Beyond Capital Accumulation: Investment, Islamic Finance, and Labor Force Participation as Drivers of Regional Economic Growth in Indonesia

Authors

  • Gunawan Prasetio Department of Islamic Economics, Faculty of Islamic Economics and Business, Universitas Islam Negeri Sumatera Utara Medan
  • Isnaini Harahap Department of Islamic Economics, Faculty of Islamic Economics and Business, Universitas Islam Negeri Sumatera Utara Medan
  • Aqwa Naser Daulay Department of Islamic Insurance, Faculty of Islamic Economics and Business, Universitas Islam Negeri Sumatera Utara Medan

DOI:

https://doi.org/10.26905/jrei.v7i2.17607

Keywords:

Economic Growth, Indonesia, Investment, Islamic Finance, Labor Force Participation Rate, Regional Development

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.

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Published

2026-08-18

Issue

Vol. 7 No. 2 (2026): Agustus 2026

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Articles

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