Factors Affecting Indonesia’s Current Account, 1985-2016

Abstract

This study aims to test the three hypotheses include the government budget gap, and savings-investment gap that will impact on the current account balance. The government budget deficit will have a significant impact on the current account balance. Similarly, the deficit in savings-investment will have an impact on the current account deficit. Another variable that may affect the current account balance is the exchange rate of the currency. Depreciation of the domestic currency, for example, will be able to affect export volume increase and import volume decrease. The opposite effect on export and import volume will occur if the currency of a country appreciates. The purpose of this research is to know the effect of government budget gap, saving-investment gap, and rupiah exchange rate on current account balance in Indonesia, using annual data from period 1985-2016. This research applies the multiple linear regression approach.The results of this study, both of test (F-test) and partially (t-test), show that the government budget gap, saving-investment gap, and rupiah exchange rate had a positive and significant impact on Indonesia's current account balance during the period 1985-2016. KEY WORDSGovernment budget gap, saving-investment gap, exchange rate, current account balance.