A medium-term multi-sectoral dynamic simulation model of the Indonesian economy

This thesis represents an attempt to build a medium-term simulation model of the Indonesian economy within a comparatively disaggregated general equilibrium frame. This model has been constructed in order to study the overall development performance of the economy between 1966 and 1985, based on annual data available between 1966 and 1980. The Indonesian model of the economy is directed to explore the growth potential of the economy as well as the effect on income distribution, employment, and poverty during the period indicated above;The model consists of a model of economic growth and a policy model so that the process of growth can be analyzed and explained by means of quantitative variables, and at the same time may be favorably influenced by a set of policy variables. The model has several functions of relations, namely production, investment, international trade, public finance, monetary, price, employment, saving-consumption, and income distribution. Eight sectors of economic activities are considered in this model. These sectors are identical with the GDP originating sectors used in the national income account. Four income classes are selected to arrive at the income distribution function, the determination of which is based on the sectoral income of the economic activities;The relationships between functions are formulated in a set of non-linear equations, each of them simulating activity from year to year. The set of equations of the model is solved simultaneously and dynamically from the years 1966 to 1985. The whole system of the model is exercised in several alternative simulation runs including the basic run;It was found that the model simulates reasonably well the historical path of the Indonesian economy of 1966-1980, based on the performance of some selected endogenous macroeconomic variables. It is also discovered that the Indonesian economy is still in its early stage of development. Inequality in income distribution has increased since the beginning of the Five Year Development Plans;From the several alternative runs, the simulation has given useful insight into the system, not only what the economy will do, but to know as well, why it behaves as it does. In this thesis, outputs of the simulation runs, as well as the historical data on the Indonesian economy, are clearly tabulated in an extensive way.