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Balance of Payment Dynamic in Indonesia and the Structure of Economy

Author

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  • Telisa Falianty

    (Department of Economics, Faculty of Economics and Business Universitas Indonesia)

Abstract

This paper will assess in aggregate and detail the trend of BOP and its component in Indonesia. Stationarity test will be employed to each component of Indonesian BOP to assess the persistency. This study will calculate the balance of payment constrained growth (BOPC) using Kalman Filter technique (state space model). The BOP, secondary income, and financial account are found to be stationer which means that the data are mean reverting. On the other hand, current account balance, trade balance, service balance, primary income, and capital account balance are unit root. This paper found the evidence of the importance of commodity price to Indonesian current account and export. Indonesian dependency on commodity-based export need to be restructured. Indonesia should also consider the side effect of FDI as a source of financing for current account deficit, without ignoring the positive effect of FDI and the volatility of portfolio investment. The persistency of primary income deficit should also become Indonesian future policy agenda.

Suggested Citation

  • Telisa Falianty, 2017. "Balance of Payment Dynamic in Indonesia and the Structure of Economy," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 63, pages 53-80, June.
    • Handle: RePEc:lpe:efijnl:201704
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    References listed on IDEAS

    as
    1. Prema-Chandra Athukorala, 2006. "Post-crisis export performance: The Indonesian experience in regional perspective," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 42(2), pages 177-211.
    2. Erica Clower & Hiro Ito, 2012. "The Persistence of Current Account Balances and its Determinants : The Implications for Global Rebalancing," Macroeconomics Working Papers 23381, East Asian Bureau of Economic Research.
    3. Anil Kumar, 2007. "Does foreign direct investment help emerging economies?," Economic Letter, Federal Reserve Bank of Dallas, vol. 2(jan).
    4. repec:idn:journl:v:20:y:2017:i:2:p:1-26 is not listed on IDEAS
    5. World Bank, 2017. "Indonesia Economic Quarterly, June 2017," World Bank Publications - Reports 30841, The World Bank Group.
    6. MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-618, Nov.-Dec..
    7. Abdelhak S. Senhadji & Claudio E. Montenegro, 1999. "Time Series Analysis of Export Demand Equations: A Cross-Country Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 46(3), pages 1-2.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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