Examining Free Trade Agreements' effects on Indonesian export performance

Abstract

The purpose of this study is to evaluate the effect of Free Trade Agreement of Indonesia on its export performance using panel data. Panel data in this study consists of relevant variables from 50 Indonesian trading partner countries between 2007-2017. The export performance based on value of two leading commodities of Indonesia and other two prioritized commodities will be treated as dependent variable. While as the independent variable this study will employ dummy Free Trade Agreement (FTA), and several variables which are observed from country partner such as Gross Domestic Product (GDP), Population, Logistic Performance Index (LPI), average tariff and the exchange rate of country partner to Indonesian Rupiah. This study conducted the multiple regression by using fixed and random effect model to analyze the panel data. Importantly, Hausman Test conducted to elect the best fitted estimation between Fixed and Random Effect regression model. Hence, this study will cast a light on how significant Free Trade Agreement affects Indonesian export performance based on the leading commodities by taking into account factors that affect trade in general. Moreover, the fitted regression results yield significant coefficient of Free Trade Agreement in improving manufactures, low-technology, and high-technology commodities export value. Whereas it does not give significant effect in food commodities. Equally important, this study conclude that diverse variables affect export value differently based on the products characteristic, consumer preference, and market condition.