English Version
A b s t r a c t
There have been long running disputes on the relationship between the degree of openness and economic performance. Based on cross-country analyses, a number of studies found that the relationship between openness and economic performance is quite mixed. Some studies discovered a positive relationship, while others found a negative or simply neutral relationship.
Unlike previous studies using cross-sectional data, this study uses structural vector auto-regression (SVAR) to explore the impact of trade openness and financial openness on the Indonesian economy. The findings shows that trade openness and financial openness have negative impacts on output. The results of trade openness are quite robust; since a lack of preparation to anticipate trade openness weakens the competitiveness of Indonesian products relative to foreign products and, finally, lower output. The findings of financial openness are also robust because greater financial openness leaves the Indonesian economy more vulnerable to capital reversal, which endangers economic performance.
There have been long running disputes on the relationship between the degree of openness and economic performance. Based on cross-country analyses, a number of studies found that the relationship between openness and economic performance is quite mixed. Some studies discovered a positive relationship, while others found a negative or simply neutral relationship.
Unlike previous studies using cross-sectional data, this study uses structural vector auto-regression (SVAR) to explore the impact of trade openness and financial openness on the Indonesian economy. The findings shows that trade openness and financial openness have negative impacts on output. The results of trade openness are quite robust; since a lack of preparation to anticipate trade openness weakens the competitiveness of Indonesian products relative to foreign products and, finally, lower output. The findings of financial openness are also robust because greater financial openness leaves the Indonesian economy more vulnerable to capital reversal, which endangers economic performance.
I. INTRODUCTION
Since more than a century, the relation between openness and economic performance has been the topic of dispute among policy makers, politicians and academia. In view of comparative advantage theory of Hecksher-Ohlin, openness can be beneficial in improving economic performance of a country. Based on this theory, a country will export products having comparative advantage and import goods having no comparative advantage and this will lead to increase efficiency thus will support national economic growth. Besides, openness will enhance the capital inflow to a country and thus will accelerate capital accumulation and transfer technology which is considered the main components in strengthening the economic growth as defined by endogenous growth theory.
In the opinion of those who are against liberalization, protection is believed to be able to enhance economic performance of a country. According to them, the lack of readiness of a country will aggravate its economic situation, due to its incapability in competing with the goods and services provided by the developed countries. Krugman (1994) and Rodrik (1995) are economists with skeptical attitude towards the impact of openness to a country. The question regarding the benefit of openness to a country»s economy has been raised again since the economic crisis occurred in South American countries in 1980s and 1990s as well as the one occurred in Asian countries in 1997/1998. Openness will cause a country to be more vulnerable towards shock coming from outside country as well as towards the incapability in competing with developed countries.
Journals for full download on the link below
Since more than a century, the relation between openness and economic performance has been the topic of dispute among policy makers, politicians and academia. In view of comparative advantage theory of Hecksher-Ohlin, openness can be beneficial in improving economic performance of a country. Based on this theory, a country will export products having comparative advantage and import goods having no comparative advantage and this will lead to increase efficiency thus will support national economic growth. Besides, openness will enhance the capital inflow to a country and thus will accelerate capital accumulation and transfer technology which is considered the main components in strengthening the economic growth as defined by endogenous growth theory.
In the opinion of those who are against liberalization, protection is believed to be able to enhance economic performance of a country. According to them, the lack of readiness of a country will aggravate its economic situation, due to its incapability in competing with the goods and services provided by the developed countries. Krugman (1994) and Rodrik (1995) are economists with skeptical attitude towards the impact of openness to a country. The question regarding the benefit of openness to a country»s economy has been raised again since the economic crisis occurred in South American countries in 1980s and 1990s as well as the one occurred in Asian countries in 1997/1998. Openness will cause a country to be more vulnerable towards shock coming from outside country as well as towards the incapability in competing with developed countries.
Journals for full download on the link below
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