This study analyzes the impact of real exchange rate undervaluation on Indonesia's manufacturing exports in 22 manufacturing industries throughout 1990-2015. The study was undertaken by modifying a ...partial equilibrium model of monopolistic competition for exporting firms and using the augmented mean group (AMG) method. This study confirms that the real exchange rate, both misalignment and changes in levels (depreciation/appreciation), are insignificant in affecting Indonesia's manufacturing exports. In addition, this study finds that manufactured exports are significantly determined by the manufactured exports in the previous period, real interest rates, real wages, labor productivity, and firm growth. This finding indicates that the exchange rate manipulation policy is not an important factor in strengthening the competitiveness of Indonesia's manufacturing exports. We suggest policies that play more important roles in driving manufacturing exports are creating a competitive and conducive business climate, lowering domestic interest rates, and reforming the labor system.
This paper investigates the impact of economic policy uncertainty on financial stability. Using data for 23 countries over the period of 1996 to 2016, we show that the impact is negative and ...statistically significant. Economically, a unit standard deviation increase in economic policy uncertainty decreases financial stability by between 2.66% and 7.26% of its sample mean. The negative impact of economic policy uncertainty on financial stability is stronger for countries with higher competition, lower regulatory capital, and smaller financial systems. We show that our finding is robust using bank-level data and different constructions of global panel portfolios, and controlling for Z-score skewness, the Global Financial Crisis, and for endogeneity.
•This paper investigates the effect of economic policy uncertainty (EPU) on financial stability in 23 countries.•We find that EPU has a negative and statistically significant impact on financial stability.•The effect depends on the financial system characteristics.•The findings are consistent in a range of robustness tests.
We analyze the role of both permanent and temporary factors in affecting the Indonesian current account and real exchange dynamics before and after 2000. Adopting Lee and Chinn (1998; 2006) approach ...as well as Chinn et al. (2007), two results stand out. First, we confirm that the behavior of the real exchange rate has altered since 2000. Identifications show that permanent shocks are the primary causes for the movement of the real exchange rate after 2000, while in the period before 2000, the Indonesian real exchange rate changes are characterized by greater dominance of temporary shocks. The apparent change in the real exchange rate behavior may be strongly justified by the implementation of free-floating exchange rate system since August 1997. Second, the shift of the real exchange rate behavior after 2000 does not necessarily affect the current account dynamics. Empirical evidence confirms that the variance of current account post 2000 remains largely due to temporary shocks. Albeit having increasing influence, permanent shocks have insignificant effect in explaining fluctuations of the current account. In this sense, the current account surplus after 2000 is attributed largely to nominal variables such as price increase, while the impact of productivity improvement is still limited.Keywords: Current Account; Real Exchange Rate; Asian Crises 1997/1998AbstrakKami menganalisa peranan faktor permanen dan temporer dalam memengaruhi neraca berjalan dan dinamika nilai tukar mata uang riil Indonesia sebelum dan setelah tahun 2000. Mengadopsi pendekatan Lee dan Chinn (1998; 2006) serta Chinn et al. (2007), telah diperoleh dua kesimpulan. Pertama, kami mengonfirmasi bahwa pola nilai tukar mata uang riil telah berubah sejak tahun 2000. Identifikasi menunjukkan bahwa shock permanen adalah penyebab utama pergerakan nilai tukar mata uang riil setelah tahun 2000, sedangkan di periode sebelum tahun 2000 perubahan nilai tukar mata uang riil dicirikan oleh dominansi shock temporer. Perubahan pola nilai tukar mata uang tersebut dapat berakar dari penerapan sistem nilai tukar mengambang bebas sejak Agustus 1997. Kedua, perubahan pola nilai tukar mata uang setelah tahun 2000 tidak serta merta memengaruhi dinamika neraca berjalan. Bukti empiris mengonfirmasi bahwa variansi neraca berjalan setelah tahun 2000 tetap disebabkan utamanya oleh shock temporer. Meskipun menunjukkan peningkatan pengaruh, shock permanen memiliki pengaruh yang tidak signifikan dalam menjelaskan fluktuasi neraca berjalan. Atau dalam kata lain, surplus neraca berjalan setelah tahun 2000 dapat diatribusikan kepada variabel nominal seperti kenaikan harga, sedangkan pengaruh peningkatan produktivitas masih cenderung terbatas.Kata kunci: Neraca Transaksi Berjalan; Nilai Tukar Riil; Krisis Asia 1997/1998JEL classifications: F31; F41
This research investigates the impact of climate vulnerability on green investment using panel data of 107 countries over the period 1995–2019. We find that climate vulnerability reduces green ...investment in both climate change mitigation and climate change adaptation technologies. This finding holds up under a series of robustness tests and after taking into consideration the time lag effect, cross-sectional dependence, and endogenous problems. We further present that it is socioeconomic-related climate vulnerability that hinders green investment, whereas physical vulnerability does the opposite. Analyses of moderating channels show that the negative impact of climate vulnerability on green investment is more pronounced in countries with lower levels of adaptation readiness, economic development, and technical innovation, and higher levels of energy supply restriction.
•Climate vulnerability reduces green investment in both climate change mitigation and climate change adaptation technologies.•It is socioeconomic-related climate vulnerability that hinders green investment, whereas physical vulnerability does the opposite
This paper investigates the role of human capital on economic growth in both a quantitative context as well as a qualitative one. The empirical assessment focuses on a subnational Indonesian dataset ...with wide spatial diversity by using two different approaches: (1) production function estimates using panel data and (2) conditional convergence equation estimates of cross-sectional observations, with national examination results used as a proxy of education quality. The study’s results suggest that human capital is a main driver for economic growth. This conclusion explains major variations in medium-term economic growth across subnational units and also underscores the importance of investing in human capital. The empirical estimates indicate the followings: (1) elasticity of human capital to economic growth varies across regions, which may be related to the share of the manufacturing sector, and (2) quantitative measures of human capital (e.g., years of schooling) are important for economic growth. However, cognitive skills are a more significant factor because they are derived from the quality of human capital investment. Therefore, while we suggest that school enrollment is important, high-quality educational infrastructure and a curriculum that focuses on enhancing cognitive skills are key to ensuring higher economic growth.
This study investigates the factors affecting digital adoption by ultra-micro, micro, and small enterprises (UMSEs) based on a survey of 5035 UMSEs in 17 major provinces in Indonesia. We use the ...survey data to construct a digital adoption index to evaluate the variations in digital adoption in the five business processes of e-procurement, POS, e-marketing, e-commerce, and digital payment. This index not only identifies whether a firm has adopted digital technology but also considers the dimensions of use to measure the level of adoption more precisely. Using the primary data, we employ a simple regression model, and the results demonstrate that owner demographic characteristics, firm-specific factors, business environment, connectivity infrastructure quality, and culture are associated with disparities in digital adoption by UMSEs. Our findings also reveal a positive and significant correlation between digital adoption on business performance. Based on a two-stage least squares (2SLS) model, we found strong evidence of the impact of digital adoption on UMSE owners’ level of financial literacy. The latter result suggests that improving digital adoption among UMSEs could enhance their financial literacy. Overall, these findings confirm the vital role of digital transformation for UMSEs to achieve growth and competitiveness in the global market, which requires robust support from policymakers.
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•A survey of 5035 ultra-micro, micro, and small enterprises in 17 major provinces in Indonesia.•A comprehensive index to measure level of digital adoption by ultra-micro, micro, small, and medium-sized enterprises.•Assessing the determinants of digital business adoption by ultra-micro, micro, small, and medium-sized enterprises.•Investigating the impact of digital adoption on business performance and financial literacy.
This study empirically analyzes the impact of public debt and cashless transactions on inflation in emerging market economies during the COVID-19 pandemic. Our research question is primarily ...motivated by the extensive fiscal spending and cashless transactions in these economies during the pandemic and the inflation spike in the mid of 2021. We use monthly data from 10 sample emerging market economies and panel vector auto-regressive models for analysis. Our findings show that (1) public debt has a positive impact on the inflation rate in the EMEs, and (2) cashless transaction exhibits a positive effect on overall inflation. (3) Further, cashless transactions and public debt are found to have a positive and significant impact on inflation in specific sectors such as Clothes and Footwear, Energy, and Transport.
This paper analyses the equilibrium price of the Indonesian Rupiah using the Synthetic Control Method (SCM) and assesses its misalignments. We find evidence of Rupiah misalignment, as the currency ...was undervalued for most periods, except for 1993-1996. This finding is robust across model specifications, predictors, and weighting. Our finding implies that keeping the exchange rate at its equilibrium level is ideal, and that policymakers can take advantage of the undervalued currency to promote economic growth via exports.
We analyze the role of both permanent and temporary factors in affecting the Indonesian current account and real exchange dynamics before and after 2000. Adopting Lee and Chinn (1998, 2006) approach ...as well as Chinn et al (2007), two results stand out. First, we confirm that the behavior of the real exchange rate has altered since 2000. Identifications show that permanent shocks are the primary causes for the movement of the real exchange rate after 2000, while in the period before 2000, the Indonesian real exchange rate changes are characterized by greater dominance of temporary shocks. The apparent change in the real exchange rate behavior may be strongly justified by the implementation of free-floating exchange rate system since August 1997. Second, the shift of the real exchange rate behavior after 2000 does not necessarily affect the current account dynamics. Empirical evidence confirms that the variance of current account post 2000 remains largely due to temporary shocks. Albeit having increasing influence, permanent shocks have insignificant effect in explaining fluctuations of the current account. In this sense, the current account surplus after 2000 is attributed largely to nominal variables such as price increase, while the impact of productivity improvement is still limited.
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