Import Dynamics In Indonesia: The Effects Of Exports, Inflation, And Interest Rates

Abstract

This study delves into the intricate dynamics of the Indonesian economy, focusing on the interplay between import variables and key economic indicators: exports, inflation, and interest rates. By employing the quantitative research methodology known as Autoregressive Distributed Lag (ARDL) analysis, we explore data from 1994 to 2023, generously provided by the World Bank. We found that inflation emerges as a critical factor influencing import patterns. When inflation rises, imports tend to decline. Put succinctly, higher inflation in the preceding period negatively impacts import volumes. However, it is essential to note that the effect of inflation on imports is moderately pronounced. The relationship between exports and imports is more straightforward. As exports increase, imports also tend to rise. This positive correlation underscores the interconnectedness of these two variables within the Indonesian context. When the nation's exports thrive, it naturally stimulates import activity. Interest rates play a pivotal role in shaping import behavior. When interest rates climb, imports tend to decrease. The inverse relationship suggests that higher borrowing costs discourage import activities. However, it is crucial to recognize that the impact of interest rates on imports is less substantial than other factors. Zooming out to the long run, an increase in exports corresponds with increased imports. However, the effect is modest. While this relationship exists, statistical evidence remains inconclusive regarding its significance. In other words, the impact of exports on imports is subtle, yet it persists over time. In summary, this study provides valuable insights for policymakers and researchers. It underscores the delicate balance between inflation, exports, and interest rates in shaping Indonesia's import landscape. While each factor contributes uniquely, their combined influence paints a nuanced picture of the nation's economic dynamics. Further research and policy considerations are warranted to optimize import strategies and foster sustainable economic growth.