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The Determinants of Trade Balance and Adjustment to the Crisis in Indonesia

Iman Sugema

No 2005-08, Centre for International Economic Studies Working Papers from University of Adelaide, Centre for International Economic Studies

Abstract: This paper investigates the effects of real exchange rate depreciation and supply side shocks on exports and imports. Indonesia provides an interesting case study of the subject because this country experienced a large depreciation, banking sector collapse, and socio-political turbulence during the Asian crisis episode. The results suggest that trade balance will improve following devaluation through an increase in exports and a collapse in imports. Because the elasticity of imports with respect to the real exchange rate is greater than that of exports, improvement in trade balance would be mainly come from import compression. It is also found that export performance could have been far better if Indonesia did not suffer from banking problems and socio-political turbulence.

Keywords: Real Exchange Rate; Export; Import; Indonesia. (search for similar items in EconPapers)
JEL-codes: F10 F31 (search for similar items in EconPapers)
Date: 2005-06
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