Theoretical And Empirical Analysis Of Factors Influencing Indonesia's Export Growth

For developing countries such as Indonesia,exporting is a good way to improve the economy fast.There are many different factors that affect export that must be explored.The exchange rate system chosen by a country will effect the import/export price stability.When the Asian Financial Crisis hit Indonesia in 1997-1998,there was an exchange rate reform.By having an experience of using two different systems,it is believed the effect on export will be different as well.The purpose of this research is to understand all the variables affecting Indonesia export and investigate the effects of two different exchange regimes on export: managed floating exchange rate and free-floating exchange rate.In order to conduct this research,Ordinary Least Square(OLS)regression will be used as our analysis method and the OLS analysis will be conducted by using SPSS.The conclusion is there are 5 variables affecting Indonesia export,namely: Saving Deposit to GDP,Inflation rate,Tax on export,and GDP per capita in export destination countries,and Exchange Rate Reform(Dummy variable).Since the value of dummy variable is positive,it means that managed floating exchange rate system used in Indonesia before financial crisis is proved to be better for export compared to current exchange rate system,which is free-floating exchange rate system.Based on the result of this research,I recommend that 1)The Central Bank of Indonesia needs to stimulate household saving to provide more capital for financial instiution,especially banks.In this way,financial instutition could channel the capital to companies who needs credit.2)The Central Bank of Indonesia needs to control inflation because higher commodity prices caused by inflation will make exports more expensive for foreign consumers,making them less competitive and decreasing exports.3)The government of Indonesia needs to make a reasonable distribution for fiscal revenue,and invest enough capital in roads,transportation,ports,and other infrastructure.Better infrastructure could help export enterprises reduce production and transportation costs,improve efficiency and ultimately increase exports.4)The government of Indonesia needs to consider changing its exchange rate system to managed floating exchange rate system because it has been proved that the previous exchange rate system used before financial crisis has a better impact on export.