The Effects of Trade Liberalization, Financial Development and Economic Crisis on Economic Growth in Indonesia

Abstract

Debate on the influence of trade liberalization and financial development on economic growth is still going on. Most economists believe that both policy will encourage economic growth, while another group of economists believe that the two policies would likely depress economic growth and encourage economic volatility. This study is aimed to test the effect of the two policies on economic growth in Indonesia. In addition, this study also tests the effect of the events of the Asian economic crisis in 1997 and global economic crisis in 2008 on economic growth. By using time series data from the years of 1990 to 2014, cointegration test that takes into account on structural break data, and ECM, this study shows that trade liberalization and financial development that occurred in Indonesia is able to influence and promote economic growth. This study shows also that the event of the Asian economic crisis in 1997 has a negative impact on economic growth in Indonesia compared to the global economic crisis in 2008.

Keywords: trade liberalization, financial development, economic crisis, economic growth