Ph.D. Thesis:
AN ANALYSIS OF INDONESIA’S TRADE POLICY PRE AND POST 1997 FINANCIAL CRISIS
ABSTRACT
The Asian economic crisis in 1997 brought Indonesia into a decline of economic performance. Prior to that, Indonesia had reached a miraclous level of economic growth. After the crisis, conflicts in trade policy took place in Indonesia. The ministry of finance and the ministry of trade were in favor of export promotion, while the ministry of agriculture and the ministry of industry were in favor of import substitution. This study attempts to resolve the conflict.
This empirical research investigates the relationship of exports with economic growth by analyzing the hypothesis of Export Led Growth (ELG) using annual time series data for the Indonesian economy from 1967 to 2007.The variable used are Real GDP, real exchange rate, real export, gross fixed capital formation, terms of trade, and a dummy variable for 1997 financial crisis. The study applies various sophisticated econometric techniques: the unit root test, the cointegration test, vector auto regression (VAR), the error correction model (ECM), impulse response function (IRF), and the Granger causality test. The data were collected from International Financial Statistics (2007), World Development Indicator (2007), The Beareau Statistics of Indonesia (2010), and Ministry of Trade of Indonesia (2010).
The results of this study show that the ELG is not valid for Indonesia in the period 1967-2007 (pre and post crisis). Over the period 1983-2007 from the year President Soeharto took export promotion intensively to a decade after that, the ELG is not valid in Indonesia. The crisis significantly affects all variables in this study in the short run: GDP growth, export growth, investment growth, exchange rate, and terms of trade. The reality is that in Indonesia export led growth is not a cause of economic growth. Hence, Indonesia should not maintain export promotion strategy post 1997 financial crisis. Therefore, One possible solution may be by lowering import more than in proportion to the decline in gross domestic absorption.
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