Financial Inclusion,Digital Payment Penetration, And Economic Growth On The Island Of Java

Abstract

This study aims to investigate how economic growth in six provinces on the island of Java (DKI Jakarta, West Java, Central Java, DI Yogyakarta, East Java, and Banten) was influenced by financial inclusion and digital payment penetration from 2019 to 2020. These regions were selected due to Java's strategic role as the center of financial technology adoption in Indonesia and as the main driver of national GDP. To select the estimation model, this study used quantitative techniques and panel data regression. According to the Chow and Hausman tests, the Fixed Effects Model (FEM) was the best model for estimation. To address the issues of heteroscedasticity and autocorrelation that arise in conventional assumption testing, the Cluster Robust Standard Errors estimation technique was used to ensure the validity of the results. Partial testing shows that the financial inclusion variable, calculated based on the number of cards in circulation, has a positive coefficient, although it does not have a significant effect on economic growth. This indicates that increasing access to formal financial services has not been able to directly boost economic growth. Conversely, the implementation of digital payments, calculated based on the number of QRIS merchants, has a negative and significant impact on economic growth during the observation period. This phenomenon shows that there are challenges in the digital transition phase, where the increase in local economic output cannot offset the costs of technological adaptation and changes in people's consumption patterns. Both independent variables influence economic growth simultaneously, with an explanatory power (R-Squared) of 67.15%. This study provides important information for regulators to encourage greater digitalization, pay attention to the operational burdens of business actors, and monitor financial access to more productive sectors

Keywords: financial inclusion, digital payment penetration, economic growth, STATAMP17.