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    • Indonesia’s Bilateral Trade: Gravity Model Approach

    By on February 21, 2012

    Indonesia’s Bilateral Trade: Gravity Model Approach thumbnail

    “This article was published at The 5th International Conference of The Asian Academy of Applied Business, Phnom Penh, Cambodia”

    Many studies about Indonesian exports are qualitative study. The problems are high port and transportation costs, foreign tariffs, the bilateral relationship issues, and the volatility of the exchange rate. This study focuses on the quantitative method using the gravity model for international trade. The hypothesis suggests that the transportation costs will reduce exports;

    Free trade agreement will increase trade exports, because the tariff is reduced; Language will lead the trade become more easily and will raise exports; and also exchange rate volatility will reduce exports. The Result indicates that the foreign Gross Domestic Product (GDP), language (Japanese and Mandarin) and Free Trade Agreement (FTA) will increase trade. The unexpected variables form the result is constant and Malay language can reduce the trade volume; also distance and domestic GDP will increase trade.

    English were dropped from the regression and the volatility of the exchange rate was not significant. Thus, the distance not always reducing the trade; bilateral relationship is important for Indonesia to reduce tariffs and increase the trust, also to reduce the effect of fluctuation in the currency. Therefore, Indonesia can increase the exports.

    Keywords: Gravity Theory, Trade, International Trade.

    Acknowledgement:
    The author wants to thank to Indonesian Government for supporting in order to go to the conference, the  Dr. Satish Chand for coordinatoring the QIE project, Dr. Suiwah Leung for supervising and helpsing for this project, Anne Patching as the Academic Skills adviser, Dr. Renata Hasanova for giving the STATA tutorial, Dr. Tom Kompas for explaining the Panel Data in Masters Micro Tutorial, Firdaus Muttaqin for the CEIC Data Company Limited, Evita Pangaribowo for helping me with STATA, Ahamad Mosfi Mahmood for the comments to improve this paper, and others for supporting throughout this study.

    Tikkyrino Kurniawan
    Research Centre for Marine and Fisheries Socio Economics

    Ministry of Marine Affairs and Fisheries
    Jl. K. S. Tubun Petamburan VI, Jakarta
    INDONESIA 10260
    EMAIL: tikkyrino.k@gmail.com

    Tikkyrino Kurniawan

    An architect who work in Ministry of Fishery and Marine

    Readers Comments

    1. andie wicaksono on February 21st, 2012 11:27 pm

      I just wonder why Malay language can decrease the volume?

      [Reply]

      rino Reply:

      In my opinion, Indonesia and Malaysia is very close and might have several similar commodities. so more trading with Malaysia (assume other stay the same) at the same commodity wont give a lot of profit and at the same time it will reduce the trade volume, in other words Indonesia did not gain a lot of profit from that based on the model.

      [Reply]

      andie Reply:

      good think! I don’t ever realize the fact that Id and My have the same commodities until it comes up from your words. Thanks for share this, nice article!

      [Reply]

    2. chowdry banaras on May 20th, 2012 2:12 am

      you mentioned Renata Hasanova for giving STATA tutorial.. she taught us STATA also in ANU Public Policy Masters.

      Ummmmmmmmmmmm
      she is very pretty

      [Reply]





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