustainable regional development in Indonesia.
Co-Authors Aqwa Naser Daulay Isnaini Harahap