The dynamics of Exchange Rates and Internastional Trade as Determinants of Indonesia’s Economic Growth An Organizational Perspective on Role Conflict

Abstract

This study aims to analyze the dynamics of international trade and exchange rates and their effects on Indonesia’s Gross Domestic Product (GDP). The variables examined include exports, imports, exchange rates, and GDP using secondary data covering the period 2014–2024. A quantitative approach is employed using the Vector Error Correction Model (VECM), supported by stationarity testing, optimal lag selection, the Johansen cointegration test, Granger causality test, Impulse Response Function (IRF), and Forecast Error Variance Decomposition (FEVD). The cointegration test indicates the existence of a long-run relationship among exports, imports, exchange rates, and GDP. The Granger causality test shows that exports affect imports and GDP, while imports affect GDP. In addition, a unidirectional causal relationship is found from GDP to the exchange rate. The VECM results indicate that imports and exchange rates significantly affect exports in the long run, while the adjustment mechanism toward equilibrium primarily occurs in the export and import equations. The IRF results show that shocks to exports and imports generate relatively strong responses in GDP, whereas the response to exchange rate shocks tends to be smaller and fluctuating. The FEVD results indicate that, in period 10, variations in GDP are mainly explained by imports at 38.58% and exports at 33.27%, while the exchange rate contributes 9.10%. These findings suggest that international trade plays a relatively dominant role in explaining the dynamics of Indonesia’s GDP. Therefore, strengthening export competitiveness, managing productive imports, and maintaining exchange rate stability are essential to support sustainable economic growth in Indonesia