Analysis of Expansive Fiscal Policy and Grants on International Trade in Indonesia

Fuddin Muhammad khoirul; Della Nurisa  Agustin

doi:10.14414/jebav,28(1)2025,4784

Authors

Fuddin Muhammad khoirul University of Muhammadiyah Malang
Della Nurisa Agustin University of Muhammadiyah Malang

DOI:

https://doi.org/10.14414/jebav,28(1)2025,4784

Keywords:

Current Account Balance, Government Expenditures, Grants, External Debt

Abstract

This study aims to determine the long-term and short-term effects of Government
Expenditure, External Debt, and Grants variables on the Current Account Balance.
This model uses the Vector Error Correction Model (VECM) model to achieve a long
term and short-term balance. This study uses secondary data from world banks during
the period 1983-2022 in Indonesia. This study proves that in the long run,
Government Expenditure and Grants have a significant effect on the Current Account
Balance. However, External Debt did not have a significant effect on the Current
Account Balance. On the other hand, in the short term, Government Expenditure,
External Debt, and Grants did not show a significant influence on the Current
Account Balance. This study emphasizes the importance of the role of the Current
Account Balance as the main pillar in assessing the level of economic progress in
Indonesia. Expansive fiscal policy through increased government expenditure can
strengthen the economy, especially when there is a surplus in the Current Account
Balance. In addition, external debt can be used to cover the current account deficit,
which ultimately has the potential to create a surplus. The influence of grants also has
the potential to expand the reach of international trade, which has a positive impact on
the Current Account Balance.

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