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The Dynamic Impact of Trade Openness on Poverty: An Empirical Study of Indonesia's Economy

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  • Lestari Agusalim

    (Department of Economic Development, Faculty of Economics Business and Humanities, Trilogi University, Jakarta, Indonesia.)

Abstract

This research aims to analyze the dynamic impact of international trade openness on poverty in Indonesia. Previous research shows different effects in every country. The data used are export import value, gross domestic product, income per capita, open unemployment rate (OUR), and poverty rate (POVR) during 1978-2015. Vector error correction model analysis shows that in short run, trade openness does not have any significant impact on poverty. However, in long run, it has significant impact in reducing poverty. Impulse respond function analysis concludes that POVR gave a positive response in the first 2 years, but negative in the third to every trade openness variable shock. Poverty rate shows the biggest negative response in the fifth year. According to forecast error variance decomposition analysis, trade openness does not give big contribution in affecting POVR during the first 3 years, but starts to show effect in the following seven, with the biggest in the ninth year.

Suggested Citation

  • Lestari Agusalim, 2017. "The Dynamic Impact of Trade Openness on Poverty: An Empirical Study of Indonesia's Economy," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 566-574.
    • Handle: RePEc:eco:journ1:2017-01-71
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    References listed on IDEAS

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    5. Ann Harrison, 2007. "Globalization and Poverty: An Introduction," NBER Chapters, in: Globalization and Poverty, pages 1-32, National Bureau of Economic Research, Inc.
    6. Ravallion, Martin, 2006. "Looking beyond averages in the trade and poverty debate," World Development, Elsevier, vol. 34(8), pages 1374-1392, August.
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    Cited by:

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    More about this item

    Keywords

    Trade Openness; Poverty; Vector Error Correction Model;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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