1. Exchange Rate and Economic Growth in Indonesia (1984-2013) Presented by : Shanty Tindaon (10292026)

2. Abstract (1/2)  This paper investigates the impact of FDI, capital stock, inflation, and nominal exchange rate on economic growth of Indonesia by using time series data for the period of 1984-2013  Ordinary Least Squares method (OLS) is employed to check the relation between dependent variable (GDP) and independent variables  The Cochrane-Orcutt iterative method also used to correct the autocorrelation  The results shows that Foreign direct investment has positive and significant relation with the GDP of Indonesia

3. Abstract (2/2)  Inflation has negative relation with the GDP of Indonesia while Capital Stock and Nominal Exchange Rate do not significantly affect economic growth.  Q 2 test on residuals and JB Normality Test on residuals applied to check the homeskedasticity and normality respectively.

4. Introduction (1/2) The relationship between exchange rate and economic growth has been an important subject in economics Theoretically speaking, there exists a positive relationship between high exchange rate and economic growth Most of the previous researcher found that increasing the value of exchange rates due to increased demand for the national currency of Indonesia

5. Introduction (2/2)

6. LITERATURE REVIEW  Hatane and Stephanie (2015) investigate the Effect of Inflation, Interest Rates, and Exchange Rates on Gross Domestic Product (GDP) in Indonesia  Yusoff and Febrina (2012) investigate the trade Openness, Exchange Rate, Gross Domestic Investment, and Growth in Indonesia  Isnowati (2015) examines the effect of exchange rate, national income and inflation on the import price in Indonesia  Filiyana (2015) Analyzes and the effect of Exchange Rate, Current Account and Economic Growth to Foreign Exchange Reserves in Indonesia, Malaysia and Singapore

7. Data collection and methodology (1/2)  Multiple regression analysis is used to find the relationship between the variables  Using secondary data that collected from some official economic resources (1984-2013)  Economic growth is taken as dependent variable.  FDI, Gross fixed capital formation (GFCF), Inflation, and nominal exchange rate are used as independent variables

8. Ln(EG t )= β 0 + β 1 ln(FDI t )+ β 2 ln(CS t )+ β 3 ln(INF t )+ β 4 ln(EXC t )+ Ɛ t Where:  EG=Economic Growth  FDI=Foreign Direct Investment  CS=Capital stock proxied by gross fixed capital formation (GFCF)  INF=Inflation  EXC= Nominal Exchange Rate  Ɛ t =Stochastic Error Term  Where, β 0, β 1, β 2, β 3, β 4 are the respective parameters.  Augmented Dickey Fuller test is used to check the unit root properties of the variables

9. TABLE: 2 NULL HYPOTHESIS: THERE IS UNIT ROOT; ALTERNATIVE HYPOTHESIS: THERE IS NO UNIT ROOT All the variables are compared to with the critical value at 5% level of significance Result (1/4) Augmented Dickey Fuller (ADF) Statistics Test VariablesLevel and first Difference Trend Drift Conclusion Ln (EG)Level0.0490.011 I (0) Ln FDI Level0.8570.919 Unit root 1 st Difference Level0.0360.0002I (1) Ln GFCF Level 0.689 0.804 Unit root 1st Difference Level0.3540.162 Unit root 2nd Difference Level0.0010.0003 I (2) Level0.0070.001I (0) Ln INF Ln EXC Level0.3440.710 Unit root 1st Difference Level7,267e-0058,468e-006I (1)

10. Result (2/4) CoefficientStd. Errort-ratiop-value Const8,582950,6578913,0462<0,0001*** d_FDI8,77212e-011 1,26798e- 010 0,69180,4960 d_d_GFCF−1,95049e-0123,9608e-011−0,04920,9611 INFLATION−0,3158120,0676455−4,66860,0001*** d_NominalEXC−0,0003419540,000571575−0,59830,5555 Mean dependent var 5,360357 S.D. dependent var 4,031887 Sum squared resid 72,69285 S.E. of regression 1,777796 R-squared 0,834381 Adjusted R-squared 0,805577 F(4, 23) 28,96816 P-value(F) 1,11e-08 Log-likelihood−53,08682 Akaike criterion 116,1736 Schwarz criterion 122,8347 Hannan-Quinn 118,2100 Rho 0,702412 Durbin-Watson 0,590089 Results of Ordinary Least Squares Method are given below Model 1: OLS, using observations 1986-2013 (T = 28) Dependent variable: EG

11. Result (3/4) Model 2: Cochrane-Orcutt, using observations 1987-2013 (T = 27) Dependent variable: EG rho = 0,770773 CoefficientStd. Errort-ratiop-value const8,17291,057727,7269<0,0001*** d_FDI1,27114e-0106,86412e-0111,85190,0775* d_d_GFCF−3,77065e-0132,56742e-011−0,01470,9884 INFLATION−0,2721810,0389598−6,9862<0,0001*** d_NominalEXC−0,0003717710,000317309−1,17160,2539 Mean dependent var 5,338148 S.D. dependent var 4,106946 Sum squared resid 30,88433 S.E. of regression 1,184835 R-squared 0,930718 Adjusted R-squared 0,918121 F(4, 22) 75,34381 P-value(F) 1,63e-12 rho 0,201907 Durbin-Watson 1,594108 Statistics based on the rho-differenced data:

12. Result (4/4) ItemTest AppliedCritical ValueProbability value NormalityJB Normality test on residuals0,26870,874 Heteroscedasticity Q 2 test on residuals0,19680,657 Diagnostic Tests The results of diagnostic tests demonstrate that residuals are normally distributed and it is free from hetroscedasticity.

13. Conclusion and Policy Implication  FDI and Inflation are significantly affect economic growth, whereas capital stock (GFCF) and nominal exchange rate do not significantly affect economic growth.  FDI considered as an engine for the economic growth of the country.  There is need to attract investors by creating peaceful environment in the country.  Moderate inflation is necessary for the growth but above the specific level it can leads to the depreciation of the growth.

14. Thank You For Your Attention