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The Determinants of Trade Balance and Adjustment to the Crisis in Indonesia

Author

Listed:
  • Iman Sugema

    (Institut Pertanian Bogor, Indonesia)

Abstract

This paper investigates the effects of real exchange rate depreciation and supply side shocks on exports and imports. Indonesia provides an interesting case study of the subject because this country experienced a large depreciation, banking sector collapse, and socio-political turbulence during the Asian crisis episode. The results suggest that trade balance will improve following devaluation through an increase in exports and a collapse in imports. Because the elasticity of imports with respect to the real exchange rate is greater than that of exports, improvement in trade balance would be mainly come from import compression. It is also found that export performance could have been far better if Indonesia did not suffer from banking problems and socio-political turbulence.

Suggested Citation

  • Iman Sugema, 2005. "The Determinants of Trade Balance and Adjustment to the Crisis in Indonesia," Centre for International Economic Studies Working Papers 2005-08, University of Adelaide, Centre for International Economic Studies.
    • Handle: RePEc:adl:cieswp:2005-08
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    File URL: http://www.adelaide.edu.au/cies/papers/0508.pdf
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    References listed on IDEAS

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    1. Ahamed, Liaquat, 1986. "Stabilization Policies in Developing Countries," The World Bank Research Observer, World Bank, vol. 1(1), pages 79-110, January.
    2. Hal Hill, 2000. "Indonesia: The Strange and Sudden Death of a Tiger Economy," Oxford Development Studies, Taylor & Francis Journals, vol. 28(2), pages 117-139.
    3. Van Wijnbergen, Sweder, 1986. "Exchange rate management and stabilization policies in developing countries," Journal of Development Economics, Elsevier, vol. 23(2), pages 227-247, October.
    4. Sebastian Edwards & Liaquat Ahamed, 1986. "Economic Adjustment and Exchange Rates in Developing Countries," NBER Books, National Bureau of Economic Research, Inc, number edwa86-1, March.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Deepak Adhikari, 2018. "Impact of Exchange Rate on Trade Deficit and Foreign Exchange Reserve in Nepal: An Empirical Analysis," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 30(1), pages 35-48, April.
    2. repec:asi:ajoerj:2013:p:605-617 is not listed on IDEAS
    3. Gulzar Ali & Zhaohua Li, 2017. "An Empirical Investigation on the Role of exports, imports and its Determinants in Foreign Trade of Pakistan," Information Management and Business Review, AMH International, vol. 8(6), pages 39-58.
    4. Hicham Sadok, 2018. "The Effect of Exchange Rates on Trade Balance: An Empirical Study of Morocco," GATR Journals jber151, Global Academy of Training and Research (GATR) Enterprise.
    5. Makrem Ben Doudou & Ridha Nouira & Sami Saafi & Aram Belhadj, 2022. "Do exchange rate changes have threshold effects on the trade balance? Evidence from Tunisia," Economic Change and Restructuring, Springer, vol. 55(1), pages 511-537, February.
    6. Thi Anh-Dao Tran & Thi Thanh Binh Dinh, 2014. "FDI inflows and trade imbalances: evidence from developing Asia," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 11(1), pages 147-169, June.
    7. Mustafizur Rahman & Mazbahul Golam Ahamad & A K M Nazrul Islam & Muhammad Al Amin, 2012. "Agricultural Trade between Bangladesh and India: An Analysis of Trends, Trading Patterns and Determinants," CPD-CMI Working Paper 3, Centre for Policy Dialogue (CPD).
    8. Gulzar Ali & Ghulam Mustafa & Said Zamin Shah, 2020. "Performance of Agriculture Sector in Foreign Trade of Pakistan," Global Economics Review, Humanity Only, vol. 5(1), pages 12-23, March.
    9. Alhaji Jibrilla Aliyu & Shehu Mohammed Tijjani & Caroline Elliott, 2015. "Asymmetric cointegration between exchange rate and trade balance in Nigeria," Cogent Economics & Finance, Taylor & Francis Journals, vol. 3(1), pages 1045213-104, December.
    10. Gulzar Ali & Zhaohua Li, 2016. "Analyzing the role of Imports in Economic Growth of Pakistan; Evidence from ARDL Bound Testing Approach," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 6(9), pages 19-37, September.

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    More about this item

    Keywords

    Real Exchange Rate; Export; Import; Indonesia.;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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