Factors Affecting Manufacturing Exports

Abstract

This study aims to determine the factors that influence manufacturing exports in Indonesia. This study uses time-series data with 40 data observations starting from the 1st quarter of 2010 to the 4th quarter of 2019. This study's analysis method is the vector error correction model (VECM), which can dynamically describe the short-term and long-term effects. Export determinants to be examined are inflation, the rupiah exchange rate, Gross Domestic Product (GDP), and Foreign Direct Investment (FDI). This study indicates that inflation at lag 1 harms manufactured exports both in the short and long term. Furthermore, GDP has a positive effect on manufacturing exports in the short run at lag 1 and lag 2, while in the long run, GDP has a positive effect only on lag 1. Meanwhile, the exchange rate and FDI factors did not affect manufactured exports, both in the short and long term. This study implies that inflation and GDP are essential factors in designing policies to increase exports in Indonesia, including exports of manufactured products.