Economics and Business
ISSN 2775-9237 (Online)
Published: 08 October 2022
Macroeconomic Factors and Current Account Deficit in Indonesia
Euis Eti Sumiyati
Universitas Jenderal Achmad Yani, Indonesia
Download Full-Text Pdf
Keywords: Fiscal Balance, Growth of GDP, Inflation Real Effective Exchange Rate, Terms of Trade, Trade Openness, Vector Error Correction Model
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.
Altayligil, Y. B., & Çetrez, M. (2020). Macroeconomic, institutional and financial determinants of current account balances: a panel data assessment. Journal of Economic Structures, 9(1), 1–23. https://doi.org/10.1186/s40008-020-00225-1
Bollano, J. (2015). Current Account Determinants in Central Eastern European Countries.
Caliskan, S., & Dilek, A. (2015). Understanding The Factors Behind Current Account Deficit Problem : A Panel Logit Approach On 16 OECD Member Countries. Procedia Economics and Finance, 30(15), 187–194. https://doi.org/10.1016/S2212-5671(15)01282-4
Chinn, M. D., & Ito, H. (2007). Current account balances , financial development and institutions : Assaying the world ‘“ saving glut .”’ 26, 546–569. https://doi.org/10.1016/j.jimonfin.2007.03.006
Comunale, M. (2015). Current Account and Real Effective Exchange Rate Misalignments in Central Eastern EU Countries : an update using the Macroeconomic Balance approach. 13(10).
Cota, B., Erjavec, N., & Bogdan, Ž. (2017). External imbalances in emerging and advanced European countries. Economic Research-Ekonomska Istraživanja, 9664(August), 1–19. https://doi.org/10.1080/1331677X.2017.1340179
Das, D. K. (2016). Determinants of current account imbalance in the global economy : a dynamic panel analysis. Journal of Economic Structures. https://doi.org/10.1186/s40008-016-0039-6
Eita, J. H. (2019). Macroeconomic Variables and Current Account Balance in an Open Economy: Evidence from Namibia. August. https://doi.org/10.1080/10800379.2019.12097348
Eita, J. H., Manuel, V., & Naimhwaka, E. (2018). Macroeconomic variables and current account balance in Namibia. 88818.
Elhendawy, E. O. (2014). The Relationship between Budget Deficit and Current Account Deficit in Egypt. 6(3), 169–176. https://doi.org/10.5539/ijef.v6n3p169
Garg, B., & Prabheesh, K. P. (2017). Do macroeconomic fundamentals or external factors reflect current account behavior? Evidence from India. Journal of Asian Economics. https://doi.org/10.1016/j.asieco.2017.06.002
Gehringer, A. (2012). Another Look at the Determinants of Current Account Imbalances in the European Union: An Empirical Assessment. SSRN Electronic Journal, March. https://doi.org/10.2139/ssrn.2159132
Gossé, J., & Serranito, F. (2014). Long-run determinants of current accounts in OECD countries : Lessons for intra-European imbalances. Economic Modelling, 38, 451–462. https://doi.org/10.1016/j.econmod.2014.01.008
Gruber, J. W., & Kamin, S. B. (2007). Explaining the global pattern of current account imbalances. 26, 500–522. https://doi.org/10.1016/j.jimonfin.2007.03.003
Gudmundsson, G. S., & Zoega, G. (2014). Age structure and the current account. Economics Letters, 123(2), 183–186. https://doi.org/10.1016/j.econlet.2014.02.001
Gujarati, D. N. (2009). Basic Econometric (Fifth). McGraw-Hill.
Hicham, A. (2019). the Effect of Terms of Trade on Current Account Balance: Harberger-Laursen-Metzler Effect in Arabic Countries. 4(1), 2537–141. www.jseg.ro
Kim, S., & Lee, J. (2008). Demographic changes , saving , and current account : An analysis based on a panel VAR model. 20, 236–256. https://doi.org/10.1016/j.japwor.2006.11.005
Lin, S. X., & Kueh, J. (2019). Determinants of Current Account Balance in Six ASEAN Countries : A Panel Analysis Approach. 11(7), 129–143. https://doi.org/10.5539/ijef.v11n7p129
Marzinotto, B. (2020). Journal of International Money and Finance Euro area current account imbalances : A tale of two financial. Journal of International Money and Finance, xxxx, 102310. https://doi.org/10.1016/j.jimonfin.2020.102310
Neaime, S. (2015). Twin deficits and the sustainability of public debt and exchange rate policies in Lebanon. Research in International Business and Finance, 33, 127–143. https://doi.org/10.1016/j.ribaf.2014.09.004
Nyongesa, D., & Mohamed, S. (2013). Is Kenya ’ S Current Account Sustainable ? A Stationarity And Cointegration Approach . August 2015.
Oshota, S. O., & Badejo, A. A. (2015). What Drives Current Account Balance in West Africa States : Evidence from Panel ARDL. 8(December), 91–105.
Putri, A. (2021). Determinants of the current account balance in Indonesia. February. https://doi.org/10.29210/2018125
Romelli, D., Terra, C., & Vasconcelos, E. (2018). Current account and real exchange rate changes: The impact of trade openness. European Economic Review, 105, 135–158. https://doi.org/10.1016/j.euroecorev.2018.03.009
Salvatore, D. (2006). Twin deficits in the G-7 countries and global structural imbalances. Journal of Policy Modeling, 28(6), 701–712. https://doi.org/10.1016/j.jpolmod.2006.06.003
Schmitz, B., & Hagen, J. Von. (2011). Journal of International Money Current account imbalances and fi nancial integration in the euro area. Journal of International Money and Finance, 30(8), 1676–1695. https://doi.org/10.1016/j.jimonfin.2011.08.003
Ugwu, E., Nwosa, P., & Ehinomen, C. (2021). Evaluating Government Consumption Expenditure Effect on Current Account in Nigeria. 11(2), 226–239.
Yang, L. (2011). An Empirical Analysis of Current Account Determinants in Emerging Asian Economies. February, 1–39. http://ideas.repec.org/p/cdf/wpaper/2011-10.html
Yurdakul, F., & Cevher, E. (2015). Determinants of Current Account Deficit in Turkey: The Conditional and Partial Granger Causality Approach. Procedia Economics and Finance, 26(15), 92–100. https://doi.org/10.1016/s2212-5671(15)00884-9