The Effects of Domestic Demand and Export on Economic Growth of North Sumatra

Jongkers Tampubolon, Aaron Loh

Abstract


The objective of this study is to investigate the roles of domestic demand and export in the economic growth of North Sumatra, Indonesia. Specifically, this study examined: (i) the effect of domestic demand and export on economic growth, (ii) the effect of domestic demand components (i.e., private consumption, government consumption, and investment) on economic growth, and (iii) causal relationships between domestic demand, export, and economic growth. Using the autoregressive distributed lag (ARDL) bound test for cointegration, the study revealed thatNorth Sumatra’s economic growth is not driven by export. Export and economic growth do not affect each other, whereas domestic demand and economic growth influence each other dynamically. In the short-run, private consumption and investment have positive and significant effects on economic growth. However, in the long-run, only private consumption has a significant effect. ARDL Granger causality analysis showed that in the short-run, only private consumption has a causal relationship with economic growth. The absence of the causal relationships between both investment and government expenditure and economic growth indicates that the export sector, which is growing rapidly in both monetary terms and its shares in the regional gross domestic products (GDP), is isolated from the regional economic activities.


Keywords


Domestic demand, economic growth, ARDL bound test, ARDL-Granger Causality, North Sumatra

Full Text:

PDF

References


Acaravci, A. & Ozturk, I.(2012). Foreign Direct Investment, Exports, and Economic Growth: Empirical Evidence From New EU Countries. Romanian Journal of Economic Forecasting, Vol. 1 (2): 52-67.

Alvarado, R., Ocha-Jimenez, D. & Gracia-Tinisaray, D. (2018). Effect of Exports and Domestic Demand on Economic Growth in Latin America: An Analysis Using the Bulmer-Thomas Approach with Panel Data.Revista Investigacion Operacional, Vol. 39 ( 2): 255-264.

Anwer, M.S. & Sampath, R.L.(1997). Export and Economic Growth. Western Agricultural Economics Association 1997 Annual Meeting, Reno/Sparks, Nevada, July 13-16, 1997. (https://core.ac.uk/download/pdf/6494768.pdf).

Asteriou, D. & Hall, S.G.(2007).Applied Econometrics – A modern approach. Revised edition. (NY: Palgrave Macmillan) pp 278 – 340.

Bakari, S., Fakraoni,S. & Tiba, S. (2019). Domestic Investment, Export, Import and Economic Growth in Brazil: An application of Vector Error Correction Model. MPRA Paper No. 95528(https://mpra.ub.uni-muenchen.de/95528/).

Belloumi, M. (2014). The relationship between trade, FDI and economic growth in Tunisia: An application of the autoregressive distribution lag model. Economic Systems, Vol. 38: 269-287.

Detrix, J. (2017). The next financial crisis is probably around the corner – we just don’t know from where (https://qz.com/1096237/deutsche-bank-analysis-on-the-frequency-of-financial-crisis/), retrieved: December 8, 2019.

Dritsaki, D. & Stamatiou, P. (2019). Investigating the Impact of Market Openness on Economic Growth for Poland: An Autoregressive Distributed Lag Bounds Testing Approach to Cointegration. International Journal of Economics and Financial Issues, Vol. 9 (6): 123-131.

Felipe, J. & Lim, J. (2005). Export or Domestic-led Growth in Asia? ERD Working Paper Series No. 69, Asian Development Bank: Manila.

Furuoka, F.(2018). A new causality test for the analysis of the export-growth nexus. MPRA Paper No. 91467 (https://mpra.ub.uni-muenchen.de/91467/).

Gujarati, D. (2012). Econometrics by Example. (New York: Palgrave Macmillan).

Gujarati, D. N & Porter, D.C. (2009). Basic Econometrics, fifth edition. (Boston etc: McGraw-Hill Irwin).

Islam, M.K. & Hossain, M.F. (2015). Domestic demand, export and economic growth in Bangladesh: A cointegration and VECM approach. Economics, Vol. 4 (1): 1-10.

Keho, Y. (2018). The Role of Domestic Demand in the Economic Growth of Cote d’Ivoire. International Journal of Trade, Economics, and Finance, Vol. 9 (5): 119-202.

Kŏnya, L.(2004). Export-led Growth, Growth-driven Export, Both or None? Granger Causality Analysis on OECD Countries. Applied Econometrics and International Development, Vol. 4(1): 73-94.

Lee, C.H. & Huang, B.N.(2002).The Relationship Between Exports And Economic Growth In East Asian Countries: A Multivariate Threshold Autoregressive Approach. Journal of Economic Development, Vol. 27 (2): 45-68.

Lian, D. (2004). “Mr. Thaksin has a Plan.” Equity Research Asia Pacific. Morgan Stanley. September 21.

Logut, B. (2015). The impact of the financial crisis under the effect of increasing global economic interdependence. The case of Eastern and Central Europe Economies. The Romanian Economic Journal, Vol. 18 (51): 97-116.

Mankiew, N.G. (2016). Macroeconomics, (9th Edition). (New York: Worth Publisher).

Mishkin, F.S. (1991). Anatomy of A Financial Crisis. NBER Working Paper Series No. 3934.

Palley, T. (2002). Domestic Demand-led Growth: A New Paradigm for Development. Alternative to Neo-liberalism Conference, May 23-24, 2002.

Palley, T.I. (2011). The Rise and Fall of Export-led Growth. Working Paper No. 675. Levy Economic Institute.

Pesaran, M.H. & Shin, Y. (1999).An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis. In: Strom, S., Ed., Chapter 11,Econometrics and Economic Theory in the 20th Century, The Ragnar Frisch Centennial Symposium, Cambridge: Cambridge University Press, pp 371-413.

Pesaran, M.H., Shin, Y. & Smith, R.J., (2001). Bounds Testing Approaches to the Analysis of Level relationships, Journal of Applied Econometrics, Vol. 16 (3), pp: 289-326.

Renasih, N.R., Agustin, G. & Wulandari, D. (2016). Analisis Guncangan Eksternal Terhadap Indikator Moneter dan Ekonomi Indonesia. JESP – Jurnal Ekonomi Studi Pembangunan, Vol 8 (2): 28 – 39.

Saglam, Y. & Egeli, H.A. (2018). A Comparison of Domestic Demand and Export-led Growth Strategies for European Transition Economies: Dynamic Panel Analysis. Foreign Trade Review, Vol. 53 (3): 156 – 173.

Shahbaz, M. & Rahman, M.M.(2012). The Dynamic of Financial Development, Foreign Direct Investment, and Economic Growth: Cointegration and Causality Analysis in Pakistan. SAGE Journal, Vol. 13(2): 201-219 (https://doi.org/10.1177/ 097215091201300202).

Shahbaz, M., Rehman, I. & Taneem, M.A.(2014). Re-visiting Financial Development and Economic Growth Nexus: The Role of Capitalization in Bangladesh. MPRA Paper No. 57500 (http://mpra.ub.uni-muenchen.de/57500).

Shangquan, G. (2000). Economic Globalization: Trends, Risks and Risk Prevention. UN Department of Economic and Social Affair, Background Paper No. 1 (ST/ESA/2000/CDP/1).

Stiglitz, J.E. (2006). The Post Washington Consensus Consensus. The Initiative for Policy Dialogue (http://policydialogue.org/files/events/Stiglitz_Post_Washington_Consensus_Paper.pdf).

Tampubolon, J. & Nababan, T.S.(2018). International Trade and North Sumatra’s Local Economy JEJAK - Journal of Economics and Policy, Vol.11(2): 323 – 337.

Tampubolon, J.(2018).Promoting agro-based export as engine of local economy in North-Sumatra, Indonesia. IOP Conf. Series: Earth and Environmental Science 205(doi:10.1088/1755-1315/205/1/012001).

Tampubolon, J. & Nababan, T.S. (2019). Ilusi Investasi Asing: FDI, Ekspor dan Pertumbuhan Ekonomi Sumatera Utara (DOI: 10.13140/RG.2.2.16072.26886).

Tsen, W.H. (2010). Export, Domestic demand and Economic Growth in China: Granger causality analysis. Review of Development Economics, Vol. 14 (3): 625-639.

Williamson, J. (1990). What Washington Means by Policy Reform, Chapter 2 in Williamson, J. (ed.) Latin American Adjustment: How Much Has Happened? (Washington: Institute for International Economics).

Williamson, J. (2000). What Should the World Bank Think About the Washington Consensus? World Bank Research Observer, Vol. 15(2): 251 - 264.

Wong, H.T. (2008). Exports and Domestic Demand: Some Empirical Evidence in ASEAN-5. Labuan Bulletin of International Business & Finance, Vol. 6 (2008): 39 – 55.

Yang, J. (2008) An Analysis of So-Called Export-led Growth. IMF Working Paper, WP/08/220.

Yeah, K.L. (2017). Domestic Demand-driven Growth: Analytical Perspectives and Statistics Need. Advances in Economic and Business, Vol. 5 (3): 109-128.

Yuliana, S., Bashir, A. & Rohima, S. (2019). The Effect of Investment Toward Economic Growth in the Local Economy. JESP – JurnalEkonomiStudi Pembangunan, Vol 11 (1): 28 – 39.




DOI: http://dx.doi.org/10.17977/um002v12i22020p108

Refbacks

  • There are currently no refbacks.


ISSN (Print) 2086-1575       ISSN (Online) 2502-7115

View My Stats

google.png

Creative Commons License
This work is licensed under a Creative Commons Attribution-NoDerivatives 4.0 International License.