The Impact of Trade liberalization on Economic Growth in Indonesia

English

Abstract

Using a vector autoregression (VAR) model, this article explores how trade liberalisation
has affected GDP growth in Indonesia. Tariffs, quotas, subsidies, rules, and standards are
all examples of trade barriers that may be loosened or eliminated through the
liberalisation of trade. When trade restrictions are lifted, economies flourish and people's
incomes are more evenly distributed. However, the size and direction of these impacts
are contingent on a number of variables, including the starting conditions, the depth and
velocity of liberalisation, the supplementary policies, and the external environment. So,
the results of trade liberalisation are neither simple or consistent, but rather variable and
diverse. Both positive and negative outcomes associated with trade liberalisation on GDP
growth and income distribution are discussed in this article. The impact of government
expenditure (GG) on trade openness (Tr), the poverty headcount ratio (PHR), and the
article itself is estimated using a VAR model. According to the data presented here, GG
has no noticeable effect on itself or Tr but a notable and beneficial effect on PHR. The
article concludes that trade liberalisation affects economic growth and income
distribution in Indonesia in complex and heterogeneous ways, and that policymakers
should take a holistic and context-specific approach to designing and implementing trade
policies that can maximise the benefits and minimise the costs of trade liberalisation.