An Analysis of the Effect of Consumption Spending and Investment on Indonesia’s Economic Growth

Authors

1 Department of Economics, Faculty of Economics and Business, Universitas Halu Oleo, Kendari, Indonesia

2 Department of Mathematics, Faculty of Math and Science, Universitas Halu Oleu, Kendari, Indonesia

3 Department of Economics, Faculty of Economics and Business, Universitas Halu Oleo, Kendari 93232, Indonesia

Abstract

This study aims to examine the effect of investment and consumption spending on Indonesia’s economic growth. The data used is the quarterly time series data from the first quarter of year 2003 to the fourth quarter of year 2013, comprising consumption spending, investment and economic growth. For the purpose of analysis, the autoregressive distributed lag (ARDL) model is used. The result of the study reveals that there are long-run and short-run effects of consumption spending on economic growth. Meanwhile, the effect of investment on economic growth is not significant. The study also reveals that the increase in government spending on economic growth is 1.88% if the consumption spending rises by 1%.
 

Keywords


Brown. R. L., Durbin., & Evans, J. M. (1975). Techniques for Testing the Constancy of Regression Relationships over Time. Journal of the Royal Statistical Society, Series B (Methodological), 37(2), 149-192.

Boediono. (1994). Macroeconomics: Introduction to Economics Synopsis Series. Yogyakarta: BPFE.

Dickey, D. A., & Fuller, W. A. (1979). Distribution of the Estimators for Autoregressive Time Series with a Unit Root.  Journal of the American Statistical Assosiation, 74, 427-443.

Fajriah, L. R.  (2016). Sri Mulyani: Indonesia's Economic Growth is the Highest in the World. Retrieved from

https://ekbis.sindonews.com/read/1156211/33/sri-mulyani-pertumbuhan-ekonomi-indonesia-termasuk-tertinggi-di-dunia-1479389615.

Ghani, J., & Din, M. U. (2006). The Impact of Public Invesment on Economic Growth in Pakistan. The Pakistan Development Review, 45(1), 87-98. 

Jhingan, M. L. (2014). The Economics of Development and Planning (40th Ed.). Delhi: Vrinda Publications (P) Ltd.

Keynes, J. M. (2013). General Theory of Employment, Interest and Money. New York: Cambridge University Press.

Koop, G. (2006).  Analysis of Financial Data. Chichester: John Wiley & Son Ltd.

Lincolin, A. (1987). Development Economics. Yogyakarta: STIE YKPN.

Mankiw, N. G. (2015). Macroeconomics (9th Ed.). New York: Worth Publishers.

M’amanja, D., & Morrissey, O.  (2006). Foreign Aid Invesment and Economic Growth in Kenya: A Time Series Approach. CREDIT Research Paper, 06/05, Retrieved from

https://pdfs.semanticscholar.org/68be/8e110d0f0632098f5a2edc3b1bb1af8e61eb.pdf.

Murthy, V. N. R., & Okumande, A. A. (2016). Determinants of U.S. Health Expenditure: Evidence from Autoregressive Distributed Lag (ARDL) Approach to Cointegration. Economic Modelling, 59, 67–73.

Narayan, P. K. (2005). The Saving and Investment Nexus for China: Evidence from Cointegration Tests. Applied Economics, 37(17), 1979-1990.

Nyasha, N., & Odhiambo, N. M. (2017). Bank Versus Stock Market Development in Brazil and  ARDL Bound Testing  Approach. South East European Journal of Economics and Business, 12(1), 7-21.

Pata, U. K., & Yurtkuran, S. (2017). The Relationship between Electricity Consumption and Economic Growth in the Selected Member Countries of the International Energy Agency (IEA): An ARDL Bounds Test Approach. Iranian Economic Review, 21(2), 341-364.

Pesaran, M. H., & Shin, Y. (1999). An Autoregressive Distributed-Lag Modelling Approach to Cointegration Analysis. InS. Strom (Eds.), Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium (371-413).Cambridge: Cambridge University Press.

Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics, 162, 89-326.

Phillips, P. C. B., & Perron, P. (1988). Testing for a Unit Root in Time Series Regression. Biometrika, 75(2), 335-346. 

Samuelson, P. A., & Nordhaus, W. D. (2010). Economics (19th Ed.). New York: McGraw-Hill/Irwin.

Sukirno, S. (2003). Modern Macroeconomics: The Development of Thoughts from Classical to New Keynesian. Jakarta: Raja Grafindo Persada.

Sumitro, D. (1994). Development of Economic Thought, Basic Theory of Economic Growth and Development Economics. Jakarta: LP3ES.