The Influence of Free Trade on Economic Growth: An Empirical Study of Indonesia’s Free Trade Agreement with China
According to the World Bank in 1997, there are Big Five Emerging Economies, such as China, India, Indonesia, Brazil, and Russia. It was projected that their share of world GDP will double from 1992 to 2020. One of the leading examples is Indonesia with a rapid economic growth of 6.17% during the third quarter of 2012. This is at odds however, with the 2012 figure which implies Indonesia is now a net importer (Ministry of Industry Indonesia, 2012). Being a net importer, might somewhat threaten Indonesia’s position in its free trade agreement, such as ACFTA (Association of Southeast Asian Nations-China Free Trade Agreement). What we want to learn is the explanation behind this high growth and whether there is a link concerning the high imports and how the free trade with China is going to influence this relation. In their research paper “Indonesia – China Trade Relations: The deepening of economic integration amid uncertainty?”, Alexander C. Chandra and Lucky A. Lontoh argues that even though opening up to trade with China could potentially be harmful, it also has its benefits. The first being that in light of China’s growing importance as the world’s second-largest economy and the largest in Asia, it will be very difficult for Indonesia to ignore China. Second, embarking on trade with China could also be strategic, because it allows both China and Indonesia to manage relation with other significant economies (Chandra & Lontoh, 2011). However, Eva Kusuma Sundari a member of Indonesia’s House of Representatives from the Indonesian Democratic Party of Struggle (PDIP) thinks, in short, that economic liberation could lead to certain countries dominating others which could potentially result in disputes (Sundari, 2011). Thus, our research question and hypotheses are the following:...