Analysis of Factors Impacting Indonesia's Economic Development Using the Partial Adjustment Model (PAM)


Authors : Wihartanti Sulistyaning Tyas; Fadilla Citra Melati

Volume/Issue : Volume 6 - 2021, Issue 1 - January

Google Scholar : http://bitly.ws/9nMw

The goal of this analysis is to examine and ascertain the impact on the economic growth of short- and long-term government expenditure (GE), interest rate (IR), and expenditure (INV) variables as calculated by Gross Domestic Product (GDP). This research analyzes economic development in Indonesia using the Partial Adjustment Model (PAM) method for the 2000-2018 period. The analytical findings of this analysis indicate that, both in the long and short term, government expenditure and investment factors have a major positive impact on economic development. This illustrates that rising levels of government expenditure and investment would have an impact on Indonesia's rising GDP. This analysis is in line with the hypothesis proposed by Keynesian on the basis of these findings. The interest rate vector in this analysis, however, has a negative and marginal effect on GDP. This means that, both in the long and short term, the interest rate has little impact on economic development in Indonesia. Based on the findings of this report, it is hoped that, in order to further improve the efficiency of domestic growth so that more domestic and foreign investors can invest in the region, it can become an appraisal material for stakeholders and development planners.

Keywords : Government Expenditure, Interest Rate, Economic Development, Partial Adjustment Model.

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