The impact of Indonesia-Japan Economic Partnership Agreement (IJEPA) on Indonesia’s trade flow

Trade liberalization is a practice of international trade policy where countries agree to trade with less or no barrier. As trade liberalization practices expand in the last decade, countries started to sign multilateral and bilateral agreements to widen their respective international markets. However, pros and cons arise as more developing countries are signing Free Trade Agreement (FTA) with developed countries. Supporters of FTA are confident that the agreement will bring benefits and increase developing countries’ growth, while cynics are certain that it will benefit wealthier country more. Using augmented gravity model, this research examines whether the implementation of Indonesia-Japan Economic Partnership (IJEPA) affects Indonesia’s trade flow. With high confidentiality, the results show that IJEPA increased Indonesia’s exports and imports, although exports growth is slower than imports growth after the implementation. Moreover, this study also finds that the practice of IJEPA gives a rather negative impact on Indonesia’s trade balance, albeit low significance level of results.