The Bilateral J-curve : Indonesia Versus Five Major Trading Partners

Sari, Ranti Tetra (2020) The Bilateral J-curve : Indonesia Versus Five Major Trading Partners. Diploma thesis, Universitas Andalas.

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Abstract

This study aims to analyze the phenomenon of bilateral J-curve between Indonesia and the five major trading partners those are China, Japan, Singapore, US and Malaysia. The data is quarterly time series data during 2010Q1-2019Q4. The dependent variable is trade balance and the independent variables are real exchange rate, GDP of Indonesia and GDP of trading partners. This research uses Vector Error Correction Model (VECM) to predict short run and long run relationship among variables, to exhibit the contribution of independent variable to dependent variable and to show the phenomenon of J-cuve by IRF Test. The result indicates that J-curve phenomenon only exists in case of Indonesia-Japan trade in positive and significant value. on the other hand, J-curve phenomenon also exists in trading of Indonesia-China but it is not significant and Indonesia-Malaysia in negative and significant value. Moreover, the exchange rate variable is less dependent to influence the trade balance compared to other variables. The policy implications are The integration of ASEAN regional currencies into one form of currency, the improvement of real sector productivity, the enhancement of production efficiency and distribution of domestic system, and the cutting of imports in raw materials by finding substitutes from within the country.

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