Do Real Interest Rate, Gross Domestic Savings and Net Exports Matter in Economic Growth? Evidence from Indonesia

Abstract

This study aims to measure the effects of real interest rate (RIR), gross domestic savings (GDS), and net exports (EN) shocks on Indonesia's economic growth (EG). The focus on Indonesia is unique due to the abundant resources available in the nation, but they are unsuccessful in boosting economic growth. This study applied a quantitative method to comprehensively analyze the correlation between variables by employing Vector Autoregression Model (VAR) combined with Vector Error Correction Model (VECM). Various procedures are preformed: Augmented Dickey-Fuller test (ADF), Optimum Lag Test, Johansen Cointegration Test, Granger Causality Test, as well as Impulse Response Function (IRF) and Error Variance Decomposition Analysis (FEVD). The data were collected from the World Bank and the Asian Development Bank from 1986 to 2017. The findings of the study indicated that economic growth responded positively to real interest rate shocks, which implies that when the real interest rate experiences a shock (increase), the economy will be inclined to growth. While, economic growth responded negatively to gross domestic savings and net export shocks. Policymakers are expected to consider several matters, particularly the economic conditions at the time of formulating policy, so that the prediction effectiveness of a policy can be appropriately assessed.

Savings and growth nexus in the context of Southern African Customs Union countries

“…By contrast, the second group are studies that found evidence of negative impact of saving on economic growth (Rahman & Ferdaus 2021;Sabra & Eltalla 2016;Sujianto et al 2020). Among these studies, Agu and Omolade (2021) found that savings have significant negative impact on economic growth in Nigeria both in the short run and the long run.…”

“…The key variables of interest are GDP which is used as a proxy for economic growth and GDS as a percentage of GDP. Following previous studies, the control variables included in the analysis are: the gross fixed capital formation (GFCF) to GDP a proxy for investment; the Consumer Price Index (CPI) as a proxy for inflation; and Trade openness (TRADE), which is the ratio of total exports plus imports of goods and services to GDP (Joshi et al 2019;Mohanty 2018;Nguyen & Nguyen 2017;Rahman & Ferdaus 2021;Sujianto et al 2020). It is important to highlight that panel data were transformed to natural logarithm to allow the estimates to be analysed as elasticity coefficients.…”

“…It is argued that the dominant concepts relating to these theories are mostly based on the context of developed countries (Keita 2016). Sujianto et al (2020) argued that low domestic savings is a common feature of developing countries because of the poor economic performance, inadequate financial sector, meagre wages, high unemployment and poverty levels. In addition, structural constraints not only prevent developing countries from channelling savings to productive investments but also prevent them from attracting higher levels of investment (Pettinger 2019).…”

Pengaruh Indikator Makroekonomi Terhadap Volume Perdagangan Sukuk Ritel di Indonesia

“…Terdapat dua cara untuk melihat PDB, yaitu untuk seluruh total perekonomian berasal dari masing-masing individu pada perekonomian serta untuk jumlah belanja terhadap output barang serta jasa ekonomi. Maka disimpulkan bahwa kinerja ekonomi suatu negara dapat dilihat dari tingkat PDB, dan tumbuhnya pergerakan PDB menjadi indikasi atas fenomena pertumbuhan ekonomi dalam suatu negara (Sujianto et al, 2020). Pendapatan negara yang meningkat akan berpengaruh terhadap produktivitas dan kinerja dalam pasar modal.…”

Trade Agreement and Economic Growth: Evidence in D-8 Countries

“…However, there are several other studies that have found different results. Sujianto et al (2020) shows that economic growth negatively responded to net export savings. Kartikasari (2017) found that exports had no effect on economic growth.…”