The Analysis of The Automotive Import Substitution's Effect to The Rate of Indonesia's Economic Growth (1990-2003)

Abstract

The industrial sector becomes a very important sector in increasing the economic growth of Indonesia since Indonesia changed its economic structure from agriculture to the mdustnal sector in 1990s. Some industrial sectors that have significant roles are textile, steel, chemical, cement, fertilizer and other basic industries. Automotive as one kind of industry is not so significant to the economic growth of Indonesia because Indonesia is asmall market for automotive compared to Malaysia, Thailand and Philippine. The production of automotive is smaller than those countries. It fluctuated and tended to decrease in 1998 when economic crisis hit Indonesia and affected the economic growth. The main problem of automotive production mIndonesia is the availability ofthe components. Indonesia does not have many producers so that it imports from other countries which will cost more In order to solve this, the government implemented an international trade policy i.e, import substitution in 1970s to encourage the local producers to be more competitive The policy was then renewed in 1999. This research aims to analyze the factors causes the fluctuation of the automotive production involving tariff rate on import and components in 1999, exchange rate and the value ofthe automotive components import (1990 - 2003). It also analyzes the causality between the automotive production and the rate of the Indonesian economic growth (1990 - 2003) By using the tariff rate on import and components in 1999 as the dummy variable the exchange rate and the value ofthe automotive components import as the independent variable and the automotive production from 1990 - 2003 as the dependent variable the researcher uses Dummy Model as the econometric model to analyze the relationship among those variables. While to analyze the causality relationship between the automotive production and the rate ofeconomic growth the researcher uses Error Correction Model Engle Granger (ECM - Engle Granger). As the result the exchange rate has an insignificant and negatively influence to the automotive production mIndonesia. The value of the automotive import has a significant and positive relationship with the automotive production. And the tariff rate on import and components has asignificant and positive influence to the automotive production It means that the independents variables are influence the automotive production simultaneously. There are short - run and long - run and feedback causality between automotive production and the rate ofthe Indonesian economic growth.