Macroeconomic and industrial policies for economic developments : a study on the economy of Indonesia and the NICs

The primary purpose of this study was to examine the common factors that explain the impressive performance of the economy of Indonesia and some other NICs. I started with the hypothesis that despite the disparities in initial endowments and special conditions, the impressive performance of these economies were related to macroeconomic stability and sound trade and industrial policies. I found that their impressive economic performance was due to government economic policies directed at changing initial factor endowments creating opportunities to benefit from international trade according to comparative advantage. This common approach has produced in every case a sustained increase in the growth rate of exports, imports, economic growth and per capita incomes. In general, the Government of Indonesia has implemented similar policies to those of the NICs albeit with a delay. Each country has attempted to create hospitable macroeconomic conditions such as reducing price instability, setting reasonable exchange rates, providing infrastructure, training and attracting foreign investment. Together, these factors acted as a foundation for the implementation of industrial and trade policies boosting the development of the manufacturing sector. The lag in the economic achievements of Indonesia behind those of the NICs was due to the lag in the implementation of the appropriate policies. While the NICs started implementing EOI in the 1960s when the industrial economies were booming, Indonesia started it in the 1980s, when the world economy was experiencing a recession. I have used a detailed analysis of NICs' economies and econometric analysis of the Indonesian economy based on econometric method of co-integration and error correction to establish our conclusions.