Rural development from village funds, village-owned enterprises, and village original income

Abstract

This study investigates whether village funds, village-owned enterprises (henceforth, BUMDes), and village original income in Indonesia (PADes) enhance rural development. We employ three empirical methodologies to analyze data collected from 361 districts across Indonesia. These methods encompass cross-section regression, Difference-in-Difference (DID) technique, and Structural Equation Model (SEM)-based mediation analysis. The findings show that village funds positively and significantly impact rural development (measured using the village development index). However, the impact of BUMDes on rural development shows weak evidence. The quasi-experiment also reveals that districts with higher funding for their villages do not experience greater improvements in the village development index between 2016 and 2020. Furthermore, our study indicates that PADes play a crucial role in determining rural development, either directly or as a mediator for village funds and BUMDes. Policymakers should monitor the allocation of village funds to evaluate future allocation policies. Additionally, PADes performance is important for determining village fund transfers and development progress.

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