How Do Foreign and Domestic Demand Affect Exports Performance? An Econometric Investigation of Indonesia's Exports

This paper explores the impacts of foreign and domestic demand on Indonesia's exports within demand and supply frameworks using aggregate data of 1971 – 2007. To capture effects of secular and cyclical movements on exports, we dissect income variables into trend and business cycle as proxies of productive capacity and capacity utilization rate, respectively. Our result suggests that both demand- and supply-price elasticity are elastic, and secular and cyclical movements may have contrast effects on exports. The findings draw policy implications namely the importance of price-based policy, provision of adequate and sound infrastructures, and further development of human capital-based industrialization.Revised February 2012