Monetary Policy and Trade: An Engine for Economic Growth

Globalization has encouraged trade openness to support economic growth. The dynamics of Indonesia's economic growth in the last three decades have tended to fluctuate, especially during a crisis. Empirical studies on the impact of trade openness on Indonesia's economic growth show different results. Therefore, this study aims to examine the relationship between trade openness and Indonesia's economic growth, including when the crisis hit Indonesia. This study uses secondary data from 1984-2023 using ARDL method. The results shows that there is a positive and significant relationship between trade openness and Indonesia's economic growth in the long-term, but in the short-term trade openness has a negative impact on Indonesia's economic growth. In addition, human capital and FDI have a positive impact on Indonesia's economic growth in the long-term. The crisis that occurred will cause a decline in Indonesia's economic growth in the short-term, but the effect does not last in the long-term. Keywords: ARDL; Economic Growth; Trade Openness.

This study aims to analyze the response of Indonesia's economic growth and Indonesia's trade openness with each trading partner to economic growth shocks in Indonesia's main trading partners. This study uses a quantitative approach with the VAR / VECM method by analyzing the impulse response between variables, using time-series data. The sample used in this study amounted to 378 annual data from 1981-2022 sourced from the World Bank and IMF. The results obtained from the response test show that there is a positive response from Indonesia's economic growth to shocks to US economic growth, and a negative response from Indonesia's trade openness with the United States. There is a positive response from Indonesia's economic growth to China's economic growth shocks, and a negative response from Indonesia's trade openness with China. There is a positive response of Indonesia's economic growth and trade openness with Japan to Japan's economic growth shocks. There is a negative response from Indonesia's economic growth and trade openness with Malaysia to shocks in Indonesia's economic growth with Malaysia.

This study examines the relationship between foreign direct investment (FDI) inflow, trade openness, and the influence of FDI on economic growth. The threshold methodology and GMM estimation are employed to analyze panel data from 60 developing countries in the period between 1995 and 2019. This study demonstrates the positive impact of FDI on economic growth in developing countries. However, the study also finds a significant threshold of FDI inflow relative to GDP that changes the impact of inward FDI on GDP growth. Regarding the role of trade openness, a significant threshold is found, which also indicates the absorptive capacity of the host countries. Moving from below to above this threshold, an increase in FDI inflow leads to a lower increase in economic growth. An increase in FDI relative to GDP stimulates growth only when the host country has sufficient absorptive capacity with regard to trade openness above the threshold. We suggest developing countries tighten the coherence of trade liberalization and FDI attraction policies to obtain the benefits of FDI and make changes to attract new investors when they succeed in attracting massive FDI inflows.

Asian economic growth experienced a great increase in their real growth domestic product (RGDP). Consequently, very few countries reached a high level of income and wealth, as well as the majority of them, were below the world average. The study aimed to investigate the influence of financial instability, oil prices and trade openness on economic growth in Jordan, Malaysia, Philippines, Thailand, Indonesia and Singapore. The study employed Westerlund cointegration techniques and found that there is the existence of cointegration linkages among the variables in the all six countries. Moreover, the results of Wald test Granger causality test revealed a bidirectional causality between financial instability and economic growth in Jordan, Philippines, Indonesia and Singapore. However, the result showed one-way causality running from economic growth to financial instability, economic growth to trade openness index in Malaysia, from economic growth to trade openness index in Jordan, from economic growth to oil prices in Philippines, from economic growth to financial instability in Thailand, from oil prices to economic growth in Indonesia, from trade openness index to economic growth in Singapore. In addition, the Panel Dumitrescu and Hurlin heterogeneous causality showed unidirectional causality running from financial instability to economic growth, and from trade openness index to economic growth. Consequently, the government should provide sufficient institutions that can generate relationships among macro stability and economic growth to decreases uncertainty reinforces reliability and increases the general macroeconomic environment. JEL: F43, O40, O43, O53 Article visualizations:

This study aims to determine how the influence of financial development on economic growth in Indonesia. Financial development indicators are M2 money supply, bank assets, private credit and trade openness. Where inflation and trade openness as a control variable and economic growth as the dependent variable. The data used in this study are secondary data from 2005 quarter 1 to 2018 quarter 4 which were collected through documentation and related agencies. This study uses multiple linear regression analysis and error correction models. The results of this study indicate that: (1) the money supply M2 has a negative effect on economic growth in Indonesia; (2) Bank assets have a negative effect on economic growth in Indonesia; (3) Private credit has a positive effect on economic growth in Indonesia; (4)) trade openness has a positive effect on economic growth in Indonesia.

Economic development is marked by an increase in economic growth as well as being able to promote economic growth. Indonesia is a developing country that has a fairly good economic growth and has increased from year to year, even though it had experienced an economic crisis that made Indonesia's economic growth unstable. This study aims to determine the effect of Foreign Direct Investment, labor and trade openness on economic growth in Indonesia. This study uses a quantitative approach. The data used is in the form of Indonesian secondary data from 1986-2017. The data analysis technique in this study uses time series using multiple regression models. The results show that: Partially, Foreign Direct Investment and labor have a positive and significant effect on economic growth in Indonesia, while trade openness has a negative and significant effect on economic growth in Indonesia. Simultaneously, it shows that the variables of Foreign Direct Investment, labor and trade openness have a significant effect on economic growth in Indonesia.

Monetary and fiscal policy are both macroeconomic instruments used to govern and have a large impact on a country's economy, businesses, production and consumption. The objective of the study is to evaluate the comparative analysis of fiscal and monetary policy in Pakistan. For this purpose, an autoregressive distributed lag (ARDL) model was used, which showed the significant impact of monetary and fiscal policy on enhancing economic growth. Data was obtained from World Development Indicator (WDI) from 1990 to 2020. In this study, two models have been estimated using the Gross Domestic Product (GDP) as a dependent variable and Development Expenditures, Gross Fixed Capital Formation, Labor Force Participation, Corruption, Total Tax, Trade openness, Broad Money (M2), Governmental Consumption Expenditure as independent variables. The results showed that monetary policy positively impacts Pakistan’s economy. Also, the study found that fiscal policy affects Pakistan’s economy positively. But the study reveals that monetary policy is more powerful in promoting economic growth in Pakistan. So, we will suggest that promoting the monetary policy in the banking sector would provide a suitable investment atmosphere through the maintenance of inflationary rates, interest rates, and lending rates to endorse and confirm economic growth, sustainability, solidity, and progress in Pakistan.

This study aimed to scrutinize the impact of financial development, energy consumption, industrialization, and trade openness on economic growth in Indonesia over the period 1984–2018. To do so, the study employed the autoregressive distributed lag (ARDL) model to estimate the long-run and short-run nexus among the variables. Furthermore, fully modified ordinary least squares (FMOLS), dynamic least squares (DOLS), and canonical cointegrating regression (CCR) were used for a more robust examination of the empirical findings. The result of cointegration confirms the presence of cointegration among the variables. Findings from the ARDL indicate that industrialization, energy consumption, and financial development (measured by domestic credit) positively influence economic growth in the long run. However, financial development (measured by money supply) and trade openness demonstrate a negative effect on economic growth. The positive nexus among industrialization, financial development, energy consumption, and economic growth explains that these variables were stimulating growth in Indonesia. The error correction term indicates a 68% annual adjustment from any deviation in the previous period’s long-run equilibrium economic growth. These findings provide a strong testimony that industrialization and financial development are key to sustained long-run economic growth in Indonesia.

This study investigates the influence of central bank policy rate (CBPR) on financial development for a panel of fifteen European Union economies, utilizing annual data ranging from 2002 to 2017 inclusively. To this aim, an autoregressive distributive lag model was applied and Pooled Mean Group estimates were obtained. Economic growth, innovation, globalization index, and corruption perception index were incorporated within the empirical model as control variables to refrain from omitted variable bias. Our findings indicate that CBPR is a major driver of financial development alongside reduced corruption, increased economic growth, and increased globalization in the case of Europe. Based on the empirical findings we have obtained, we offer various policy recommendations such as; following the monetary policy which will support financial development, ensuring the central bank’s independence, increasing trust in institutions, combating the informal economy, and encouraging innovations, especially in the financial sector. We discuss the policy implications of our findings in the conclusion section in more detail.Key wordsFinancial developmentCentral bank policy rateCorruptionInnovationARDL-PMG

Government economics is the study of how government policies influence a country's economic activities. In this case, fiscal and monetary policies are the two main instruments used by the government to control economic growth. In Indonesia, fiscal and monetary policies are used to increase economic growth and overcome economic problems faced by the country. Qualitative methods that can be used in this research are case studies or field research. This research aims to analyze the influence of fiscal and monetary policy on economic growth in Indonesia. The research results show that fiscal and monetary policies have a significant effect on economic growth in Indonesia. Fiscal policy, as measured by the ratio of government debt to GDP and government spending, has a positive influence on economic growth. that fiscal and monetary policies have a significant influence on economic growth in Indonesia. Fiscal policy, particularly government spending on infrastructure projects and social programs, has a positive impact on economic growth. Meanwhile, monetary policy, such as interest rate policy and banking regulations, has a less significant influence.

Purpose: Bangladesh's economy has recently experienced elevated inflationary pressures, which significantly affect economic stability and growth. This study analyzes the factors driving inflation in Bangladesh and determines whether supply-side factors or demand-side pressures primarily influence it. Methods: The ARDL approach is used in this study's estimating process to use monthly secondary data from January 2015 to September 2024, available from different sources like Bangladesh Bank (BB) and Bangladesh Bureau of Statistics (BBS). This study utilized three separate models for scenario analysis to determine whether inflation dynamics are the same for the pre-COVID and post-COVID periods or over the entire period and whether supply-side or demand-side phenomena drive inflation. The rate of inflation is the dependent variable in the model; industrial production, import, inward remittance, exchange rate, and central bank policy rates (repo, reverse repo) are our independent variables, and the broad money supply is included as a control variable. A correlation matrix is also used to observe the connection among the variables. Results: This study's findings reveal a long-run relationship among industrial production, lag value of inflation, import, lag values of exchange rate, and broad money supply, but the central bank policy rates have no statistical significance for Bangladesh. This revealed that the channels through which monetary policy influences inflation may be weak or ineffective, or inflation may be driven more by supply-side factors than demand-side ones, reducing the effectiveness of monetary policy. Implications: The finding informs policymakers or experts that the recent inflationary trend is a supply-side phenomenon and will be adjusted over time. Originality: This study offers a story contribution by systematically analyzing the post-COVID-19 inflation dynamics in Bangladesh, distinguishing between supply-side and demand-side drivers. Unlike previous studies, which primarily focus on pre-pandemic inflation trends or general macroeconomic conditions, this paper examines explicitly the structural shifts in inflationary pressures caused by the pandemic’s aftermath. Limitations: Inflation is a multivariate variable, and while fiscal deficits may directly influence inflation, their data are only available annually. Therefore, we cannot include this variable in our article.

Economic growth and international trade are related to one another. International trade stimulates long-term economic growth. The more trade activities in a country, the more rapid economic growth; this trade is a key component of development in a country, its contribution is felt with the increasing economic growth in several countries. The purpose of this study looks at the impact of trade openness on economic growth in Indonesia in 1986-2017. This research is a quantitative study using time series data from 1986-2017, research data obtained from the world bank, data analysis techniques using the GMM method to see the impact of trade openness on economic growth. The test results using the Generalized Method of Moments analysis method show that all variables significantly influence the dynamics of economic growth in Indonesia. This result is proven by the t-statistic probability value, which shows a smaller value compared to the t-table value. Then the value also has a probability of less than α. It can be concluded that the variables of trade, FDI, inflation, and the number of workers have a significant effect on economic growth in Indonesia.

This study investigates the impact of human capital in the context of health and education on Indonesia's economic growth, which includes physical capital investment and trade openness as control variables. Using time series data from 1981 to 2022 and employing econometric techniques by applying the ARDL model. The findings reveal that education, investment, and trade openness have a positive and statistically significant impact on Indonesia's economic growth. Surprisingly, life expectancy has a negative and significant impact on Indonesia's economic growth. This unexpected result warrants further investigation to identify potential confounding factors or data limitations. Despite this finding, the study emphasizes the crucial role of health in human capital and long-run economic prosperity. Among the policy suggestions are enhancing nutrition, guaranteeing access to high-quality healthcare, and maximizing health transformation through the development of public health services. Concurrently, investments in education, particularly in improving quality, accessibility, and alignment with labor market demands, are essential. These findings underscore the need for a comprehensive approach to economic development that prioritizes human capital development while addressing the complexities of health-growth relationships.

This article explores the determinants of bank credit granted to very small, small, and medium-sized enterprises (VSMEs) in Morocco over the period 2014-2024. The study focuses on the combined effects of monetary policy signals, prudential regulation, and government credit guarantees on this segment's access to finance. Using a quantitative approach, the analysis is based on a dataset of 799 lending decisions from two large commercial banks, combined with macroeconomic indicators. The econometric model uses linear regression to estimate the effects of the central bank's policy rate, bank lending rates, risk-weighted assets (RWA), government guarantee volumes, and the economic cycle (before, during, and after COVID-19). The results show that the central bank's policy rate has a statistically significant effect; however, its influence remains limited compared to the strong negative impact of lending rates applied to VSMEs. This confirms the importance of interest rate pass-through and bank pricing behavior in access to credit. The post-COVID period is associated with a marked increase in credit allocation, likely supported by strengthened government guarantees and economic stimulus programs. The results suggest that monetary policy alone is not sufficient to unlock credit for VSMEs. The effectiveness of transmission depends on institutional factors, including risk perception, regulatory constraints, and risk-sharing tools.

The dynamic impact of financial development and trade openness on economic growth is examined for five major South Asia countries over the period 1985–2010 in the panel co-integration and causality framework. The results reveal the existence of long-run relationship between economic growth, trade openness and financial development. Further, trade openness and financial development play an important and significant role for economic growth in South Asian countries. This analysis shows that there is bidirectional causality between economic growth, trade openness and financial development.