Macroeconomic Factors and Balance of Payment: Evidence from Indonesia

The study aims at examining the relationship of macroeconomic variables including exchange rates, national income, interest rates, and inflation on the balance of payments in Indonesia. This research applied a Vector Error Correction Model (VECM) to determine the relationship between variables in the short-term and the long-term period. This study used data from Bank Indonesia and Statistics Indonesia from 2010 to 2017. The findings show that in the long-term, all variables, including exchange rates, national income, interest rates, and inflation, have a significant effect on Indonesia’s balance of payment. In more detail, interest rates and national income have a significant positive effect on the balance of payments, in contrast, the exchange rates and inflation have a significant negative effect on Indonesia’s balance of payments. In the short-term, the exchange rate, national income, interest rates and inflation have no impact on Indonesia’s balance of payments.