Local Economic Development and Fiscal Capacity: An Analysis of Economic Transformation in Padang Panjang City

Abstract

This study examines the development of local economic potential in Padang Panjang City, West Sumatra, and its implications for economic growth and local own-source revenue (PAD). The study responds to the need for a critical assessment of local transformation by combining Rostow’s stages of economic growth with a local economic development perspective. A qualitative library research approach was employed using journal articles, books, previous studies, government documents, and statistical publications. Relevant sources were selected according to their relevance and analyzed through reduction, categorization, interpretation, synthesis, and source triangulation. The findings indicate that Padang Panjang has a diversified economic structure encompassing agriculture, livestock, manufacturing, trade, services, tourism, and creative industries. However, the transformation is uneven across sectors. Agricultural production remains important but fluctuates, while manufacturing has recovered from the pandemic but its contribution to regional output remains stable. Tourism and creative industries show expansion, although infrastructure, promotion, market access, and institutional capacity remain constraints. Therefore, the evidence does not support categorizing Padang Panjang definitively as having reached Rostow’s maturity stage. Rather, the city exhibits overlapping characteristics of the preconditions for take-off and take-off stages. The study further finds that economic potential does not automatically translate into local revenue because fiscal benefits depend on formalization, value chains, local spending, and the connection between economic activities and taxable or retributable transactions. Policy should consequently prioritize value-added development, sectoral linkages, tourism integration, downstream processing, and institutional coordination to strengthen local economic resilience and fiscal capacity.