The Relationship Between Public Debt, Trade Openness, and Economic Growth in Indonesia: Symmetric and Asymmetric Analysis
Abstract
This study aims to explore the relationship between public debt and trade openness on economic growth in the context of the Indonesian economy. The symmetric model (Autoregressive Distributed Lag/ARDL) and the asymmetric model (Nonlinear ARDL) are employed to estimate the association among the variables in the model, both in the short and long run, in a quarterly dataset from 2010: Q1 to 2019: Q4. The results show that both the symmetric and asymmetric models confirm the use of external debt has a detrimental effect on economic growth. On the other hand, the use of domestic debt supports economic growth in the long run. This study only found a significant impact of trade openness on economic growth in the asymmetric model, which suggests that reducing trade openness empirically contributes to a rise in economic growth in the long run. The diagnostic tests for both models indicate satisfactory results. Some policy implications are also discussed.
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