• Jardine A Husman


The paper analyzes the Marshall-Lerner condition on Indonesian trade with its major trading partners. This study also investigates the existance of J-curve and covers the issue of the indirect pass-through effect, particularly the impact of the real exchange rate change on the Indonesian export performance.

We apply the VECM model on the quarterly data of Indonesia and 8 of its trading partners, during the period of 1993:1-2004:4. The estimation result on the overall sample shows that the condition of Marshall-Lerner is satisfied, implying the rupiahs depreciation will increase the Indonesian export. Using each trading partner pair data, the Marshall-Lerner condition is not satisfied on the case of Singapore and England due to the inelastic export demand as the Indonesian export to both countries is mostly a consumption goods.

The J-curve phenomenon is only found in the case of Japan, South Korea and Germany implying the depreciation of Rupiahs will increase Indonesian export. The elasticity estimation shows that 1% depreciation of Rupiahs only raise Indonesian export-import ratio by 0.37%. This small number strongly indicates that real exchange rate only plays a minor role on the Indonesian export performance.

JEL Classification: C22, F14

Keywords: Exchange rate, J-Curve, Marshall-Lerner, export, VECM.



Astiyah, S (2005), “Pemetaan dan Peran Relatif Jalur Transmisi Kebijakan Moneter Paska Krisis”, Working Paper, Biro Riset Ekonomi, Bank Indonesia.

Bahmani-Oskooee, M. and T. Kantipong (2001),”Bilateral J-Curve Between Thailand and Her Trading Partners”, Journal of Economic Development, Vol. 26.

Bahmani-Oskooee, M. and J. Alse (1994),”Short-Run versus Long-Run Effects of Devaluation: Error Correction Modelling and Cointegration”, Eastern Economic Journal, Vol. 20.

Bahmani-Oskooee, M. and T.J. Brooks (1999), “Bilateral J-Curve Between US and her Trading Partners,”Weltwirtschaftliches Archiv, Vol. 135.

Boyd, D., G. M. Caporale, R. Smithh (2001),”Real Exchange Effects on the Balance of Trade: Cointegration and the Marshall-Lerner Condition”, International Journal of Finance and Economics, Vol.6: 187-200.

Dickey, D.A. and Fuller, W.A. (1981),”Likelihood Ratio Statistics for Autoregressive Time Series witha Unit Root”, Econometrica, Vol. 49.

Johansen, S. (1988),”Statistical Analysis of Cointegration Vectors”, Journal of Economic Dynamics and Control, Vol. 12.

Johansen, S. and Juselius, K (1990),”Maximum Likelihood Estimation and Inferences on Cointegration – with Application to Demand for Money”, Oxford Bulletin of Economics and Statistics, Vol 52. Model SOFIE, Direktorat Riset Ekonomi dan Kebijakan Moneter, Bank Indonesia. Model SSM, Direktorat Riset Ekonomi dan Kebijakan Moneter, Bank Indonesia.

Onafowora, O. (2003),”Exchange rate and trade balance in east asia: is there a J-curve?” Economic Bulletin, Vol. 5.

Pesaran, M. H. and Shin, Y. (1998),”Generelized Impulse Response Analysis in Linear Multivariate Model”, Economic Letters, Vol. 58.

Warjiyo, P. (2004), “Ekonomi Keuagan Internasional: Teori, Model Empiris dan Kebijakan”, Bahan Kuliah Pascasarjana Universitas Indonesia Program Studi Ilmu Ekonomi.