Impact of exchange rates on exports from Indonesia's sub-national economies: an empirical analysis Online publication date: Tue, 30-Jun-2020
by Khee Giap Tan; Mulya Amri; Nursyahida Ahmad
International Journal of Economic Policy in Emerging Economies (IJEPEE), Vol. 13, No. 2, 2020
Abstract: This paper presents an examination of the impact of Indonesia's cost competitiveness, broadly represented by the country's real effective exchange rate (REER), on the value of exports from Indonesia's provinces. Our focus on Indonesia is intended to fill the knowledge gap on the world's 16th largest economy and fourth most populous country, where decentralisation efforts have resulted in increasing exports from its peripheral regions. Using panel fixed-effects model on provincial exports data covering 2000 to 2013, we find that exchange rate depreciation is positively and significantly associated with provincial exports, and exchange rate volatility tends to be negatively associated with exports. This implies that the export performance of a province depends upon not just managing cost competitiveness through the exchange rate regime but also other economic considerations such as the relative competitiveness of the provinces.
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