Oil Price, GDP, Inflation and Exchange Rate : Evidence from Indonesia as a Net Oil Exporter Country and a Net Oil Importer Country

The aims of this paper is to investigate the effect of oil price to the GDP and other macroeconomics variable such as inflation and exchange rate. Quarterly time series data between 1999 Q1 and 2011 Q4 are employed in this paper. The data used are Indonesia’s gross domestic product, world’s oil price, Indonesia’s inflation, and Indonesia’s real exchange rate. In addition, this paper also emphasizes to examine the effect of oil price to GDP and macoreconomic variable when Indonesia experiences as a net oil exporter country and as a net oil importer country. Most of previous studies show the positive relationship between oil price and macroeconomic variables in the oil exporter countries and negative relationship in the oil importer countries. Using VECM methodology, the findings reveal that higher oil price leads to higher GDP in the short run but insignificant.The result for the influence of oil price in inflation and exchange rate also insignificant in the short run. In the long run, higher oil price will contribute to higher GDP. On the other when indonesia experience as a net oil importer country, the the effect of higher oil price will contribute to lower GDP than that during period net oil exporter. In addition, during period as a net oil importer country, the increase of oil price triggers the increase of inflation and exchange rate but insignificant. Relevance to Development Studies Oil has been the major resources to the economic activities as an input of productions. Previously Indonesia as a major oil producer country. Indonesia joined OPEC (Organization of the Petroleum Exporting Countries) in 1962. The declining trend of oil production and the increasing of domestic oil consumption, lead Indonesia became a net oil importer country in 2004 and followed by the resigning from OPEC in 2008. This study investigates the effect of the increase of oil price to GDP, inflation and exchange rate as the indicator of economic activity.