Scale Inefficiency in Village Fund Utilization: Evidence from Data Envelopment Analysis and Benchmarking across Papua and Maluku, Indonesia
DOI:
https://doi.org/10.64137/31080030/IJFEMS-V2I2P114Keywords:
Data Envelopment Analysis, Village Fund, Poverty Reduction, Efficiency, Percentage of the Non-Poor Population, The Inverse Poverty Gap Index, The Inverse Poverty Severity IndexAbstract
This data, despite not yet being a full-fledged led type of development, has succeeded in proving that even with massive Village Fund transfers, welfare improvement is still inequitable across Indonesian regions like Papua as well as Maluku, which indicates the ineffectiveness of local governments in transforming fiscal resources into real socio-economic outcomes. Using an output-oriented Data Envelopment Analysis (DEA) (VRS), the present study investigates the efficiency of Village Fund usage in improving welfare and reducing poverty simultaneously among 61 regencies and cities located within Papua and Maluku during 2020–2022. The independent variable (Village Fund) is treated as input, and the outputs are defined as the proportion of non-poor Population; inverse Poverty Gap Index; and inverse Poverty Severity Index. Results show that most of the local governments registered a relatively high level of DMU VRSTE, indicating suitable managerial performance. Nevertheless, weaker CRSTE and SE scores indicate that inefficiency is mostly linked to imperfect operational scale rather than technical proficiency. Findings: In 2020, only 4 of the 61 DMUs (6.56%) were fully efficient, while this number rose to 8 DMUs by using VRS in only one year (2021), and decreased to 5 DMUs (8.20%) again through the years, as seen within VRS model output between two other years with similar efficiency scores, with a Q3=5; Table 2. Over the observation period, there were eight regencies/cities that were able to achieve the efficiency frontier: Ambon City, Jayapura City, North Halmahera Regency, South Halmahera Regency, Morotai Island Regency (Morotai), Taliabu Island Regency, Tidore Islands City, and Sula Islands Regency. Out of these regions, Ambon City has a position as the main benchmark in 2020 and 2022, and North Halmahera Regency and Taliabu Islands Regency served primarily as the main benchmark in which years. These results suggest that better performance with the Village Fund has two components: not only do regions need adequately sized fiscal transfers, but they also have to wisely use funds and strengthen the mechanisms for inter-regional learning and emulate efficient practices from other regions. This study contributes to the literature on fiscal decentralization by demonstrating that operational scale is a more dominant source of inefficiency than managerial capacity in underdeveloped regions. Furthermore, the DEA benchmarking framework provides practical guidance for local governments that are not yet efficient in formulating improvement strategies based on the characteristics of comparison regions with better performance. However, since DEA measures relative efficiency based on an observed sample and does not explicitly incorporate factors such as governance quality, institutional capacity, or the composition of Village Fund usage, future research is recommended to integrate governance variables and a dynamic DEA approach to provide a more comprehensive evaluation of the efficiency of Village Fund management.
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