The Analysis of Causality Relationship Between Export and Economic Growth in Indonesia Year 1986:1-2003:4 Using ARDL Approach

Abstract

Indonesia as less developed country (LDC) still needs much investment to encourage the production especially in export goods. By encouraging the export, it will stimulate the economic growth. Especially in recent condition, Indonesia directly affected by the globalization. Where there are many foreign goods enter the Indonesia's market and compete with domestic goods. In this case, the domestic products lose from the foreign product. It indicates that Indonesia not ready competes in global market and the product itself still lack of product-based export quality. The objective of this research is to know what the relationship between the export and economic growth in Indonesia. Is there bidirectional causality or unidirectional causality between export and economic growth? To answer this question, the researcher was applying the Granger Causality Test combined with Error Correction Model based ARDL approach by Pesaran and Shin. The data used in this research were export and economic growth taken from Indonesia Statistic Center Bureau (BPS), Indonesia Export-Import Bureau (BEXI), and Bank Indonesia for the period 1986:1-2003:4. The result was that there was bidirectional causality from export to economic growth and inversely economic growth to export. From the result can be concluded that the presence of export positively influence to economic growth. Even the export stronger affects economic growth than economic growth affect export.