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Global Pandemic 2020: Indonesia’s Output Gap and Middle-Income Trap Scenario

Author

Listed:
  • Kiki Verico

    (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))

Abstract
This paper showed that Indonesia’s output-gap has been improving since 2007 until the global pandemic hit Indonesia in 2020. The ultimate indicator for this improvement was the constant decrease in open unemployment. Okun’s Law calculation proved that Indonesia’s actual economic growth was higher than minimum economic growth to generate jobs. This paper also confirmed the Phillips Curve phenomenon that actual inflation was higher than expected inflation. Indonesia’s average economic growth from 2007–2019 has increased above its natural long-run economic growth level. The global pandemic decreased Indonesia’s economic growth and increased its open unemployment rate in 2020. Indonesia’s economy needs an adjustment which depends on the pandemic containment. This adjustment will be affecting Indonesia’s scenario in avoiding the Middle-Income Trap before 2040 regarding the end of the demographic bonus era. This paper attempts to estimate the impact of the global pandemic on the economy, referring to the Spanish Flu’s impact on the global trade openness and how Indonesia adjusts its economy in the short-run and navigates its economic transformation in the long-run.

Suggested Citation

  • Kiki Verico, 2021. "Global Pandemic 2020: Indonesia’s Output Gap and Middle-Income Trap Scenario," LPEM FEBUI Working Papers 202157, LPEM, Faculty of Economics and Business, University of Indonesia, revised 2021.
    • Handle: RePEc:lpe:wpaper:202157
    as

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    File URL: https://www.lpem.org/repec/lpe/papers/WP202157.pdf
    File Function: First version, 2021
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    References listed on IDEAS

    as
    1. Verico, Kiki, 2017. "Indonesia towards 2030 and beyond: A Long-Run International Trade Foresight," MPRA Paper 79530, University Library of Munich, Germany.
    2. Christian J. Murray, 2003. "Cyclical Properties of Baxter-King Filtered Time Series," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 472-476, May.
    3. Kiki Verico, 2017. "The Future of the ASEAN Economic Integration," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-137-59613-0, March.
    4. Tucker McElroy, 2008. "Exact formulas for the Hodrick-Prescott filter," Econometrics Journal, Royal Economic Society, vol. 11(1), pages 209-217, March.
    5. Justin Yifu Lin, 2017. "Industrial policies for avoiding the middle-income trap: a new structural economics perspective," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 15(1), pages 5-18, January.
    6. Antonio Montanes & Andreu Sanso, 2001. "The Dickey-Fuller Test Family and Changes in the Seasonal Pattern," Annals of Economics and Statistics, GENES, issue 61, pages 73-90.
    7. Pesaran, M. Hashem & Pick, Andreas, 2011. "Forecast Combination Across Estimation Windows," Journal of Business & Economic Statistics, American Statistical Association, vol. 29(2), pages 307-318.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Kiki Verico, 2021. "What has been happening to Indonesia’s Manufacturing Industry?," LPEM FEBUI Working Papers 202158, LPEM, Faculty of Economics and Business, University of Indonesia, revised 2021.

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    More about this item

    Keywords

    Output-Gap — Global Pandemic Impact — Middle-Income Trap — Open-Unemployment — Indonesia;

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • G01 - Financial Economics - - General - - - Financial Crises
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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