Case Study on Economical Growth of Indonesia

Scientific Essay, 2008

14 Pages, Grade: 1.0


Table of Contents


1 Introduction
1.1 Country Brief
1.2 Economic Overview
1.3 Government Intervention

2 Main Economic Forces Influencing Growth
2.1 Exports
2.2 Foreign Direct Investment
2.3 Private Consumption
2.4 Government Policies
2.5 Continuous Growth and its possible consequences
2.5.1 Possible Negative Impacts of Continuous Growth
2.5.2 Possible Positive Impacts of Continuous Growth
2.6 Conclusions and Future Scenarios

3 Bibliography


This paper initially provides an introduction which consists of the relevant background information about Indonesia's economy. It examines the economic factors which contribute to Indonesia's growth and attempts to investigate how the trajectory of growth is encircled by both international and domestic factors. It tries to reveal the linkage between the drivers of growth.

The research explains the probable positive and negative impacts of continuous growth, and at the same time reciprocally how growth shapes those outcomes. In conclusion part, future trends, challenges and suggestions are expressed by reviewing the paper.

1 Introduction

1.1 Country Brief

Indonesia is the fourth most populated country and the largest ASEAN (Association of South-East Asian Nations) country. Neighboring countries are Papua New Guinea, East Timor, Malaysia, Singapore, the Philippines and Australia. Indonesia consists of 26 provinces with over 300 ethic groups. Conflictions between ethnic groups is a big concern for stability.

illustration not visible in this excerpt

1.2 Economic Overview

Indonesia is characterized as lower middle-income country in the world. According to "2008 Index of Economic Freedom"[2], Indonesia's economy is 53.9 percent free, is ranked as 119th freest economy among 162 countries. Economic freedom ranking is based on the following criteria: business freedom, trade freedom, fiscal freedom, government size, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption, labor freedom. Thus, there is strong linkage between the criteria of economic freedom and economic growth.

illustration not visible in this excerpt

Industrial sector accounts for 47.7 percent of GDP; service sector constitutes 39.9 percent of GDP and the rest 12.4 percent of GDP is composed by agricultural sector (2007). Service sector has been recently expanded via tourism industry. Indonesia's exports accounted for $118.4 billion f.o.b. in 2007. Export products are mainly oil and gas, electrical appliances, rubber, plywood and textiles which are mainly dispatched to Japan (21.1 percent), USA (13.2 percent), Singapore (9.4 percent), South Korea (7.2 percent), and China (5.1 percent).

Imports are in amount of $86.24 billion f.o.b. (2007). Indonesia imports primarily machinery and equipment, chemicals, fuels, foodstuffs from Singapore (29.6 percent), China (11.2 percent), Japan (8.8 percent), South Korea (5.3 percent), and Malaysia (4.8 percent), (2006).

1.3 Government Intervention

Indonesia government has been applying an intervention policy aiming to sustain growth. Government implemented a conservative fiscal policy in 1980s for oil revenues and government expenditures; and the accumulated income from oil exports were invested to agriculture and manufacturing infrastructure to strength other exports like palm oil and textile. Oil prices decreased in 1985, that leaded government to search for a new policy to enable trade, then government reduced non-tariff barriers; foreign investment was facilitated. Given the reduction in oil prices, currency had been devaluated so as to increase profits of exports. Thus, non-oil products became more attractive, government manipulated tax by increasing non-oil tax rate.

According to 2008 Index of Economic Freedom, state-owned enterprises are assessed to account for approximately 40 percent of GDP. This show reveals that Indonesian government undertakes the business activities to a significant extent.

2 Main Economic Forces Influencing Growth

After crisis, many institutions and economists have been pessimistic about Indonesia's economy. As it is illustrated in the graph below, Indonesia has surpassed IMF's expectations for growth. And the country achieved its peak growth rate with 6.1 percent in 11 years after 1997 crisis.

illustration not visible in this excerpt

Source: IMF World Economic Outlook Reports,

The main forces that stimulate growth can be characterized as exports, foreign direct investment and government policies, which are below explained in detail.

2.1 Exports

Indonesia's geographic location is very appropriate for the expansion of trade. Exports have been one of the main drivers of growth. The country possesses rich reserves as of crude oil, gas, coal, copper, palm oil, gold and silver. Recently, Indonesia has become second largest producer of palm oil in the world. Due to boomed demand, government recently doubled the tax on palm oil exports[3]. This enables to receive higher tax revenues which can be allocated to other areas in order to sustain growth.

As it is demonstrated in graph below, Indonesian exports are well diversified into different sectors. This case allows Indonesia to be able to be flexible in terms of offsetting the declines in exports of one specific sector with increasing the exports amount in another sector.

Exports Share

illustration not visible in this excerpt

Indonesia took the advantage of its oil reserves to induce economic growth and then the yield has been transferred to diversify into manufacturing sector. Manufacturing industry contributed to GDP by 3.5 percent in 2003.

illustration not visible in this excerpt

Source: BPS-Statistics Indonesia,



[2]See 2008 Index of Economic Freedom Report,

[3] See Antara News,

Excerpt out of 14 pages


Case Study on Economical Growth of Indonesia
University of Applied Sciences Giessen
Catalog Number
ISBN (eBook)
ISBN (Book)
File size
921 KB
Case, Study, Economical, Growth, Indonesia
Quote paper
M.A. Asligul Aktas (Author), 2008, Case Study on Economical Growth of Indonesia, Munich, GRIN Verlag,


  • No comments yet.
Look inside the ebook
Title: Case Study on Economical Growth of Indonesia

Upload papers

Your term paper / thesis:

- Publication as eBook and book
- High royalties for the sales
- Completely free - with ISBN
- It only takes five minutes
- Every paper finds readers

Publish now - it's free