The Effect of Exchange Rates, Inflation, and Interest Rates on Non-oil and Gas Exports in Indonesia 2005-2024

Abstract

This study aims to analyze the effect of exchange rates, inflation, and interest rates on non-oil and gas exports in Indonesia in the short and long term during the period 2005 to 2024. The non-oil and gas export sector is an important pillar in maintaining the stability of the trade balance and national foreign exchange reserves. This study uses the Vector Error Correction Model (VECM) research method with stationary data at the second difference level. The results of the study indicate that (1) the exchange rate has a negative and significant effect on non-oil and gas exports in Indonesia in the long term, and does not significantly affect non-oil and gas exports in Indonesia in the short term; (2) inflation has a negative and significant effect on non-oil and gas exports in Indonesia in the long term, and does not significantly affect non-oil and gas exports in Indonesia in the short term; (3) interest rates have a positive and significant effect on non-oil and gas exports in Indonesia in the long term with a standard error of 10%, and does not significantly affect non-oil and gas exports in Indonesia in the short term. The implication of the study is that long-term exchange rate stability needs to be maintained. Exchange rate stability can increase the competitiveness of Indonesian export products in the international market. Inflation control must be ensured to be stable and manageable to maintain export competitiveness. Furthermore, the interest rate policy implemented should focus more on macroeconomic stability, such as controlling inflation and financial system stability, rather than directly targeting export growth.