Analysis of Indonesia Manufacture Product Trade Flow Pattern To Latin America Region Using Gravity Model Approach
Desti Ayu Kristiani
Kemendag
Abstract
The Ministry of Trade of the Republic of Indonesia sets a strategy to diversify export markets. Latin America is being indicated as the potential solution to improve Indonesia export performance, along with the economic slowdown in some developed countries after the global recession. This study aims to determine what factors has affected the trade flow of Indonesian manufacturing products to the Latin America region using gravity model, and panel data estimation. Some variables that has been included in the gravity model are conformity trade index, trade cost as an inhibited factor and other traditional gravity variable such as GDP and per capita GDP. The result showed that the conformity trade index does not significantly affect on the trade flow of manufacturing products from Indonesia to the Latin American region, while trade cost have negative and significant impact on trade flows between Indonesia and Latin American region. The coefficient estimation value of the trade cost was 0.0049 means that the trade will reduce by 0.0049% when the trade cost increase by 1%. The effect of the GDP is significantly affect the trade flows between Indonesia and Latin American region. Increase GDP by 1% will increase trade flow between Indonesia and Latin Amerika region by 1.34%. This study recommended that the criterias of priority for selecting countries as export destination is economic size (GDP and GDP per capita).
Keywords: Gravity Model, Indonesia, Latin America, Trade Cost, and Conformity Trade Index.
Topic: Business Strategies on GVC Participation