Structural change in the export demand function for Indonesia: Estimation, analysis and policy implications
This paper investigates the aggregate export demand behaviour in Indonesia with annual data for the period 1963-2005. Both the Pesaran bounds testing and the Johansen cointegration tests results suggest that there exists a long-run relationship between real exports, world income and the relative export prices in Indonesia. The long-run income elasticity of the demand for Indonesia's exports is significantly greater than one and the long-run relative export price elasticity of the demand for its exports is significantly lower than one. The recursive and rolling regressions and the Hansen-Johansen stability test results suggest that the export demand function for Indonesia has undergone a significant structural change since the late-1990s, which is reflected in the decrease of the income elasticity, and an increase in the relative export price elasticity, of demand for Indonesian exports. These results explain the relatively slow growth of Indonesian exports since 2000 that has slowed the country's economic recovery from the financial crises of 1997-1998.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Pesaran, M.H. & Shin, Y., 1993.
"Cointegration and Speed of Convergence to Equilibrium,"
Cambridge Working Papers in Economics
9311, Faculty of Economics, University of Cambridge.
- Pesaran, M. Hashem & Shin, Yongcheol, 1996. "Cointegration and speed of convergence to equilibrium," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 117-143.
- Hadi Soesastro & M. Chatib Basri, 2005.
"The Political Economy of Trade Policy in Indonesia,"
Trade Working Papers
22033, East Asian Bureau of Economic Research.
- Hadi Soesastro & M. Chatib Basri, 2005. "The political economy of trade policy in Indonesia," CSIS Economics Working Paper Series WPE092, Centre for Strategic and International Studies, Jakarta, Indonesia.
- Augustine C. Arize, 2001. "Traditional export demand relation and parameter instability: An empirical investigation," Journal of Economic Studies, Emerald Group Publishing, vol. 28(6), pages 378-396, October.
- Abbas Valadkhani, 2002.
"Modelling Demand for Broad Money in Australia,"
School of Economics and Finance Discussion Papers and Working Papers Series
120, School of Economics and Finance, Queensland University of Technology.
- Bahmani-Oskooee, Mohsen & Niroomand, Farhang, 1998. "Long-run price elasticities and the Marshall-Lerner condition revisited," Economics Letters, Elsevier, vol. 61(1), pages 101-109, October.
- Gulasekaran Rajaguru & Reza Siregar, 2002.
"Sources of Variations Between The Inflation Rates of Korea, Thailand and Indonesia During The Post-1997 Crisis,"
Centre for International Economic Studies Working Papers
2002-29, University of Adelaide, Centre for International Economic Studies.
- Siregar, Reza & Rajaguru, Gulasekaran, 2005. "Sources of variations between the inflation rates of Korea, Thailand and Indonesia during the post-1997 crisis," Journal of Policy Modeling, Elsevier, vol. 27(7), pages 867-884, October.
- Singh, Tarlok, 2002. "India's trade balance: the role of income and exchange rates," Journal of Policy Modeling, Elsevier, vol. 24(5), pages 437-452, August.
- M. Hashem Pesaran & Ron P. Smith, 1998. "Structural Analysis of Cointegrating VARs," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 471-505, December.
- Bahmani-Oskooee, Mohsen, 1986. "Determinants of international trade flows : The Case of Developing Countries," Journal of Development Economics, Elsevier, vol. 20(1), pages 107-123.
- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
- Muscatelli, Vito Antonio & Stevenson, Andrew A & Montagna, Catia, 1995. "Modeling Aggregate Manufactured Exports for Some Asian Newly Industrialized Economies," The Review of Economics and Statistics, MIT Press, vol. 77(1), pages 147-55, February.
- M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
- William James & David Ray & Peter Minor, 2003. "Indonesia'S Textiles And Apparel: The Challenges Ahead," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 39(1), pages 93-103.
- Masih, Rumi & Masih, Abul M. M., 2000. "A Reassessment of Long-Run Elasticities of Japanese Import Demand," Journal of Policy Modeling, Elsevier, vol. 22(5), pages 625-639, September.
- Hamori, Shigeyuki & Matsubayashi, Yoichi, 2001. "An empirical analysis on the stability of Japan's aggregate import demand function," Japan and the World Economy, Elsevier, vol. 13(2), pages 135-144, April.
When requesting a correction, please mention this item's handle: RePEc:eee:jpolmo:v:31:y:2009:i:2:p:260-271. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.