This paper explores the impacts of foreign and domestic demand on Indonesia’s exports within demand and supply frameworks using aggregate data of 1971 - 2007. In contrast to many previous studies employing a single equation model, the paper investigates such relationship by dealing with plausible simultaneity between quantity and price within demand and supply of exports using a simultaneous equation framework, which also enables one to distinct between pull (foreign demand) and push (cost) factors of exports. To capture effects of secular and cyclical movements on exports, we dissect income variables into trend and business cycle as proxies of productive capacity and capacity utilization rate, respectively. Our results suggest that both demandand supply-price elasticity are elastic, and secular and cyclical movements may have contrast effects on exports. The production capacity is positively attributed to exports performance, while the capacity utilization negatively affects exports, which confirms the customary version of domestic-demand pressure hypothesis. Some economic shocks and policies also play roles in determining exports performance. All estimated coefficients are statistically stable over the period under study. The findings draw policy implications namely the importance of price-based policy, provision of adequate and sound infrastructures, and further development of human capital-based industrialization.
KeywordsExportsDemand And Supply For ExportsDomestic Demand PressureIndonesiaSimultaneous Equations
R. K. Koshal, V. S. Shukla and G. P. Koirala, “Demand and Supply of Indian Exports: A Simultaneous Equation Approach,” Journal of Asian Economics, Vol. 3, No. 1, 1992, pp. 73-83. doi:10.1016/1049-0078(92)90005-J
H. S. Houthakker and S. P. Magee, “Income and Price Elasticities in World Trade,” Review of Economics and Statistics, Vol. 51, No. 2, 1969, pp. 111-125. doi:10.2307/1926720
M. Bahmani-Oskooee, “The Determinants of Interna- tional Trade Flows,” Journal of Development Economics, Vol. 20, No. 1, 1986, pp. 107-123. doi:10.1016/0304-3878(86)90007-6
R. Faini, “Export Supply, Capacity and Relative Prices,” Journal of Development Economics, Vol. 45, No. 1, 1994, pp. 81-100. doi:10.1016/0304-3878(94)90060-4
A. A. Hossain, “Structural Change in the Export Demand Function for Indonesia: Estimation, Analysis and Policy Implications,” Journal of Policy Modeling, Vol. 31, No. 2, 2009, pp. 260-271. doi:10.1016/j.jpolmod.2008.06.003
M. Goldstein and M. S. Khan, “The Supply and Demand for Exports: A Simultaneous Approach,” Review of Economics and Statistics, Vol. 60, No. 2, 1978, pp. 275-286. doi:10.2307/1924981
J. A. Dunlevy, “A Test of the Capacity Pressure Hypothesis within a Simultaneous Equations Model of Export Performance,” Review of Economics and Statistics, Vol. 62, No. 1, 1980, pp. 131-135. doi:10.2307/1924281
R. J. Ball, J. R. Eaton and M. D. Steuer, “The Relation- ship between U.K. Exports Performance in Manufactures and the Internal Pressures of Demand,” Economic Journal, Vol. 76, No. 303, 1966, pp. 501-518. doi:10.2307/2229518
M. Goldstein and M. S. Khan, “Income and Price Effects in Foreign Trade,” In: R. Jones and P. Kenen, Eds., Handbook of International Economics, Vol. 2. Elsevier, New York, 1985.
M. C. Basri and H. Hill, “Ideas, Interest and Oil Prices: the Political Economy of Trade Reform during Suharto’s Indonesia,” The World Economy, Vol. 27, No. 5, 2004, pp. 633-656. doi:10.1111/j.0378-5920.2004.00619.x
H. Hill, “Indonesia’s Industrial Policy and Performance: Orthodoxy Vindicated,” Economic Development and Cultural Change, Vol. 45, No. 1, 1996, pp. 147-174. doi:10.1086/452261
R. Rahmaddi and M. Ichihashi, “Exports and Economic Growth in Indonesia: A Causality Approach based on Multivariate Error Correction Model,” Journal of International Development and Cooperation, Vol. 17, No. 2, 2011, pp. 53-74.
H. Aswicahyono and M. Pangestu, “Indonesia’s Recovery: Exports and Regaining Competitiveness,” The Developing Economies, Vol. 38, No. 4, 2000, pp. 454-489.
M. Ishida, “Industrialization in Indonesia Since the 1970s,” IDE-JETRO Research Paper No. 5, Chiba-shi, 2003, pp. 1-65.
A. A. Hossain, “Macro-Economics Developments, Policies and Issues in Indonesia 1950-2005,” Malaysian Jour- nal of Economic Studies, Vol. 43. No. 1-2, 2006, pp. 19-67.
BPS, “Statistics of Indonesia,” BPS, Jakarta, various years.
R. Siregar and R. S. Rajan, “Impact of Exchange Rate Volatility on Indonesia Trade Performance in the 1990s,” Journal of Japanese International Economics, Vol. 18, No. 2, 2004, pp. 218-240. doi:10.1016/S0889-1583(03)00050-9
R. Duttagupta and A. Splimbergo, “What Happened to Asian Exports during the Crisis?” IMF Staff Paper, Vol. 51, No. 1, 2004, pp. 72-95.
P. C. Athukorala, “Post-Crisis Export Performances: The Indonesia Experience in Regional Perspective,” Bulletin of Indonesian Economic Studies, Vol. 42, No. 2, 2006, pp. 172-211. doi:10.1080/00074910600873658
T. Anas, “Long-run Determinants of Exports: A Co-Inte- gration Approach,” Proceedings for Development Studies Forum, Jakarta, 11 January 2011.
A. Arize, “The Supply and Demand for Imports and Exports in Simultaneous Model,” Applied Economics, Vol. 19, No. 9, 1987, pp. 1233-1247. doi:10.1080/00036848700000070
S. E. Haynes and J. A. Stone, “Secular and Cyclical Responses of U.S. Trade to Income: an Evaluation of Traditional Model,” Review of Economics and Statistics, Vol. 65, No. 1, 1983, pp. 87-95. doi:10.2307/1924412
F. X. Brown, “Modeling Export Price and Quantities in a Small Open Economy,” Review of Economics and Statistics, Vol. 64, No. 2, 1982, pp. 346-347. doi:10.2307/1924318
J. Riedel, “The Demand for LDC Exports of Manufactures: Estimates from Hong Kong,” Economic Journal, Vol. 98, No. 389, 1988, pp. 138-148. doi:10.2307/2233515
R. C. Davidson and J. G. MacKinnon, “The Interpretation of Test Statistics,” Canadian Journal of Economics, Vol. 18, No. 1, 1985, pp. 38-57. doi:10.2307/135112
A. Arize, “An Econometric Investigation of Export Behavior in Seven Asian Developing Countries,” Applied Economics, Vol. 22, No. 7, 1990, pp. 891-904. doi:10.1080/00036849000000027
J. U Farley and M. Hinich, “A Test for a Shifting Slope Coefficient in a Linear Model,” Journal of American Statistical Association, Vol. 65, No. 331, 1970, pp. 297-318. doi:10.2307/2284298
J. U. Farley, M. Hinich, and T.W. McGuire, “Some Com- parison of Tests for a Shift in the Slopes of a Multivariate Linear Time Series Model,” Journal of Econometrics, Vol. 3, No. 3, 1975, pp. 297-318. doi:10.1016/0304-4076(75)90037-8
J. Jongwanich, “Determinants of Export Performances in East and Southeast Asia,” The World Economy, Vol. 33 No, 1, 2010, pp. 20-41. doi:10.1111/j.1467-9701.2009.01184.x
D. Dasgupta, E. Hulu and B. D. Gupta. “The Determi- nants of Indonesia’s Non-oil Exports,” In F. Iqbal and E. J. William, Eds., “Deregulation and Development in Indonesia,” Preager, Westport, 2002, pp. 71-89.
LPEM-UI, “Monitoring the Investment Climate in Indonesia: A Report from the Mid 2005 Survey,” LPEM-UI in Collaboration with World Bank, Jakarta, 2005.
G. Fane and T. Condon, “Trade Reform in Indonesia 1987-1995,” Bulletin of Indonesian Economic Studies, Vol. 32, No. 3, 1996, pp. 33-54. doi:10.1080/00074919612331337018
International Monetary Fund, “IMF-Supported Programs in Indonesia, Korea, and Thailand: A Preliminary Assessment,” Occasional Paper, IMF, Washington DC, 1999.
H. Hill, “The Indonesian Economy: Growth, Crisis and Recovery,” The Singapore Economic Review, Vol. 52, No. 2, 2007, pp. 137-166. doi:10.1142/S0217590807002610
G. Fane, “Indonesia Economic Policies and Performance 1960-1998,” World Economy, Vol. 22, No. 5, 1999, pp. 651-667. doi:10.1111/1467-9701.00223