Indonesian economy has experienced several stages of

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Indonesian economy has experienced severalstages of economic growth. In the last five years thedeficit fiscal policy has been applied to stabilize theeconomy and to increase export growth. The fiscal andmonetary policies applied by the government did notsignificantly contribute to the economic stabilizationand export growth. During the last ten years, Indone-sia has been recording an average economic growth of5% per year with inflation level of less than 10%. At thesame period, its current account has been declining asthe result of the decline in export. This has led to adecrease in trade surplus which is followed by the rapidincrease in foreign debt.Bank Indonesia reported that the total outstand-ing debt reached Rp 1,667 trillion in year 2008. Becauseglobal economic and financial crisis has influenced In-donesian economy since the mid of 2008, economicgrowth tend to lower than the previous years. It alsohas a negative impact on export growth which is fol-lowed by the decrease in export tax revenue. Thesemight lead to fiscal crisis, a situation in which a hugegovernment budget deficit becomes a source of seri-ous multi economic and social crisis.From the aforementioned problem, it is crucialto construct a model of policy strategy to increase ex-port through the dynamic change in export market sharein each country in ASEAN, speed adjustment in eachcommodities, and to measure the impact of export onfiscal sustainability. This paper builds a model of inter-national trade performance enhancement strategy, es-pecially the export performance of Indonesia throughexport market volatility analysis in ASEAN-5, adjust-ment speed analysis to respond shock of Indonesia’sexport to ASEAN -5, and dynamic analysis ofIndonesia’s export-import to ASEAN-5. The model isexpected to increase market shares of Indonesia’s ex-ports in ASEAN, and increase power parity of key ex-port products, especially commodities at SITC 0-9.LITERATURE REVIEW AND METHODTo trace the literature in international trade, we need togo back at least to the absolute advantage theory ofSmith (1776), the comparative advantage theory ofRicardo (1817) and factor endowment theory ofHeckscher-Ohlin (Heckscher and Ohlin, 1983). Thesetheories motivate the free market to gain maximum ad-vantage from international trade. They suggest thatdeveloped countries will trade more with developingcountries, compare to that with other developed coun-tries. However, the fact suggested that developed coun-tries trade mostly with the other developed countries.This has triggered the emergence of alternative theo-ries of international trade. Alternative theories such asproduct life cycle theory (Vernon, 1966) capture themotivation to export from the point of view of productstages production, ranges from innovation advantageto the abundance of labour advantage.

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