The Effect of Investment and Export on Manufacturing Industry in Indonesia


Abstract Over the past decades, Indonesia’s manufacturing industry has developed from a significant growth engine. The manufacturing sector is the biggest contributor to economic growth in Indonesia. Still and all, its contribution has declined in the past years. Furthermore, Indonesia now faces a transformed global trading environment from its heyday; faced with fierce competition from free trade agreements with countries and regions around the world. The need for investment as triggering factor of manufacturing industry development has a very important role. In addition to investment, an increase in export could boost national economic growth. One of the key strategies to improve the economic fundamentals is to restructure and strengthen the country’s export performance. This study aims to analyze the effect of investment and export on manufacturing industry in Indonesia by using econometrics error correction model (ECM) and subsequently to analyze the impact both variables on manufacture sector of output and household income by using an Input Output model. This study uses secondary data from BPS, such as investment, export, manufacturing GDP in the period Q1 2004–Q1 2018 and Input Output Table Indonesia 2010. The findings of the study suggest that export influence GDP positively and significantly. While investment has positive effect and yet insignificant. The changes of investment and export lead to enhance output and household income enjoyed the most by chemicals and refined petroleum products sectors.



Keywords: manufacturing industry, investment, export, error correction model, input output analysis

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