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Abstract

Village Funds are a fiscal policy instrument designed to promote local development and stimulate economic growth through various categories of village expenditure. However, their effectiveness in fostering economic growth and the mediating role of the Human Development Index (HDI) remain insufficiently explored in Aceh Province, Indonesia. This study examines the effects of Village Fund expenditures on village governance, village development, community development, community empowerment, and disaster management on the HDI and economic growth. It also investigates the mediating role of the HDI in the relationship between Village Fund expenditures and economic growth. Using panel data from 23 regencies and municipalities in Aceh Province over the period 2015–2024, this study employs panel data regression using the Random Effects Model (REM), followed by the Sobel test to assess the mediation effect. The empirical findings indicate that expenditures on village governance, community development, community empowerment, and disaster management have significant positive effects on the HDI. However, the HDI does not have a significant effect on economic growth and does not mediate the relationship between Village Fund expenditures and economic growth. These findings suggest that Village Funds may contribute to economic growth primarily through direct channels, particularly expenditures on community development and community empowerment. Therefore, Village Fund management should prioritize productive investment programs that enhance community capacity, strengthen local economic resilience, and support sustainable local development.

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Village funds Economic growth Human Development Index Panel data regression Aceh Province

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Copyright (c) 2026 Suzanna Suzanna, Sofyan Syahnur, Muhammad Nasir

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Suzanna, S., Syahnur, S., & Nasir, M. (2026). The Effect of Village Funds on Economic Growth in Aceh Province. Grimsa Journal of Business and Economics Studies, 4(1), 14–27. https://doi.org/10.61975/gjbes.v4i1.133
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