Asian Institute of Research, Journal Publication, Journal Academics, Education Journal, Asian Institute
Asian Institute of Research, Journal Publication, Journal Academics, Education Journal, Asian Institute

Economics and Business

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asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
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Published: 08 October 2022

Macroeconomic Factors and Current Account Deficit in Indonesia

Euis Eti Sumiyati

Universitas Jenderal Achmad Yani, Indonesia

asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, management journal

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doi

10.31014/aior.1992.05.04.455

Pages: 8-18

Keywords: Fiscal Balance, Growth of GDP, Inflation Real Effective Exchange Rate, Terms of Trade, Trade Openness, Vector Error Correction Model

Abstract

This study aims at investigating the relationship between macroeconomic factors and Indonesia's current account deficit (CAD). This study employed time series data with up to 42 observations from 1980 to 2021. The vector error correction model (VECM) was implemented for data analysis because it can dynamically describe the short and long-term impacts of macroeconomic variables on the CAD. It is considered that macroeconomic variables that have the potential to determine the CAD are fiscal balance (FB), growth of GDP (GRGDP), inflation (INF), a real effective exchange rate (LNREER), terms of trade (TOT), and trade openness (TRADOP). The findings show that FB has no effect on the current account in the short and long-term. Meanwhile, lag 1 GRGDP, lag 1 INF, and lag 1 LNREER has a positive effect on the current account. On the other hand, TRADOP has a negative effect on the current account at lag 1 and TOT has a long-term positive effect. This study suggests that the government should optimize and synchronize economic policies and efforts to improve the current account performance.

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