Fiscal Rigidity and Labour Exposure in Indonesia’s Extractive Districts: A Dynamic Panel Analysis of Just Transition Readiness, 2015–2024

Abstract

Background: Indonesia’s net-zero commitment attaches a schedule to the decline of an activity that simultaneously funds district development budgets through derivative revenue sharing and employs a large share of the local workforce, yet the fiscal and labour channels of that exposure have never been estimated on the same subnational units.

Objective: To quantify how contractions in natural-resource revenue sharing and in mining value added transmit to district capital expenditure and open unemployment, and to derive a district-resolution just-transition readiness typology.

Methods: A balanced panel of 118 extractive-producing Indonesian districts observed annually from 2015 to 2024 (1,180 district-year observations) was drawn from the 514-district national budget frame. Two-way fixed effects with Driscoll–Kraay standard errors and two-step System GMM with the Windmeijer correction were used; precision, long-run multipliers, budget incidence, and a quadrant projection were derived from the archived estimates.

Results: A 10% fall in revenue sharing was associated with a 4.78% contraction in capital expenditure (95% CI −5.62 to −3.94; p < 0.001), rising to 7.76% in the long run. Capital expenditure absorbed 35.4% of the shock while constituting 18.2% of spending. Mining contraction was associated with higher unemployment (−0.624; p < 0.001), amplified by extractive concentration and attenuated by educational attainment; however, under an 80% output decline, only 17.8% of the exposed employment would appear in the measured rate.

Conclusion: Fiscal exposure is severe and measurable; labour exposure is severe and largely unmeasured. H1 to H5 were supported; H6 is descriptive. A transition transfer indexed to capital-expenditure incidence and district instrumentation of the informal margin are the priorities.