Academic journal article European Research Studies

How Financial Sector and Social Overhead Capital Determine GDP Growth

Academic journal article European Research Studies

How Financial Sector and Social Overhead Capital Determine GDP Growth

Article excerpt

1. Introduction

For Developing Countries, Indonesia boost economic activity by making the substitution of imports of goods intermediation to increase production for domestic consumption and export needs. Policy of import substitution is to export very well done, because it can provide economic growth and improvement of production quality. Macro sector developments that had improved and because of the government's strategy to rank, so in May 2006 has been improved again. The encouraging thing has enabled the further decline in interest rates, and stimulate the capital market so that the process of economic recovery is gaining momentum back in the year 2011. With these positive developments and attention to economic fundamentals, especially the level of macro-economic indicators are getting stronger.

Macro sector that could make a surprise in 2011 that the value of JCI peaked at 3821.99 exceeded, which is the highest in recent years. Improvement in macroeconomic indicators, may not be an exaggeration to say the cabinet economic team's greatest achievement in recent years, is the government's success in restoring macroeconomic stability throughout 2008 recent decline further, as JCI end of 2007 was 2745.83 down to 1355.410 in end of 2008. The improvement in the macro sector is however not necessarily directly followed by the improvement in the real sector, improvement of various financial indicators such as the Composite Stock price Index, the rupiah, interest rates and inflation. Lately estimated more driven by capital inflows in the short term (hot money) in a considerable scale, and want to take advantage of the momentum high interest rates in the country (Denisova et al., 2017; Vovchenko et al., 2017; Boldeanu and Tache, 2016; Theriou, 2015).

While the development of export figures reached a record US $ 201,472.0 million in late 2011, unprecedented. But the export surge is more driven by improved prices in the international market coincidence, or is alleged to have occurred the practice of buying and selling export or transshipment documents, as had previously been the case in Indonesia's shrimp exports. Transshipment it means that it is not derived from the export of domestic products, but products of other countries which take an advantage Indonesian export documents, by exploiting weaknesses in the existing surveillance system in Indonesia.

The complexity of the issues that still convolute the real sector, it seems can't be expected to quickly recover from adversity. For labor-intensive sectors, heavy conditions still occur on the grounds if it will compete, this sector requires new investment climate and also fixes the bureaucracy. Therefore, from the banks have an obligation to immediately innovate by shifting the focus on working capital credit and investment credit (Miller and Choi, 2014; Polemis, 2014; Thalassinos et al., 2010; 2012; Anureev, 2017).

Furthermore, the purpose of this research is to find and examine the possible reasons why the monetary sector conditions also affect the real sector (Taylor 1995). In general, this study uses the framework of monetary transmission, through the interest rate channel, the amount of credit, asset price proxy JCI, exchange rates and inflation expectations are currently being used as the focus of attention.

The impasse in the monetary field will cause a deadlock on the real sector with an investment of slow, with no movement of the real sector unemployment will occur and increase in number. Unemployment is the main source of their poverty, for it to eliminate poverty will vanished the unemployment. Which can eliminate unemployment is necessary to create employment opportunities and create jobs is by investing.

Furthermore, the infrastructure and institutional bureaucracy is social capital. Social capital is stated with confidence, norms and networks. Research conducted by Sudarsono-Cicih Ratnasih (2007) uses the index SOC (social overhead capital) as evidence of institutional behavior. …

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