Oil Rent and Economic Growth in Indonesia

Abstract

This study aimed to analyze the effect of direct and  indirect oil rents for Indonesia's economic growth through trade openness, human capital, quality of institutions and genuine savings. This study uses secondary data for the period 1980 to 2010, sourced from several institutions such as the BPS, World Bank, BP Migas, and the PRS Group. The method of analysis used in this research is the analysis of the path (path analysis), which assisted with the package SPSS version 16.00.

In this study found that the oil rent has no direct negative effect on economic growth in Indonesia, and has an indirect negative effect on economic growth in Indonesia through the quality of institutions. From the research each oil rents increased by 1 point will cause a decrease in the quality of institutions in Indonesia by 0.6 points. And any increase or decrease in the quality of institutions by 1 point, would cause an increase or decrease in Indonesia's economic growth by 0.5 points. So the results of this study indicate that the quality of the institution serves as a transmission mechanism of the resource curse in Indonesia.

This research also found that the oil rent significant positive effect of trade openness and trade openness significant negative effect on economic growth. So we can conclude that trade openness is not a transmission mechanism negative relationship between oil rents and economic growth in Indonesia. The results of this study support empirical research Rosser (2007) that Indonesia can avoid the resource curse in Indonesia and one way is to prevent the Dutch disease. The results of this study showed no evidence of a negative indirect effect of oil rents on economic growth through human capital and a genuine saving.

Keywords: Oil Rent, Trade Openness, Human Capital, Quality Institution, Genuine Saving,   Dutch Disease, Resouces Curse