Causality between Regional Economic Independence and Decentralization on Poverty Alleviation and Community Welfare Mediated by Economic Development

Abstract

Poverty and welfare are concrete problems that do not end, especially in developing and poor countries. The East Kalimantan Province, which contributes the most to Indonesia’s natural wealth, has actually experienced economic and social degradation. This study has the ambition to identify the causality between regional economic independence, decentralization, and regional economic development on poverty alleviation and community welfare in East Kalimantan Province during the 2013-2018 period. Panel data collected from nine objects, then interpreted with Structural Equation Modeling (SEM) technique as an empirical approach to test ten hypotheses. WarpPLS software applied to interpret the data. There are eight findings that are in line with the hypothesis, where regional economic independence has a positive-significant effect on regional economic development, but in fact it has a negative-significant effect on poverty alleviation. Regional economic development has a negative-significant effect on poverty alleviation, but it has a positive-significant effect on community welfare. Regional economic development has mediated the relationship between regional economic independence and decentralization on poverty alleviation and community welfare. In addition, poverty alleviation has a significant negative effect on community welfare, but has mediated the relationship between regional economic development and community welfare. Two conclusions in the new findings are in sharp focus because they contradict the hypothesis, namely that decentralization has a significant negative effect on regional economic development and community welfare. Practical and theoretical contributions apply to reveal the linkages between economic aspects of local development to support sustainability. The refinement of methods, data, variables, and analytical techniques is an important note for the follow-up agenda.