Business Capital Funding Through the Financial Sector to Reduce Unemployment in Indonesia

Bagus Kusuma(1*), Ainnatul Muthmainnah(2)

(1) Faculty of Economics, Universitas Diponegoro
(2) School of Global Studies, Youngsan University, Republic of Korea
(*) Corresponding Author

Abstract

This research aimed to study the role of the financial sector and foreign investment in increasing domestic production output. Where the increase in production output will increase the factors of production, one of which is labor. The data used in this study are annual time series data from the 2004 to 2021, and this study employed the Error Correction Model (ECM) approach to estimate the short-term effect and OLS to determine the long-term effect. The results showed that funding growth through the financial sector to the industrial sector in Indonesia has grown consistently since 2004 which has continued to encourage improved economic performance after the 1998 crisis. There is also a relationship between financial variables and fiscal policy on unemployment in both the short and long term. There are several ways to deal with unemployment both in the long term and in the short term, such as when an economic slowdown occurs. By increasing FDI, bank credit and funding in the the capital market, the private sector can continue to expand its business. This private expansion phase will increase the output of goods or services. With the increase in production output, employment will continue to be positive.

Full Text:

PDF

References

Alter, A., & Schüler, Y. S. (2013). Erratum to: “Credit spread interdependencies of European states and banks during the financial crisis” Journal of Banking & Finance 36 (2012). Journal of Banking and Finance, 37(3), 3444-3468. https://doi.org/10.1016/j.jbankfin.2012.11.011

Azimi, M. N. (2022). Assessing the asymmetric effects of capital and money markets on economic growth in China. Heliyon, 8(1), 1-14. https://doi.org/10.1016/j.heliyon.2022.e08794

Baziki, S. B., Kılıç, Y., & Yılmaz, M. H. (2022). Consumer loan rate dispersion and the role of competition: Evidence from Turkish banking industry. Central Bank Review, 22(1). 27-47, https://doi.org/10.1016/j.cbrev.2022.01.001

Carrère, C., Fugazza, M., Olarreaga, M., & Robert-Nicoud, F. (2020). Comparative advantage and equilibrium unemployment. European Economic Review, 127, 1-19, https://doi.org/10.1016/j.euroecorev.2020.103496

Christiano, L. J., Trabandt, M., & Walentin, K. (2021). Involuntary unemployment and the business cycle. Review of Economic Dynamics, 39, 26–54. https://doi.org/10.1016/j.red.2020.05.003

Cieślik, A., & Ghodsi, M. (2021). Economic sentiment indicators and foreign direct investment: Empirical evidence from European Union countries. International Economics, 168, 56–75. https://doi.org/10.1016/j.inteco.2021.07.001

Congregado, E., Gałecka-Burdziak, E., Golpe, A. A., & Pater, R. (2021). Unemployment invariance hypothesis and structural breaks in Poland. Journal of Economic Asymmetries, 24(January). https://doi.org/10.1016/j.jeca.2021.e00198

Coşkun, Y., Seven, Ü., Ertuğrul, H. M., & Ulussever, T. (2017). Capital market and economic growth nexus: Evidence from Turkey. Central Bank Review, 17(1), 19–29. https://doi.org/10.1016/j.cbrev.2017.02.003

Dahlhaus, T., & Vasishtha, G. (2021). Reprint: Monetary policy news in the US: Effects on emerging market capital flows. Journal of International Money and Finance, 114, 102403. https://doi.org/10.1016/j.jimonfin.2021.102403

Fielding, D., & Rewilak, J. (2015). Credit booms, financial fragility and banking crises. Economics Letters, 136, 233–236. https://doi.org/10.1016/j.econlet.2015.09.041

Fon, R. M., Filippaios, F., Stoian, C., & Lee, S. H. (2021). Does foreign direct investment promote institutional development in Africa? International Business Review, 30(4), 101835. https://doi.org/10.1016/j.ibusrev.2021.101835

Giofré, M. (2021). COVID-19 stringency measures and foreign investment: An early assessment. North American Journal of Economics and Finance, 58(August), 101536. https://doi.org/10.1016/j.najef.2021.101536

Giofré, M. (2022). Foreign investment in times of COVID-19: How strong is the flight to advanced economies? Journal of Multinational Financial Management, xxxx, 100735. https://doi.org/10.1016/j.mulfin.2022.100735

Gong, M., Yi, M., Liu, H., & Jiang, X. (2020). Environmental regulation, hidden economy, and China’s outward foreign direct investment. Chinese Journal of Population, Resources and Environment, 18(1), 35–41. https://doi.org/10.1016/j.cjpre.2021.04.009

Jhiang, M. L. (2012). The Economics of Development and Planing.

Joseph A. Schumpeter. (1983). The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle. In Transaction Publishers (Issue Economic Development).

Le Riche, A., Lloyd-Braga, T., & Modesto, L. (2021). Intra-industry trade, involuntary unemployment and macroeconomic stability. Journal of Mathematical Economics, xxxx, 102589. https://doi.org/10.1016/j.jmateco.2021.102589

Lerskullawat, A. (2017). Effects of banking sector and capital market development on the bank lending channel of monetary policy: An ASEAN country case study. Kasetsart Journal of Social Sciences, 38(1), 9–17. https://doi.org/10.1016/j.kjss.2016.10.001

N. Gujarati, Damodar & C. Porter, Dawn. (2013). Basic Econometrics (fifth edition). McGraw-Hill/Irwin.

Nejati, M., & Bahmani, M. (2020). The economic impacts of foreign direct investment in oil and gas sector: A CGE analysis for iranian economy. Energy Strategy Reviews, 32(October 2019), 100579. https://doi.org/10.1016/j.esr.2020.100579

Paul, J., & Feliciano-Cestero, M. M. (2021). Five decades of research on foreign direct investment by MNEs: An overview and research agenda. Journal of Business Research, 124(February 2020), 800–812. https://doi.org/10.1016/j.jbusres.2020.04.017

Setyadharma, A., & Fadhilah, S. N. (2021). Determinants of Foreign Direct Investment Inflows in Seven ASEAN Countries During the Period of 2010-2017: Dunning Model Approach. Jurnal Ekonomi Pembangunan: Kajian Masalah Ekonomi Dan Pembangunan, 22(1), 1–11. https://doi.org/10.23917/jep.v22i1.11180

Szkorupová, Z. (2015). Relationship between Foreign Direct Investment and Domestic Investment in Selected Countries of Central and Eastern Europe. Procedia Economics and Finance, 23(October 2014), 1017–1022. https://doi.org/10.1016/s2212-5671(15)00350-0

Yuliadi, I. (2007). Analisis Nilai Tukar Rupiah Dan Implikasinya Pada Perekonomian Indonesia: Pendekatan Error Correction Model (Ecm). Jurnal Ekonomi Pembangunan: Kajian Masalah Ekonomi Dan Pembangunan, 8(2), 146. https://doi.org/10.23917/jep.v8i2.1038

Article Metrics

Abstract view(s): 580 time(s)
PDF: 538 time(s)

Refbacks

  • There are currently no refbacks.