determination of financial stability index between southeast asian countries (asean 6) and its intracorrelation 53 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) determination of financial stability index between southeast asian countries (asean 6) and its intracorrelation y.b. suhartoko, adji pratikto*, luciana selvi susanti wira atma jaya catholic university of indonesia, jakarta, indonesia abstract the economic crisis has impacted the disruption of the stability of a country's financial system, including asean countries. in indonesia, there is a financial system stability committee (kssk) whose duties are to coordinate monitoring and maintaining financial system stability. kssk has the authority to set the criteria and indicators for assessing financial system stability conditions concerning the financial system's stability. the second authority is to evaluate the condition of financial system stability based on input from each member of the financial system stability committee, along with supporting data and information. as an economic area with history, asean countries certainly have a relationship, either strong or weak. this study conducted calculations of the financial stability index (aggregate financial stability index) built from the morris framework (2010) consisting of sub-index financial development index, financial vulnerability index, financial soundness index, world economic climate index. the calculation results showed that in asean 6, there were fluctuations in financial stability, and there were variations in the correlation of financial stability. therefore, improving the financial stability in indonesia needs to consider the existence of financial stability in other countries. keywords: aggregate financial stability index, financial development index, financial vulnerability index, financial soundness index, world economic climate index 1. introduction the economic crisis in mid-1997 that began in thailand spread to neighboring countries in asia resulted in economic instability. the impact of the 1997/1998 economic crisis was so far-reaching on the real and financial sectors. in addition, the economic and financial crisis requires a significant amount of recovery costs, although international monetary fund has taken over some policies setting in indonesia. an infectious economic and financial crisis is inevitable because of economic globalization, where interdependence and depending on other economies is increasingly widespread. economic instability will occur more often, so this condition must be tackled together as a preventive measure to prevent the crisis from happening again. the government of indonesia established the financial system stability committee, abbreviated as kssk, which organizes the prevention and handling of financial stability to improve the resilience of indonesian economies. kssk members consist of: 1. the minister of finance as the coordinator of concurrent members with voting rights; 2. governor of bank indonesia as a member with voting rights; 3. chairman of the board of commissioners of the financial services authority as a member with voting rights; and *coressponding author. email address: adji.pratikto@atmajaya.ac.id https://creativecommons.org/licenses/by/4.0/ mailto:adji.pratikto@atmajaya.ac.id afebi economic and finance review (aefr) volume 7, no 1 (2022) 54 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) 4. chairman of the board of commissioners of the deposit guarantee agency as a member with voting rights. one of kssk's tasks is to coordinate in the framework of monitoring and maintenance of financial stability. concerning the situation of financial stability, first, kssk has authority to set the criteria and indicators for assessing the condition of financial stability. second, assessing the condition of financial stability, based on supporting data and information, along with input from each member of the financial system stability committee. several factors that affect the financial stability and economic system stability assessment indicators also need to be reviewed. the authors used the aggregate financial stability index (afsi) as a proxy for financial stability in this study. in connection with the authority of the kssk, research is needed to conduct a calculation of the financial system stability index embodied in the aggregate financial stability index (afsi). concerning intraasean trade and financial relations, it is necessary to calculate afsi and analyze its correlation between asean-6 countries (indonesia, malaysia, philippines, singapore, thailand, and vietnam) to see the extent of the interdependence of financial stability intraasean countries. the results of this study can be utilized to look at the stability of each country's financial system and at least be a consideration to improve the financial stability among countries. concerning the study, which countries have a strong financial stability correlation so that they can design the cooperation agreement to improve their financial stability. 2. literature study bank indonesia defines a financial system consisting of financial institutions, financial markets, financial infrastructure, and non-financial and household companies, which interact in funding and or provision of economic growth financing (www.bi.go.id). (schinasi, 2004) states that a stable financial system if it is able to facilitate (not inhibit) economic performance and eliminate financial imbalances that arise endogenously. a stable financial system as a system, always makes adjustments towards balance, after being exposed to the influence of shocks from within and from outside. it can carry out traditional functions related to efficient allocation of resources, to correct price distortions and ensure adequate payment systems and settlement systems, as functions that contribute to overall economic growth and well-being (albulescu & goyeau, 2010) in jordan, samer. a.m. al (al-rjoub, 2021) uses financial stability index (fsi) to prove that the banking sector has been consciously resilient against shocks and negative economic conditions in jordan. fsi is intutitively attractive as it could enable policy makers to monitor the banking sector’s resilience to shocks and can help in anticipating the source of financial stress to the system. afsi calculation model aggregate financial stability index (afsi) is an aggregate index developed by (albulescu, 2008) to analyze the stability of the romanian financial system and in 2010, morris built afsi for the stability of jamaica's financial system. afsi method is a separate technique that can be used to complement other methods. afsi provides the possibility for users to compare the level of financial system stability in different periods and between different financial systems, observe the dynamics of changes in the stability level of a financial system, and allow forecasting related to the stability of a financial system. another advantage of the afsi method is that it uses a simple way of calculating and easy access to statistical data. in general, the data is quite available, more transparent, and very helpful in defining the stability of a country's financial system (albulescu & goyeau, 2010) https://creativecommons.org/licenses/by/4.0/ determination of financial stability index between southeast asian countries (asean 6) and its intracorrelation 55 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) (morris, 2010) states that the aggregate financial stability index (afsi) has 4 (four) sub-indices as follows: financial development index (fdi) financial development index or development index shows that the greater the value of the index, the more financial is growing. this sub-index consists of four indicators. the first indicator is the percentage of total market capitalization to gross domestic product (gdp) which is the percentage between the value of capital in the market or the value of the capital market against gdp. this indicator describes the development and size of the capital market. the larger this indicator indicates that investment is increasing. the next indicator is the percentage of domestic credit to gdp which describes the level of intermediation of financial institutions in this case commercial banks and people's credit banks (bpr) which are quite dominant. the higher this indicator shows that financial institutions are better at bridging between owners of excess funds (surplus units) and parties who need funds (unit deficit) and increasing domestic investment. the third indicator is the difference between the interest rate on the loan and the interest rate spread. this indicator illustrates the potential benefits of financial institution intermediation services. however, the larger this indicator also illustrates that financial institutions are increasingly inefficient. the last indicator is the bank concentration which is the assets of the three largest banks as part of all commercial bank assets. the concentration of banking in indonesia is quite high after the 1998 crisis because of the number of banks that do mergers. according to morris (morris, 2010) the increase in this indicator illustrates the improvement of the efficiency of the banking sector. financial vulnerability index (fvi) financial vulnerability index shows that the lower the value of the index, the more vulnerable the financial system and vice versa. the financial vulnerability index consists of eight indicators. the first economic indicator grouped into this sub-index is inflation. inflation shows an increase in the price of goods in general. the increase in this indicator can be interpreted as a decrease in the value of money against goods that can decrease the level of public confidence in the currency so that the public tends to hold in the form of goods or other currencies. the second indicator is the percentage surplus or deficit of the government's balance of expenditure to gdp. in the event of a budget deficit to cover, the government can print money or debt. the debt can be sourced from the issuance of bonds or foreign loans. some of each alternative has considerable risks. the third indicator is the percentage of the current account against gdp. the current account deficit can lead to reduced foreign exchange reserves and reduce its contribution to gdp. the fourth indicator is the real effective exchange rate (reer), which is domestic currencies' actual exchange rate performance against foreign currencies in general in the international economy. the fluctuating changes in this indicator show that the economy through exchange rate adjustments has undergone a significant correction (albulescu & goyeau, 2010). the fifth indicator is the percentage of private credit to total credit. this indicator illustrates the proportion of private sector funding through credit for investment and is also potentially bad credit. the sixth indicator is the percentage of loans against deposits. the increase in this indicator shows that it is easier and more efficient for financial institutions to carry out their intermediation functions. the seventh indicator is the percentage of deposits against the money supply. the increase in this indicator illustrates the tendency of people to save money in financial institutions rather than for consumption activities. the last indicator compares the percentage of reserves against deposits with the percentage of money held by the public against the money supply. this indicator https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 56 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) reflects the preparation of financial institutions in anticipating massive withdrawals of deposits by the public. financial soundness index (fsi) financial soundness index shows that the greater the value of the index, the better the banking sector. fsi consists of five index building indicators. the first indicator is the percentage of bad loans against total banking credit. increasing the index will disrupt the liquidity of the banking sector. the second indicator is the capital adequacy ratio (car), describing the level of banking capitalization that is a condition of capital adequacy against weighted liquidity risks. the improvement of this indicator illustrates the readiness of banks to overcome liquidity risks. the third indicator is the percentage of capital against total assets. this indicator shows the proportion of capital to all assets owned by the banking sector. the higher this indicator indicates the more liquid and healthier the banking sector. the fourth indicator is bank return on asset (roa), which measures the rate of return of the banking sector. the larger this indicator reflects greater profits within the banking sector. the fifth indicator is bank z-score, which is the level of banking health that describes the possibility of banks can survive not going bankrupt. world economic climate index (weci) world economic climate index developed by the center for economic studies & research institute "cesifo" shows the condition of the world economy using the perception of business condition related to investment opportunities. the increase in these indicators illustrates the increasingly better global economic climate. weci shows that the greater the value of the index, the better global economic conditions. the data used is data in the annual period. the limited availability of data for some individual indicators led to adjustments, so that the data used is data from 2005 to 2017 which is the data with the most available time interval. 3. research methods the data used in this study obtained from various sources in 2005-2018, that can be accessed through the cesifo website, international monetary fund (imf) and world bank. there are several steps to calculate afsi. it is collecting and grouping data on each sub-index starting from 2005 to 2018. the next step is to normalize the indicator. the normalization method makes indicator values range from "0" to "1". the value "0" is the worst value and "1" is the best stability condition. so, the greater index shows the better condition of financial stability. the formula for empirical normalization methods is as follows: 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡−min (𝐼𝑖) max (𝐼𝑖)−min (𝐼𝑖) (1) 𝐼𝑖𝑡𝑛 = the value of an individual indicator that has been normalized 𝐼𝑖𝑡 = value of individual indicator i at t min(ii)= minimum value of individual indicator i during the observation period max(ii)= maximum value of individual indicator i during the observation period after normalizing the data, to obtain the value of sub-index by summing the normalization values of all individual indicator and divided by the total individual indicators in the sub-index. to get afsi is done by summing the normalization value of all individual indicator with the total individual indicators of index constituents. mathematically the four sub-indices and afsi can be written as follows: https://creativecommons.org/licenses/by/4.0/ determination of financial stability index between southeast asian countries (asean 6) and its intracorrelation 57 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) financial development index (fdi) 𝐷𝑡̅̅ ̅ = ∑ 𝐷𝑖𝑡4𝐼=1 4 (2) notation in the equation above shows the value of the financial development index which is the average value of all its constituent indicators in period t. ∑dit is the sum of all index constituent indicators in period t. financial vulnerability index (fvi) 𝑉𝑡̅̅ ̅ = ∑ 𝑉𝑖𝑡8𝐼=1 8 (3) financial vulnerability index is the average value of all its constituent indicators in the tperiod. ∑vit is the sum of all index constituent indicators in period t financial soundness index (fsi) 𝑆�̅� = ∑ 𝑆𝑖𝑡5𝐼=1 5 (4) the equation above shows the value of the banking sector health index and is the average value of all its constituent indicators in period t. ∑sit is the sum of all index constituent indicators in period t. world economic climate index (weci) 𝑊𝑡̅̅ ̅̅ = ∑ 𝑊𝑖𝑡3𝐼=1 3 (5) the equation above shows the global economic conditions index value and is the average value of all weci constituent indicators in period t. ∑wit is the sum of all index constituent indicators in period t. aggregate financial stability index (afsi) afsi = ∑ 𝐼𝑖𝑡4𝐼=1 20 (6) ∑iit is the sum of all index constituent indicators in period t, where ∑ 𝐼𝑖𝑡 = 4𝑖=1 ∑ 𝐷𝑖𝑡 + 4 𝑖=1 ∑ 𝑉𝑖𝑡 + 8 𝑖=1 ∑ 𝑆𝑖𝑡 + 5 𝑖=1 ∑ 𝑊𝑖𝑡 3 𝑖=1 (7) therefore afsi = 4𝐷𝑡̅̅̅̅ 20 + 8𝑉𝑡̅̅ ̅ 20 + 5𝑆𝑡̅̅ ̅ 20 + 3𝑊𝑡̅̅ ̅̅ 20 (8) or it can be written as follows: afsi = (9)0,2 𝐷𝑡̅̅ ̅ + 0,4 𝑉𝑡̅̅ ̅ + 0,25 𝑆�̅� + 0,15 𝑊𝑡̅̅ ̅̅ the process of forming an index uses equally large weighting for each index building indicator. van den end (2006) shows in the composition of the preparation of aggregate stability indexes the same weighting and different weights in econometric validation will produce small differences. so to make it simpler to use the same weighting method on each indicator. however, each sub-index has a different weight depending on the number of constituent indicators. https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 58 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) 4. results and discussion the table of data grouping in the preparation of sub-indices can be seen in table iv.1 as follows table 1. aggregate financial stability index (afsi) financial development index (fdi) source market capitalization / gdp percent (%) world bank national currency credit/gdp percent (%) world bank interest rate spread percent (%) world bank world bank concentration percent (%) world bank financial vulnerability index (fdi) inflation, consumer prices percent (%) world bank general balance, deficit or surplus/gdp percent (%) world bank current account / gdp percent (%) world bank real effective exchange rate (change) percent (%) world bank non governmental credit / total credit percent (%) world bank loan/deposits percent(%) world bank deposits /m2 percent(%) world bank (reserves / deposits) / (note&coin / m2) percent (%) world bank financial soundness index (fsi) nonperforming bank loans to gross loans percent (%) world bank bank capital adequacy ratio (car) percent (%) world bank bank capital to total assets percent (%) world bank bank return on assets (roa) percent (%) world bank bank z-score percent (%) world bank world economic climate index (weci) world inflation, consumer prices percent (%) imf world gdp growth percent (%) imf economic climate index index number cesifo to show the steps, the calculation step will be presented examples of empirical steps of afsi calculation in indonesia to provide a comprehensive picture of the calculation. an example of a calculation to be displayed is the fdi sub index. https://creativecommons.org/licenses/by/4.0/ determination of financial stability index between southeast asian countries (asean 6) and its intracorrelation 59 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) table 2. market capitalization of listed companies (% of gdp) indonesia country year (n) market capitalization of listed companies (% of gdp) (𝐼𝑖𝑡) indonesian 2005 28.4845 indonesian 2006 38.0959 indonesian 2007 48.9784 indonesian 2008 19.3561 indonesian 2009 39.8350 indonesian 2010 47.7276 indonesian 2011 43.6865 indonesian 2012 46.6539 indonesian 2013 37.9906 indonesian 2014 47.3866 indonesian 2015 41.0373 indonesian 2016 45.6892 indonesian 2017 51.2778 min (𝐼𝑖) = 19.3561(theminimum value of the individual indicator of the percentage of market capitalization against indonesia's gdp during the observation period was 2008) max (𝐼𝑖) = 51.2778(themaximum value of individual indicators of the percentage of market capitalization against indonesia's gdp during the observation period is 2017) table 3. calculation of normalization of market capitalization of listed companies (% of gdp) indonesia year formula normalization results 2005 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2005 = 28.4845 − 19.3561 51.2778 − 19.3561 𝐼𝑖𝑡𝑛 2005 = 0.2860 2006 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2006 = 38.0959 − 19.3561 51.2778 − 19.3561 𝐼𝑖𝑡𝑛 2006 = 0.5871 2007 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2007 = 48.9784 − 19.3561 51.2778 − 19.3561 𝐼𝑖𝑡𝑛 2007 = 0.9280 2008 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2008 = 19.3561 − 19.3561 51.2778 − 19.3561 𝐼𝑖𝑡𝑛 2008 = 0.0000 2009 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2009 = 39.8350 − 19.3561 51.2778 − 19.3561 𝐼𝑖𝑡𝑛 2009 = 0.6415 2010 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2010 = 47.7276 − 19.3561 51.2778 − 19.3561 𝐼𝑖𝑡𝑛 2010 = 0.8888 2011 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2011 = 43.6865 − 19.3561 51.2778 − 19.3561 𝐼𝑖𝑡𝑛 2011 = 0.7622 https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 60 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) 2012 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2012 = 46.6539 − 19.3561 51.2778 − 19.3561 𝐼𝑖𝑡𝑛 2012 = 0.8552 2013 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2013 = 37.9906 − 19.3561 51.2778 − 19.3561 𝐼𝑖𝑡𝑛 2013 = 0.5838 2014 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2014 = 47.3866 − 19.3561 51.2778 − 19.3561 𝐼𝑖𝑡𝑛 2014 = 0.8781 2015 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2015 = 41.0373 − 19.3561 51.2778 − 19.3561 𝐼𝑖𝑡𝑛 2015 = 0.6792 2016 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2016 = 45.6892 − 19.3561 51.2778 − 19.3561 𝐼𝑖𝑡𝑛 2016 = 0.8249 2017 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2017 = 51.2778 − 19.3561 51.2778 − 19.3561 𝐼𝑖𝑡𝑛 2017 = 1.0000 table 4. national currency credit/gdp (%) data indonesia country year (n) national currency credit/gdp (%) (𝑰𝒊𝒕) indonesian 2005 46.2049 indonesian 2006 41.6594 indonesian 2007 40.5802 indonesian 2008 36.7702 indonesian 2009 35.6418 indonesian 2010 33.2846 indonesian 2011 35.5566 indonesian 2012 39.3252 indonesian 2013 42.1045 indonesian 2014 42.3979 indonesian 2015 42.4149 indonesian 2016 43.0875 indonesian 2017 42.1166 min (𝐼𝑖) = 33.2846(the minimum value of the national currency credit individualindicator against indonesia's gdp during the observation period was 2010) max (𝐼𝑖) = 46.2049(the maximum value of the national currency credit individualindicator against indonesia's gdp during the observation period was 2005) table 5. calculation of normalization of national currency credit data on indonesia's gdp year formula normalization results 2005 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2005 = 46.2049 − 33.2846 46.2049 − 33.2846 𝐼𝑖𝑡𝑛 2005 = 1.0000 2006 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2006 = 41.6594 − 33.2846 46.2049 − 33.2846 𝐼𝑖𝑡𝑛 2006 = 0.6482 2007 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2007 = 40.5802 − 33.2846 46.2049 − 33.2846 𝐼𝑖𝑡𝑛 2007 = 0.5647 https://creativecommons.org/licenses/by/4.0/ determination of financial stability index between southeast asian countries (asean 6) and its intracorrelation 61 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) 2008 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2008 = 36.7702 − 33.2846 46.2049 − 33.2846 𝐼𝑖𝑡𝑛 2008 = 0.2698 2009 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2009 = 35.6418 − 33.2846 46.2049 − 33.2846 𝐼𝑖𝑡𝑛 2009 = 0.1824 2010 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2010 = 33.2846 − 33.2846 46.2049 − 33.2846 𝐼𝑖𝑡𝑛 2010 = 0.0000 2011 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2011 = 35.5566 − 33.2846 46.2049 − 33.2846 𝐼𝑖𝑡𝑛 2011 = 0.1758 2012 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2012 = 39.3252 − 33.2846 46.2049 − 33.2846 𝐼𝑖𝑡𝑛 2012 = 0.4675 2013 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2013 = 42.1045 − 33.2846 46.2049 − 33.2846 𝐼𝑖𝑡𝑛 2013 = 0.6826 2014 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2014 = 42.3979 − 33.2846 46.2049 − 33.2846 𝐼𝑖𝑡𝑛 2014 = 0.7053 2015 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2015 = 42.4149 − 33.2846 46.2049 − 33.2846 𝐼𝑖𝑡𝑛 2015 = 0.7067 2016 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2016 = 43.0875 − 33.2846 46.2049 − 33.2846 𝐼𝑖𝑡𝑛 2016 = 0.7587 2017 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2017 = 42.1166 − 33.2846 46.2049 − 33.2846 𝐼𝑖𝑡𝑛 2017 = 0.6836 table 6. interest rate spread (%) indonesia country year (n) interest rate spread (%) (𝑰𝒊𝒕) indonesian 2005 5.9717 indonesian 2006 4.5683 indonesian 2007 5.8858 indonesian 2008 5.1058 indonesian 2009 5.2200 indonesian 2010 6.2350 indonesian 2011 5.4725 indonesian 2012 5.8483 indonesian 2013 5.3933 indonesian 2014 3.8525 indonesian 2015 4.3258 indonesian 2016 4.7224 indonesian 2017 4.5550 min (𝐼𝑖) = 3.8525(minimum value of indonesia's individual interest rate indicator during the observation period is 2014) max (𝐼𝑖) = 6.2350(maximum value of indonesia's individual interest rate indicator during the observation period is 2010) https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 62 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) table 7. calculation of normalization of indonesia's interest rate spread data year formula normalization results 2005 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2005 = 5.9717 − 3.8525 6.2350 − 3.8525 𝐼𝑖𝑡𝑛 2005 = 0.8895 2006 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2006 = 4.5683 − 3.8525 6.2350 − 3.8525 𝐼𝑖𝑡𝑛 2006 = 0.3005 2007 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2007 = 5.8858 − 3.8525 6.2350 − 3.8525 𝐼𝑖𝑡𝑛 2007 = 0.8534 2008 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2008 = 5.1058 − 3.8525 6.2350 − 3.8525 𝐼𝑖𝑡𝑛 2008 = 0.5261 2009 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2009 = 5.2200 − 3.8525 6.2350 − 3.8525 𝐼𝑖𝑡𝑛 2009 = 0.5740 2010 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2010 = 6.2350 − 3.8525 6.2350 − 3.8525 𝐼𝑖𝑡𝑛 2010 = 1.0000 2011 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2011 = 5.4725 − 3.8525 6.2350 − 3.8525 𝐼𝑖𝑡𝑛 2011 = 0.6800 2012 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2012 = 5.8483 − 3.8525 6.2350 − 3.8525 𝐼𝑖𝑡𝑛 2012 = 0.8377 2013 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2013 = 5.3933 − 3.8525 6.2350 − 3.8525 𝐼𝑖𝑡𝑛 2013 = 0.6467 2014 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2014 = 3.8525 − 3.8525 6.2350 − 3.8525 𝐼𝑖𝑡𝑛 2014 = 0.0000 2015 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2015 = 4.3258 − 3.8525 6.2350 − 3.8525 𝐼𝑖𝑡𝑛 2015 = 0.1987 2016 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2016 = 4.7224 − 3.8525 6.2350 − 3.8525 𝐼𝑖𝑡𝑛 2016 = 0.3651 2017 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2017 = 4.5550 − 3.8525 6.2350 − 3.8525 𝐼𝑖𝑡𝑛 2017 = 0.2949 table 8. data bank concentration (%) indonesia country year (n) bank concentration (%) (𝐼𝑖𝑡) indonesian 2005 42.8416 indonesian 2006 42.3698 indonesian 2007 42.3483 indonesian 2008 42.9648 indonesian 2009 44.1135 indonesian 2010 42.3148 indonesian 2011 41.3665 indonesian 2012 40.6038 indonesian 2013 38.4077 https://creativecommons.org/licenses/by/4.0/ determination of financial stability index between southeast asian countries (asean 6) and its intracorrelation 63 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) indonesian 2014 40.3356 indonesian 2015 39.7019 indonesian 2016 39.8376 indonesian 2017 40.6930 min (𝐼𝑖) = 38.4077(minimum value of individual indicators of indonesian bank concentration during the observation period is 2013) max (𝐼𝑖) = 44.1135(maximum indicator of individual bank concentration during the observation period is 2009) table 9. calculation of normalization of bank concentration indonesia data year formula normalization results 2005 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2005 = 42.8416 − 38.4077 44.1135 − 38.4077 𝐼𝑖𝑡𝑛 2005 = 0.7771 2006 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2006 = 42.3698 − 38.4077 44.1135 − 38.4077 𝐼𝑖𝑡𝑛 2006 = 0.6944 2007 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2007 = 42.3483 − 38.4077 44.1135 − 38.4077 𝐼𝑖𝑡𝑛 2007 = 06906 2008 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2008 = 42.9648 − 38.4077 44.1135 − 38.4077 𝐼𝑖𝑡𝑛 2008 = 0.7987 2009 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2009 = 44.1135 − 38.4077 44.1135 − 38.4077 𝐼𝑖𝑡𝑛 2009 = 1.0000 2010 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2010 = 42.3148 − 38.4077 44.1135 − 38.4077 𝐼𝑖𝑡𝑛 2010 = 0.6848 2011 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2011 = 41.3665 − 38.4077 44.1135 − 38.4077 𝐼𝑖𝑡𝑛 2011 = 0.5186 2012 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2012 = 40.6038 − 38.4077 44.1135 − 38.4077 𝐼𝑖𝑡𝑛 2012 = 0.3849 2013 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2013 = 38.4077 − 38.4077 44.1135 − 38.4077 𝐼𝑖𝑡𝑛 2013 = 0.0000 2014 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2014 = 40.3356 − 38.4077 44.1135 − 38.4077 𝐼𝑖𝑡𝑛 2014 = 0.3379 2015 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2015 = 39.7019 − 38.4077 44.1135 − 38.4077 𝐼𝑖𝑡𝑛 2015 = 0.2268 2016 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2016 = 39.8376 − 38.4077 44.1135 − 38.4077 𝐼𝑖𝑡𝑛 2016 = 0.2506 2017 𝐼𝑖𝑡𝑛 = 𝐼𝑖𝑡 − min (𝐼𝑖) max (𝐼𝑖) − min (𝐼𝑖) 𝐼𝑖𝑡 2017 = 40.6930 − 38.4077 44.1135 − 38.4077 𝐼𝑖𝑡𝑛 2017 = 0.4005 furthermore, the financial vulnerability index (fvi) sub-index, the individual indicator of the financial soundness index (fsi) sub-index, and the individual indicator of the world economic climate index (weci) sub-index follow the same steps as fdi. the overall calculation results for afsi are presented in the following table. https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 64 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) table 10. aggregate results of each individual indicator of fdi, fvi, fsi, weci, and afsi aggregate index country year fdi fvi fsi weci afsi indonesian 2005 0.7381 0.3264 0.3492 0.7129 0.4724 indonesian 2006 0.5575 0.5187 0.4287 0.7928 0.5451 indonesian 2007 0.7592 0.3746 0.3162 0.7900 0.4992 indonesian 2008 0.3986 0.4392 0.1070 0.5794 0.3691 indonesian 2009 0.5995 0.4069 0.3043 0.0679 0.3689 indonesian 2010 0.6434 0.5800 0.3578 0.6636 0.5497 indonesian 2011 0.5341 0.5462 0.3807 0.6282 0.5147 indonesian 2012 0.6363 0.4369 0.4607 0.4766 0.4887 indonesian 2013 0.4783 0.4431 0.5042 0.4788 0.4707 indonesian 2014 0.4803 0.4563 0.5111 0.5225 0.4847 indonesian 2015 0.4528 0.5083 0.5668 0.4393 0.5015 indonesian 2016 0.5498 0.5006 0.6818 0.3706 0.5362 indonesian 2017 0.5947 0.4896 0.7480 0.5360 0.5822 malaysia 2005 0.6128 0.5552 0.2901 0.7129 0.5241 malaysia 2006 0.7185 0.6562 0.2458 0.7928 0.5866 malaysia 2007 0.7338 0.5845 0.2051 0.7900 0.5503 malaysia 2008 0.4592 0.5664 0.2551 0.5794 0.4691 malaysia 2009 0.7843 0.3776 0.3912 0.0679 0.4159 malaysia 2010 0.6913 0.4629 0.4018 0.6636 0.5234 malaysia 2011 0.3615 0.5121 0.6123 0.6282 0.5244 malaysia 2012 0.3828 0.4361 0.4968 0.4766 0.4467 malaysia 2013 0.4445 0.4976 0.3428 0.4788 0.4455 malaysia 2014 0.3983 0.5561 0.3912 0.5225 0.4783 malaysia 2015 0.4099 0.4896 0.3685 0.4393 0.4359 malaysia 2016 0.4010 0.5451 0.4361 0.3706 0.4629 malaysia 2017 0.4735 0.6101 0.6421 0.5360 0.5797 philippines 2005 0.2445 0.4175 0.7198 0.7129 0.5028 philippines 2006 0.2639 0.5249 0.7686 0.7928 0.5738 philippines 2007 0.5939 0.4475 0.6315 0.7900 0.5741 philippines 2008 0.3810 0.3964 0.1014 0.5794 0.3470 philippines 2009 0.5751 0.3510 0.3027 0.0679 0.3413 philippines 2010 0.6173 0.4184 0.5177 0.6636 0.5198 philippines 2011 0.3240 0.5034 0.6386 0.6282 0.5201 philippines 2012 0.3475 0.5647 0.8153 0.4766 0.5707 philippines 2013 0.4981 0.6074 0.4935 0.4788 0.5378 philippines 2014 0.6684 0.5846 0.4038 0.5225 0.5468 philippines 2015 0.6713 0.5853 0.3530 0.4393 0.5225 philippines 2016 0.6514 0.4353 0.2883 0.3706 0.4320 philippines 2017 0.8379 0.5373 0.2909 0.5360 0.5356 https://creativecommons.org/licenses/by/4.0/ determination of financial stability index between southeast asian countries (asean 6) and its intracorrelation 65 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) singapore 2005 0.4082 0.2599 0.7430 0.7129 0.4783 singapore 2006 0.1953 0.3478 0.7562 0.7928 0.4861 singapore 2007 0.3037 0.4163 0.0307 0.7900 0.3534 singapore 2008 0.3908 0.5315 0.2768 0.5794 0.4469 singapore 2009 0.5254 0.3054 0.6022 0.0679 0.3880 singapore 2010 0.6052 0.4220 0.7051 0.6636 0.5657 singapore 2011 0.5685 0.5944 0.3599 0.6282 0.5357 singapore 2012 0.6757 0.5995 0.6052 0.4766 0.5977 singapore 2013 0.6175 0.5661 0.2638 0.4788 0.4877 singapore 2014 0.6672 0.5717 0.2353 0.5225 0.4993 singapore 2015 0.5713 0.4663 0.2920 0.4393 0.4397 singapore 2016 0.5596 0.5052 0.3483 0.3706 0.4566 singapore 2017 0.7073 0.4899 0.4368 0.5360 0.5270 thailand 2005 0.3522 0.4158 0.5118 0.7129 0.4717 thailand 2006 0.1443 0.4933 0.2753 0.7928 0.4139 thailand 2007 0.3771 0.5654 0.2650 0.7900 0.4863 thailand 2008 0.2094 0.4969 0.3169 0.5794 0.4068 thailand 2009 0.4845 0.2751 0.4492 0.0679 0.3294 thailand 2010 0.4804 0.4655 0.4844 0.6636 0.5029 thailand 2011 0.4239 0.5954 0.3625 0.6282 0.5078 thailand 2012 0.5973 0.5013 0.4281 0.4766 0.4985 thailand 2013 0.5964 0.4601 0.4809 0.4788 0.4954 thailand 2014 0.8659 0.4494 0.5816 0.5225 0.5767 thailand 2015 0.6276 0.4809 0.6395 0.4393 0.5437 thailand 2016 0.6185 0.4900 0.7246 0.3706 0.5564 thailand 2017 0.6392 0.5205 0.7993 0.5360 0.6163 vietnamese 2005 0.5000 0.3195 0.6600 0.7129 0.4997 vietnamese 2006 0.4877 0.4405 0.7018 0.7928 0.5681 vietnamese 2007 0.5518 0.4148 0.7571 0.7900 0.5840 vietnamese 2008 0.4084 0.6199 0.5221 0.5794 0.5471 vietnamese 2009 0.4213 0.3509 0.3230 0.0679 0.3155 vietnamese 2010 0.4051 0.3510 0.3860 0.6636 0.4175 vietnamese 2011 0.4230 0.5490 0.4590 0.6282 0.5132 vietnamese 2012 0.4421 0.5688 0.4496 0.4766 0.4998 vietnamese 2013 0.5005 0.4895 0.4404 0.4788 0.4778 vietnamese 2014 0.4707 0.4892 0.3030 0.5225 0.4440 vietnamese 2015 0.5265 0.4239 0.2825 0.4393 0.4114 vietnamese 2016 0.4803 0.4642 0.2591 0.3706 0.4021 vietnamese 2017 0.5426 0.4935 0.2413 0.5360 0.4466 the aggregate financial stability index(afsi) calculated in the study showed a decline in the aggregate index value of some countries when shocks to financial system stability such as the crisis occurred in 2008. if a country's aggregate index is high then the stability of the country's financial system is more stable, but if a country's aggregate index is low then the stability of its financial system is unstable. https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 66 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) figure 1. aggregate financial stability index(afsi) data indonesia 2005-2017 (year 1 = 2005) indonesia's aggregate financial stability index(afsi) from 2005 to 2017 experienced fluctuating movements with trends that tend to increase due to the influence of individual indicators constituents of the aggregate financial stability index(afsi). from chart.6, aggregate financial stability index (afsi)was lowest in2009 at 0.3689 and highest in 2017 at 0.5822. indonesia's aggregate financial stability index (afsi)is below average in2005, 2008, 2009, 2012, 2013, and 2014. then, indonesia's aggregate financial stability index(afsi) showed a trend of increasing value and was in the fourth highest position compared to singapore and vietnam. figure .2. aggregate financial stability index(afsi) data malaysia 2005-2017 aggregate financial stability index(afsi) malaysia from 2005 to 2017 experienced fluctuating movements with trends that tend to decrease due to the influence of individual https://creativecommons.org/licenses/by/4.0/ determination of financial stability index between southeast asian countries (asean 6) and its intracorrelation 67 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) indicators constituent aggregate financial stability index(afsi). from the chart.7 above, the aggregate financial stability index (afsi)was the lowest in2009 at 0.4159 and the highest in 2006 at 0.5866, with the average for the 13-year observation period of 0.4956, malaysia's aggregate financial stability index (afsi)below theaverages of 2008, 2009, 2012, 2013, 2014, 2015 and 2016 showing instability. then, the aggregate financial stability index (afsi)malaysiashowed a slight trend of decline in value and was in the second highest position compared to indonesia, singapore, thailand, and vietnam. figure 3. aggregate financial stability index(afsi) data philippines 2005-2017 the philippine aggregate financial stability index(afsi) from 2005 to 2017 experienced fluctuating movements with trends that tend to increase due to the influence of individual indicators constituents of the aggregate financial stability index (afsi). from the chart above, the aggregate financial stability index (afsi) was the lowest in 2009 at 0.3413 and the highest in 2007 at 0.5977, with the average for the 13-year observation period of 0.5019. the philippine aggregate financial stability index (afsi) below the averages of 2008, 2009, and 2016 showing instability. then, the philippine aggregate financial stability index (afsi) showed a slightly increasing trend in value and was at the highest position compared to indonesia, malaysia, singapore, thailand, and vietnam. https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 68 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) figure 4. aggregate financial stability index(afsi) singapore 2005-2017 aggregate financial stability index (afsi) singapore from 2005 to 2017 experienced fluctuating movements with trends that tend to increase due to the influence of individual indicators constituent. from the chart above, the aggregate financial stability index (afsi) was the lowest in 2007 at 0.3534 and the highest in 2012 at 0.5977, with the average for the 13-year observation period of 0.4817. singapore's aggregate financial stability index (afsi) below averages of 2005, 2007, 2008, 2009, 2015 and 2016 showing instability. then, the aggregate financial stability index (afsi) singapore showed a slightly increasing trend in value and was at the second lowest position compared to indonesia, malaysia, singapore, and thailand. figure 5. aggregate financial stability index(afsi) thailand 2005-2017 thailand's aggregate financial stability index(afsi) from 2005 to 2017 experienced fluctuating movements with trends that tend to increase due to the influence of individual https://creativecommons.org/licenses/by/4.0/ determination of financial stability index between southeast asian countries (asean 6) and its intracorrelation 69 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) indicators constituents of the aggregate financial stability index (afsi). from the chart above, the aggregate financial stability index (afsi) was the lowest in 2009 at 0.3294 and the highest in 2017 at 0.6163, with an average for the 13-year observation period of 0.4927. thailand's aggregate financial stability index (afsi) is below average in 2005, 2006, 2007, 2008, and 2009. then, the aggregate financial stability index (afsi)of thailand showed a trend of increasing value and was at the highest position compared to indonesia, thailand, and vietnam. figure 6. aggregate financial stability index(afsi) vietnam 2005-2017 vietnam's aggregate financial stability index (afsi) from 2005 to 2017 experienced a fluctuating movement with a trend that tends to decline due to the influence of individual indicators. from the chart above, the aggregate financial stability index (afsi) was the lowest in 2009 at 0.3155 and the highest in 2007 at 0.5840, with the average for the 13-year observation period of 0.4713. vietnam's aggregate financial stability index (afsi) below averages in 2009, 2010, 2014, 2015, 2016 and 2017 showing instability. then, vietnam's aggregate financial stability index (afsi) showed a downward trend in value and was at the lowest positions compared to the other 5 asean countries (indonesia, malaysia, philippines, singapore, thailand, and vietnam). based on the calculation of afsi 6 asean countries, we calculate the afsi data correlation between countries, to find the relations between each country's afsi. this simple statistical calculation is important to see how close the financial stability relationship between countries is. https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 70 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) table 11. aggregate financial stability index (afsi) correlation matrix based on table iv.11, several states can be stated regarding the stability relationship of the intra-country financial system as follows. • afsi indonesia is strongly correlated, significant and in line with afsi malaysia, philippines and afsi thailand, if afsi malaysia, philippines and afsi thailand experience an increase or decrease in stability, then indonesia also experienced the same. if malaysia, the philippines and thailand increase the stability of their financial systems, then the stability of indonesia's financial system also increases. • afsi indonesia is quite strong, insignificant and in line with afsi singapore, (afsi indonesia increases / stabilizes when afsi singapore increases / stabilizes, afsi indonesia decreases when afsi singapore decreases). • afsi indonesia is very weak, insignificant and in line with afsi vietnam. (afsi indonesia increases/stabilizes when vietnamese afsi increases/stabilizes, and afsi indonesia decreases when vietnamese afsi decreases, but very weak relations). • afsi malaysia is strongly correlated, insignificant and in line with philippine. • afsi malaysia correlates very weakly, insignificantly, and unidirectionally with afsi singapore and afsi thailand, (when afsi singapore or afsi thailand increases/stabilizes, then afsi malaysia increases/stabilizes, and vice versa but very weak in relationship). • afsi malaysia is strongly, significantly and in line with afsi vietnam. if afsi malaysia experiences instability, then afsi vietnam can be affected by such instability (afsi malaysia increases / stabilizes when afsi vietnam increases / stabilizes, afsi malaysia decreases when afsi vietnam decreases). • philippine afsi is strongly correlated, insignificant and in line with afsi singapore and afsi vietnam, (if afsi singapore or afsi vietnam increases/ stabilizes, then philippine afsi increases/stabilizes. if afsi singapore or afsi vietnam decreases, then the philippine afsi decreases). https://creativecommons.org/licenses/by/4.0/ determination of financial stability index between southeast asian countries (asean 6) and its intracorrelation 71 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) • philippine afsi is strongly correlated, insignificant and in unidirectional with thailand's afsi, (philippine afsi increases/stabilizes when thai afsi increases/stabilizes, philippine afsi decreases when thai afsi decreases). • afsi singapore correlates quite strongly, insignificantly and in unidirectionally with afsi thailand, (afsi singapore increases/stabilizes when thai afsi increases/stabilizes, afsi singapore decreases when thai afsi decreases). • afsi singapore is very weak, insignificant and in the same direction as afsi vietnam. (afsi singapore increases/stabilizes as vietnam afsi increases/stabilizes, and afsi singapore decreases when afsi vietnam declines, but very weak relations). • thai afsi correlates very weakly, insignificantly and in the opposite direction with afsi vietnam, (thai afsi increases/stabilizes when vietnamese afsi decreases, and thai afsi decreases when vietnamese afsi increases/stabilizes, but very weak relations). 5. conclusions overall, in the observation period, the asean-6 country's financial system stability index is volatile or unstable. in addition, the correlation between afsi in 5 asean countries showed results that varied even insignificant. based on these findings, financial sector stability control authorities need to make efforts to further improve the stability of the financial system and monitor against escalation of instability in other countries' financial systems, especially those with strong and significant correlations. the weight of afsi calculation using the proportion of sub-index indicators to total sub-indices needs to be reviewed again by looking at their contribution both theoretically and statistically sub index and afsi as a whole. references al-rjoub, s. a. m. (2021). a financial stability index for jordan. journal of central banking theory and practice, 10(2). https://doi.org/10.2478/jcbtp-2021-0018 albulescu c.t. 2008. assessing romanian financial sector stability by using an aggregate index, in “oeconomia”, tom xvii, volume 2, pp.67-87 albulescu, c.t, goyeau d. 2010. assessing and forecasting romanian financial system’s stability using an aggregate index. journal of economic literature classification: c43, c51, c53, g17 : 1-31 morris vc. 2010. measuring and forecasting financial stability: the composition of an aggregate financial stability index for jamaica. journal of economic literature code: c43, c51, c53, g01, g17: 6-10 peraturan bank indonesia nomor 16 / 11 / pbi / 2014 tentang pengaturan dan pengawasan makroprudensial. peter s. rose. 1997. money and capital markets, financial institutions and instruments in a global marketplace (sixth edition). texas a&m university, irwin schinasi, garry. 2004. defining financial stability. imf working paper wp/04/187. washington dc : international monetary fund. van den end jw. 2006. indicator and boundaries of financial stability. de nederlandsche bank working paper 97. www.bi.go.id https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 72 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) www.setnas-asean.id https://creativecommons.org/licenses/by/4.0/ determinants of fiscal stress in central sulawesi 2014-2018 period 16 determinants of fiscal stress in central sulawesi 2014-2018 period zakina zein al-hadar1), mohamad ichwan2), santi yunus3) 1, 2, 3 faculty of economic and business, universitas tadulako, indonesia abstract this study aims to analyze the effect the local-owned source revenue, regional expenditure and gross regional domestic product on fiscal stress in regencies/cities of central sulawesi province period 2014 – 2018. data analysis was using panel data regression method. the results of this study indicated that simultaneously variable local-owned source revenue (pad), regional expenditure (bd), and gross regional domestic product (pdrb) had a significant effect on fiscal stress in regencies/cities of central sulawesi province for 2014 – 2018 period. partially, local-owned source revenue variable (pad) had reduced and significantly decreased fiscal stress in the regency/cities of central sulawesi province period 2014-2018. regional expenditure variable (bd) had increase and significantly affected fiscal stress in regencies/ cities of central sulawesi province period 2014 – 2018. while gross regional domestic product (pdrb) variable had increase and was insignificant to fiscal stress in regencies/cities of central sulawesi province 2014 – 2018 period. keywords: fiscal stress, local-owned source revenue, regional expenditure and gross regional domestic product 1. introduction the government started implementing regional autonomy in 2001, then the paradigm shifted from centralization to decentralization. decentralization is the transfer of government power by the central government to autonomous regions within the system of the unitary state of the republic of indonesia. the main foundation in the implementation of regional autonomy is law number 32 of 2004 which was later changed to law number 9 of 2015 concerning regional government and law number 25 of 1999, which was enhanced by law number 33 of 2004 concerning financial balance between central government and local government (septira dan prawira, 2019). government regulation number 2 of 2018 concerning minimum service standards explains that the granting of the widest possible autonomy to regions is directed at accelerating the realization society’s welfare or people’s welfare through improving service, empowerment, and the role of society as well as the regions expected to be able to increase regional competitiveness, potential and diversity in the principle of the unitary state of the republic of indonesia. regional autonomy policies and fiscal decentralization requires regions to be able to optimize various potential or fiscal capacities, with the aim of reducing the level of dependency on the central government. each region has a different fiscal capacity. regions with high fiscal capacity are lucky because they have potential *corresponding author. email address: mitandju@yahoo.com mailto:mitandju@yahoo.com afebi economic and finance review (aefr) volume 5, no 02 (2020) 17 sources of revenue originating from regional taxes, regional levies, as well as the availability of sufficient natural resources, which can be used as sources of regional revenues. unlike the case of regions with low fiscal capacity, autonomy can cause its own problem due to demands to increase regional independence. when compared to the situation before autonomy, such regions will have higher fiscal stress. fiscal stress or budgetary/fiscal pressure is one of the problems which can hinder the development process of a region. the cause of fiscal stress is from the limited budget receipts to finance the implementation of development and increase regional independence. high fiscal stress will affect to the government’s financial performance in managing and allocating the budget. it will encourage local government to make various breakthroughs to meet the financing to carry out government functions and public services, including revision in budget implementation (junita dan abdullah, 2016). one of the causes of budget changes is income uncertainty (forrester, 2002). revenue forecast have an important role in the budgeting process. regional financial conditions can become unstable because realized revenue is not sufficient to finance planned expenditures. if there is a discrepancy between the projection and realization of revenue, the government must revise the prepared budget for balance (cornia, 2004). one of the government response to compensate the budget deficit is to cut the expenditure (reschovsky, 2003). empirically and theoretically, fiscal stress formed by the difference and the patterns of regional revenue and regional expenditure. the regional revenue and regional expenditure show the real situation of local government. if local government is in the situation with the high-level dependency, that is derived from regional tax, regional retribution, and available natural resources, then the flexibility in policy direction and development can be achieved. the direction of policy and development is reflected in spending structure, especially direct expenditure (direct personnel expenditure, goods and services expenditure and capital expenditure) which reflects in government policy in achieving public service goals (manafe et al., 2018). each region has its own income and spending structure. some local governments tend to adopt consumption-based taxation, meanwhile the other regions adopt income-based taxation. each situation has a different impact and is influenced by fiscal stress (shamsub and akoto, 2004). regardless of those differences, in indonesia, it can be concluded that fiscal stress affects to the structure of regional government budget (setiyawan and adi, 2006). the income used by the regions to finance regional development is sourced from local-owned source revenue (pad), transfer funds and other legitimate regional revenues. the decline of economic activity in various regions can also has impact on decreasing local-owned source revenue, so that these areas will depend on transfer fund which can cause the fiscal stress symptoms. local-owned source revenue based on law number 33 of 2004 concerning the financial balance between the central government and the regional government, is the income obtained by the regions collected based on regional regulation in accordance with the law and regulations. local-owned source revenue includes to regional tax, regional retribution, separated regional wealth management and the other official regional incomes. fiscal stress (budgetary pressure) is not only affected by local-owned source revenue, but it is also influenced by the structure/pattern of regional expenditure. the changes structure of regional expenditure especially in increasing development spending is to increase regional income. the regional expenditure budget always increases every year in line with the economic growth in the area. each region determinants of fiscal stress in central sulawesi 2014-2018 period 18 implements autonomy is required to be able to increase regional income by developing new potential income so that the fund to finance regional spending remains available. if the regional income is not sufficient to finance regional spending, so it will have an impact on the occurrence the fiscal stress, because the changes of financing will have more caused by increasing of public services demand (septira and prawira, 2019). fiscal stress triggered by budget deficit namely the spending was much more than revenue (reschovsku, 2003). budget deficit is the difference between the amount received and the amount spent. regional income side is used by local ownes-source revenue, because local owned-source revenue is not only a source of regional revenue, but also as an indicator of regional independence. the higher local owned-source revenue, the less dependent the regions are on transfer fund from central government. if the central government meets a budget shock, it can be said that it will not have a big impact to regional budget. spending side in region is used to regional expenditure. the amount of regional expenditure shows how much the region has budgeted its fund to develop the region. the higher regional budget gap, the higher fiscal stress. table 1.1 the following presents an overview of the average financial condition of the regional government in the district / city of central sulawesi province which shows symptoms of fiscal stress in 2014-2018. table 1 average financial condition of local government in district /city of sulawesi tengah province year 2014-2018 (billion rupiah) regency/city pad total transfer bd pad + transfer pad % transfer/ bd (%) banggai kepulauan 24 548 745 572 4,17 73,55 banggai 96 922 1.669 1.018 9,53 57,45 morowali 108 663 858 772 12,92 78,24 poso 82 946 1.212 1.029 8,03 77,86 donggala 63 860 1.123 923 6,88 76,48 tolitoli 71 753 918 824 8,51 81,98 buol 56 685 928 742 7,49 74,77 paringi moutong 115 970 1.252 1.086 10,47 79,04 tojo unauna 55 748 987 803 6,94 75,90 sigi 42 828 939 870 4,73 93,10 banggai laut 18 412 571 430 4,01 75,20 morowali utara 42 650 817 692 6,31 79,70 kota palu 217 884 1.284 1.101 23,14 68,87 sulawesi tengah 993 9.874 13.31 10.868 9,53 73,95 source : central bureau of statistic province of sulawesi tengah period 2014-2018 (processed) table 1 shows from 2014-2018, the average of local revenue in district/province of central sulawesi province to regional revenue is relatively small, afebi economic and finance review (aefr) volume 5, no 02 (2020) 19 which is less than 25 percent (4,01 percent to 23,14 percent), while transfer funds contributes greatly to the dominance in regional spending, namely 57,45 percent to 93,10 percent. regarding to regional spending will continuously increase from year to year to encourage the implementation of development in each region, this dominance will have bad impact in long term. if this condition is not followed by increasing local own-source revenue, so the dependence on transfer funds from central government will trigger the fiscal stress phenomenon. gross regional domestic product (pdrb) describes the ability of regions to manage their natural resources. the amount of pdrb generated by each region depends on the potential of natural resource and production factors in the area. these limited supply of production factors causes the difference of the grdp in each region (muda, 2012). pdrb is a potential source of regional revenue. the ability of the society to pay taxes and retributions to the region depends is very dependent on the economic activities carried out by the society. the more economic activities the society carried out, the higher the income earned by the society and regional efforts to increase regional income through local taxes and retributions can increase. the high gross regional domestic product (pdrb) means that the region will be able to meet the needs of the region itself and have sufficient economic capacity to be deposited with the regional government in the form of taxes and retribution. if taxes and retributions obtained from the society are high, the fiscal stress in the region will be reduced. the increase in regional of grdp can also be caused by sustainable local own-source revenue growth. if local own-source revenue increases, the funds owned by the regional government will be higher and the level of regional independence will also increase, so that the regional government will be more active in exploring region potency, increasing grdp and reducing the fiscal stress. regions will be able to finance the regional development through their regional income. if the regional grdp is not increased, the efforts to increase local ownsource revenue will be meaningless (muda, 2012). the gross regional domestic product (pdrb) in central sulawesi province in 2014-2018 has increased, which was in 2014 by 90.246 billion rupiahs to 150,032 billion rupiahs in 2018. this trend of increasing pdrb illustrates the good economic activity in central sulawesi province during within 5-year period. this good economic development is expected to be able to increase the revenue side of the region, especially in terms of regional taxes and regional retribution which will reduce the number of fiscal stress. 2. research method a. type of research this research uses associative research type, specifically associative research type which aims to determine the relationship between two variables (sugiyono, 2017). this study uses the associative type to determine the relationship between the variables of local-own resource revenue (pad), regional expenditures (bd) and gross regional domestic product (pdrb) on fiscal stress. the types of data are divided into two, they are qualitative data and quantitative data (sugiyono, 2017). the type of data used in this study is quantitative data, which is data in the form of numbers. the data used in this study are: 1. local-owned resource revenue (pad) in district / province of central sulawesi period 2014-2018; determinants of fiscal stress in central sulawesi 2014-2018 period 20 2. regional expenditure (bd) in district / province of central sulawesi period 20142018; 3. gross regional domestic product (grdp) in district / province of central sulawesi period 2014-2018. b. data collection method the data used in this research was obtained by a literature study at central bureau statistics in province of central sulawesi and they will be processed according to the needs of this research. c. data analysis the method used in this study is data panel (pooled data). data panel is a set data contains of individual sample data (households, companies, districts/cities, and others) in a certain time period. panel data is a combination of cross-section and time series observations (ekananda, 2016). according to widarjono (2009) the estimation of the regression model combining all data has the form of a general specification, following : y = 0 + 1 x1 + 2 x2 + ... + n xn + it and it is formulated in this study to become: fs = 0 + 1 pad + 2 bd + 3 pdrb + it then it is transformed as below: lnfs = 0 + 1 lnpad + 2 lnbd + 3ln pdrb + it formula information: fs = fiscal stress pad = local-owned resource revenue bd = regional expenditure pdrb = gross regional domestic product 0 = intercept 1, 2, 3 = regression coefficient  = error term i = cross section t = time series 3. result and discussion the results of the chow test and hausman test choosed the fixed effect model and the random effect model, so that to determine the best model used in the current panel data method, it is necessary to continue with the lm test between the common effect model and the random effect model according to the initial hypothesis of the lm test, by using the residuals from the simple effects method, the breuch pagan probability value is 0.0003 which is smaller than the value, it is 0.05. based on this, it can be seen that lm < critical value, so it can be concluded that the random effect model is better than the common effect model. a. random effect model based on the results of panel data regression analysis using e-views 10, the overall random effect model equation which covers 13 districts/cities in central sulawesi province is obtained as follows: fs = 0 1 pad + 2 bd + 3 pdrb+ it -0.676146 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it afebi economic and finance review (aefr) volume 5, no 02 (2020) 21 (-2.167502)** (-6.715044)*** (53.09303)*** 0.469071) the probability value that is in the number < 1 percent is symbolized by three stars (***), the probability value that is in the number between 1 to 5 percent is symbolized by two stars (**) and the probability value that is in the number more than 10 percent is not symbolized using a star. the results of the random effect model as a whole show that if the localowned source revenue (pad), regional expenditure (bd) and gross regional domestic product (pdrb) variables are considered constant, the fiscal stress variable will decrease by 0.676146 percent. this equation also describes the relationship between pad, bd and pdrb variables with the fiscal stress variable. the local-own source revenue (pad) variable will cause a decrease in fiscal stress by 0.077752 percent with the assumption that other variables are considered constant, meaning that if pad has decreased by 1 percent, fiscal stress has increased by 0.077752 percent. the regional expenditure (bd) variable has an increasing impact on fiscal stress by 1.088875 percent with the assumption that other variables are considered constant, meaning that if regional expenditure (bd) has increased by 1 percent, fiscal stress has increased by 1.088875 percent. gross regional domestic product (pdrb) causes an increase of 0.006991 percent in fiscal stress with the assumption that other variables are considered constant, meaning that if gross regional domestic product (pdrb) has increased by 1 percent, fiscal stress has increased by 0.006991 percent. the equations of each cross section random effect model in 13 districts / cities in central sulawesi province are as follows: fsbanngai kepulauan = -0.000451 0.676146 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it = -0.676597 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it fsbanggai = 0.020382 0.676146 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it = -0.655764 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it fsmorowali = 0.016076 0.676146 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it = -0.66007 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it fsposo = 0.003451 0.676146 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it = -0.672695 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it fsdonggala = 0.003452 0.676146 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it = -0.672694 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it fstoli-toli = -0.676146 + 0.006513 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it determinants of fiscal stress in central sulawesi 2014-2018 period 22 = -0.669633 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it fsbuol = 0.007868 0.676146 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it = -0.668278 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it fsparigi moutong = -0.004769 0.676146 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it = -0.680915 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it fstojo unauna = 0.013068 0.676146 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it = -0.663078 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it fssigi = -0.008850 0.676146 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it = -0.684996 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it fsbanngai laut = 0.004550 0.676146 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it = -0.671596 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it fsmorowali utara = 0.002832 0.676146 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it = -0.673314 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it fspalu = -0.061838 0.676146 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it = -0737984 0.077752 pad + 1.088875 bd + 0.006991 pdrb + it the results of the random effects model in the 13 districts/cities above illustrate the effect of pad, bd and grdp on fiscal stress. the equation above shows that the regression model for each district/city has a different intercept and the same slope. the difference intercept indicates that there are differences in the conditions of each cross section both at one time and at other times. the condition in question is the existence of different endogenous factors in the form of geographical conditions and natural resources in supporting local-own source revenue. b. goodness of fit (r2) this test is used to see how much variation in the dependent variable can be explained by the independent variable, to see the results in the determination test on panel data, the adjusted r-squared value is used. the regression results in this study the adjusted r-squared value is 0.98, meaning that 98 percent of fiscal stress is influenced by pad, bd and grdp, while 2 percent is influenced by the other variables not described in this study. afebi economic and finance review (aefr) volume 5, no 02 (2020) 23 c. hypothesis test 1. f-statistics test this test is used to determine whether the independent variable has a significant effect on the dependent variable simultaneously. the results of this test can be seen in the table below: table 2 f-statistic test f-statistic probability (f-statistic) 1772.019 0.000000 source: attachment 10 the results of the f test analysis show that the pad, bd and pdrb variables simultaneously have a significant effect on the fiscal stress variable (probability < 5 percent), it is the f-statistic probability number is 0.00000 < 0.05. so that the null hypothesis in this study is rejected, namely pad, bd and grdp simultaneously have no significant effect on fiscal stress in the district/province of central sulawesi in period 2014-2018. 2. t-statistic test the t-statistics test is used to determine whether each variable independent has an influence on the dependent variable. the results of this test can be seen in the table below: table 3 t-statistics test results variab le coefficient error standard t-statistics probablity c -0.676146 0.311947 -2.167502 0.0341 pad -0.077752 0.011579 -6.715044 0.0000 bd 1.088875 0.020509 53.09303 0.0000 pdrb 0.006991 0.014904 0.469071 0.6407 source: attachment 10 the above table shows the effect of each independent variable on the dependent variable. an explanation of the relationship between these variables is as follows: a. t-statistics test local-own resource revenue (pad) partially (t-test), pad variable has a probability of 0.0000 when compared with the significant level of 5 percent (probability < 5 percent), meaning that pad has a negative and significant effect on the fiscal stress variable, so the null hypothesis in this study is rejected, it can be said pad partially has no significant effect on fiscal stress in districts/province of central sulawesi period 2014-2018. b. t-statistic test regional expenditure (bd) partially (t test), the bd variable has a probability of 0.0000 when compared to the significant level of 5 percent (probability < 5 percent), meaning that bd has a determinants of fiscal stress in central sulawesi 2014-2018 period 24 positive and significant impact on the fiscal stress variable, so the null hypothesis in this study is rejected, namely bd partially has a positive and significant effect on fiscal stress in the districts/cities of central sulawesi province for the 2014-2018 period. c. t-statistic test gross regional domestic product (pdrb) partially (t test) pdrb variable has a probability value of 0.6407 which when compared to the significant level of 5 percent (probability > 5 percent), meaning that pdrb variable has a positive and insignificant effect on fiscal stress, so the null hypothesis in this study can not be rejected, which is pdrb partially does not have a significant effect on fiscal stress in the districts/cities of central sulawesi province period 2014-2018. d. classical assumption test this study uses a random effect model. the random effect model is a model that uses the generalized least squares (gls) approach. gls is a method that uses information to be calculated explicitly which is able to produce an estimator that is best linear unbiased estimator (blue). gls is an ordinary least squares (ols) model whose variables are transformed to meet the standard assumptions on the least squares (gujarati, 2004). the gls approach is also better and more efficient than the ols approach (greene, 2002). based on the above explanation, this study did not test the classical assumption, because this study used a random effects model that met the blue requirements. regional autonomy is a policy implemented by the central government to support equitable development between regions in indonesia. this policy gives full authority to regional governments to regulate fiscal and development in their respective regions. regional revenues consist of transfer funds and local-own source revenue (pad), if most local government revenues derive from transfer funds, it will cause fiscal pressure (fiscal stress). fiscal stress conditions indicate the inability of the region to meet the needs of bd come from within the region itself in the form of pad. the statistical results above using a random effect model approach show that simultaneously the pad, bd and grdp variables have a significant effect on fiscal stress. partially, only pad and bd variables have a significant effect on fiscal stress. while pdrb variable does not have a significant effect on fiscal stress. a. the effect of local-owned resource revenue on fiscal stress this study shows that the pad variable has decreasing effect significantly on fiscal stress in the districts/cities of central sulawesi province. when pad increases, fiscal stress decreases significantly, it means when the contribution of pad is greater than bd, the dependence on transfer funds from the central government will decrease and the regions will be able to increase the independence so that fiscal stress will decrease. the results of this study are in line with research by muda (2012) and septira and prawira (2019) that pad has an influence on fiscal stress and the opposite of the results of research by adriana et al. (2017) and dwitayanti et al. (2019) which explains that pad has no effect on fiscal stress. the greater the income that comes from pad, not from transfer funds, so that the regions are more flexible in allocating budgets for regional interests without any element of interest from the central government that does not match with regional needs (muda, 2012). the impact of afebi economic and finance review (aefr) volume 5, no 02 (2020) 25 pad that can reduce fiscal stress will provide opportunities for local governments to pay more attention to pad management (septira and prawira, 2019). increasing pad in a region shows the region can optimize every potency as well as fiscal capacity to optimize sources of revenue comes from the region itself. if the increase in pad occurs continuously, then generally the fiscal stress situation can decrease because fiscal stress shows the region that still not be able to optimize the sources of local revenue. fiscal stress in a region will encourage and motivate local governments to reduce dependence on the central government through increasing pad. b. the effect of regional expenditure on fiscal stress different results were found in the bd variable, bd has an increasing and significant effect on fiscal stress in the districts / cities of central sulawesi province. the increase in fiscal stress is due to the large proportion of bd derives from transfer funds, so that an increase in bd will have an impact on increasing regional fiscal dependence and fiscal stress is getting bigger. the test result of bd variable is ifferent from the result of previous studies, due to the use of different spending variables in influencing fiscal stress. the different results in the bd variable in this study, because the expenditure variable comes from government spending as a whole, not only on the capital/development expenditure side. the use of the bd variable is based on the fact that the fiscal allocation is not only for the capital/development expenditure side, but also for the operational side and most of the portion of government expenditure is spent on operational expenditure or non-development expenditure. bd has a very important role in fiscal stress, which bd can increase fiscal stress. the higher the bd, the higher the fiscal stress. the increase in fiscal stress is caused by bd which increases continuesly, but it is not compensated by increasing on pad and tends to depend on transfer funds, so that it will impact on increasing fiscal stress. high fiscal stress illustrates the ability of local governments to adjust their budgets for bd. if bd is not adjusted to the ability of the region to finance the expenditures, it will increase fiscal stress along with the development of bd. c. effect of gross regional domestic product on fiscal stress the result obtained on the pdrb variable shows an increasing and insignificant effect on fiscal stress in the districts / cities of central sulawesi province. the results of this study are in line with the results of previous studies conducted by muda (2012) and adriana et al. (2019) which found that pdrb had no significant effect on fiscal stress. these results indicate that pdrb has no effect on fiscal stress. this situation is because pdrb does not directly affect fiscal stress in central sulawesi province in period 2014 to 2018, but pdrb affects pad through regional taxes and regional retribution caused by increased economic activity in a region which will later affect fiscal stress. 4. conclusion simultaneously, the variables of pad, bd and grdp have a significant effect on fiscal stress in the districts /cities of central sulawesi province period 2014-2018. partially, the pad variable has a negative and significant effect on fiscal stress in the districts / cities of central sulawesi province period 2014-2018. bd variable has a positive and significant effect on fiscal stress in the districts /cities of central sulawesi province period 2014-2018. while pdrb variable has a positive determinants of fiscal stress in central sulawesi 2014-2018 period 26 and insignificant effect on fiscal stress in the districts /cities of central sulawesi province for period 2014-2018. references adriana, m., basri, y. m., dan indrawati, n. 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(2019). analisis faktor-faktor yang mempengaruhi fiscal stress. jurnal pendidikan akuntansi dan keuangan, 7(1), 57. https://doi.org/10.17509/jpak.v7i1.15949. setiyawan, budi dan adi, priyohari. (2006). pengaruh fiscal stress terhadap pertumbuhan pendapatan asli dan belanja daerah (studi empiris pada kabupaten/kota se-jawa tengah. simposium nasional akuntansi x. makassar. shamsub, h dan akoto, j, b. 2004. state and local fiscal structures and fiscal stress. journal of public budgeting, accounting dan financial management, 16(1), 40–61. sugiyono. (2017). metode penelitian kuantitatif, kualitatif dan r dan d. alfabeta. bandung. usman, h., dan nachrowi, n. d. (2005). penggunaan teknik ekonometrika. raja grafindo persada. jakarta. widarjono, a. (2009). ekonometrika pengantar dan aplikasinya. edisi ketiga. ekonisia.yogyakarta. https://jdih.surabaya.go.id/pdfdoc/permendagri_58.pdf https://www.bphn.go.id/data/documents/15uu009.pdf https://doi.org/10.17509/jpak.v7i1.15949 indonesian coffee export analysis to germany from 1990 to 2019 73 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) indonesian coffee export analysis to germany from 1990 to 2019 titis rahayu winingsih*, yustirania septiani department of economic development, faculty of economics, university tidar, indonesia abstract export is the activity of selling goods abroad, one of indonesia's main export commodities is coffee. germany is the highest coffee consuming country in the european region, this makes germany a potential market for indonesian exports. this study was conducted to determine the factors that affect the volume of indonesian coffee exports to germany using quantitative methods and secondary data types in the form of time series from 1990 to 2019. the data sources were obtained from the directorate general of plantation (ditjebun), the central statistics agency (bps), world bank, international coffee organization (ico). multiple regression model with ecm approach was used to analyze the data. the results of this study indicate that in the long term and short term coffee production, german gdp and world coffee prices have an insignificant effect on coffee export activities, but in the short term the coffee production variable has insignificant effect. keywords: coffee exports, coffee production, world coffee prices 1. introduction in international trade activities, indonesia is country that until now the products of agricultural, fishery and foresty sectors are still being used and used as the main export commodities to the international market. this happens because indonesia has the potential and ability to utilize natural wealth and human resources. data from badan pusat statistik shows that the main commodities from agricultural sector, processing, non-tsimber forest products, plantations to mining products are the result of the export sector which experinced the highest increase during the period 2020. one of the primary sector commodities that are indonesia's leading export commodities, one of which comes from the plantation sector, is coffee. coffee is one type of raw material from plantations in indonesia that plays a role in the economy, which can contribute in the form of foreign exchange and state revenues, creating new jobs, as a source of income for farmers, growth of the agribusiness industry, to regional development and environmental protection, (directorate general of estate crops, 2019). in the international market, the consumption of coffee basic products is increasing every year. figure 1. coffee consumption and production in the world 2015-2019 in 60 kg per bags *coressponding author. email address: titisrahayu35@gmail.com 0 50,000 100,000 150,000 200,000 2015 2016 2017 2018 2019 consumption production https://creativecommons.org/licenses/by/4.0/ mailto:titisrahayu35@gmail.com afebi economic and finance review (aefr) volume 7, no 1 (2022) 74 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) figure 1 shows that world coffee consumption has increased from year to year. the increase in world coffee consumption is due to the trend of coffee connoisseurs spreding to almost all countries in the world, so that with this number of consumers has also increased, (rafensca merry christa, 2017). in 2019, coffee production tends to decline due to the coffee plant in brazil being out of its biennial cycle. in this biennial cycle, the first coffee production is usually higher, while the following year is lower. in the conditional of many coffee lovers from all countries in the world, only a few countries are able to produce coffee, including several countries from asia, latin amerika, central amerika mexico and africa. this happens because these countries have tropical and subtropical climates which are suitable areas for coffee cultivation. in the world, indonesia plays a role as the largest coffee producer and exporter. this is evidenced by the table below. table 1. coffee exporting countries in the world 2016-2019 (60 kg per bags) no county year 2016 2017 2018 2019 1 brazil 34,269,000 30,925,000 35,637,000 40,698,000 2 vietnam 29,721,000 25,092,000 31,385,000 27,400,000 3 kolombia 12,831,000 12,985,000 12,808,000 13,672,000 4 indonesia 6,545,000 8,198,000 4,539,000 6,334,000 5 india 6,086,000 6,542,000 5,967,000 6,028,000 source : international coffee organization, 2021 it can be seen in table 1 that brazil, vietnam, colombia, indonesia and india are in the order of five countries as the largest to the smallest coffee producing and exporting countries, seen from the amount of coffee produced. from 2016 to 2019, indonesia became the fourth largest coffee exporter in he world, with the volume of coffee exports fluctuating every year. in 2017, coffee exports from indonesia experinced the highest increase in the 2016-2019, which in 2016 reached 6,54 million (60 kg per bag) to 8,19 million (60 kg per bag). then in the following year it decreased to 4,53 million in 2018. in international trade activities, basically every country producing and exporting certain commodities has a market that is used as a trading destination, especially in the trade of coffee commodities. one of the countries that is the destination for indonesian coffee exports is germany because germany is a country that occupies the third largest position in the world besides japan and the united states which imports coffee from indonesia. in addition, germany is also the largest importer of indonesian coffee in the european region. this is expected to be a potential and open opportunity for indonesia to expand its coffee export market to the european union. however, before increasing exports, exporters must first understand the demand for coffee in the german market based on the volume of their exports, because it is hoped that there will be a balance of supply and demand in international trade, so that there is no excess supply in the export destination country. according to the kementrian indonesia, indonesia's coffee exports to germany are highly volatile. this can be seen in the following figure. https://creativecommons.org/licenses/by/4.0/ indonesian coffee export analysis to germany from 1990 to 2019 75 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) figure 2. development of indonesian coffee export volume to germany 1990-2019 (tons) figure 2 shows that from 1990 to 2019, coffee exports from indoensia to germany experinced development and fluctuated every year. the factors that influence the increase or decrease in coffee exports can be seen from the economic aspect, such as the amount of coffee produced by indonesia, the world coffee price, and the gdp per capita of germany. apart from the economic aspect, other factors come from health and the environment. these factors serve as guidelines for coffee exporters and producers in indonesia to consider the amount of coffee to be exported to germany. among the existing factors, economic factors are considered the easiest to calculate, so this study aims to determine what economic factors affect the volume of coffee exports from indonesia to germany. 2. literature study international trade is defined as trade activities across or between countries consisting of exports and imports, with the categories of trade in goods and trade in services. trade in goods will be included in the balance of bayments, while trade in services will be included in the balance of services (tambunan, 2001). export is defined as the process of legally transferring goods from one country to another, usually as an aspect of trading activity. in export activities there will be a balance between supply and demand that forms the relative price described in the terms of trade (tot). terms of trade (tot) is the ratio of export prices and import prices multiplied by 100%, which occurs when trade between the two countries is in balance or when there is an equilibrium in the international market. the equilibrium in question is that the quantity demanded from the importing country is equal to the quantity supplied by the exporting country (tambunan, 2001). the demand for a good is defined as the probable condition of the quantity of the good demanded at a certain price level. the law of demand explains that if the price increases, the quantity of the good will decrease because the quantity depends on the price of the good. according to (raharja & manurug, 2008) in addition to the prices of commodity goods, the prices of other goods, both substitutes and complements, gdp, people's tastes, people's habits, price ranges in the future, producer businesses and income distribution are also some of the factors that can affect the magnitude of the request international trade and income relations export and import activities in international trade activities are influenced by income factors. on the import side, an increase in the amount of income will also increase the amount of imports, and a decrease in the amount of income will reduce the amount of imports in a country. meanwhile, on the export side, when there is an increase in income, it will also have 0 20000 40000 60000 80000 100000 120000 140000 https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 76 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) an impact on increasing the cost of producing export goods. in general, export prices and costs increased but export volumes decreased. effect of price on consumer behavior price is the amount of money charged by consumers as a form of reward for using or owning a product or service (kloter, 2001). the formation of international prices in the international market adjusts to movements in the domestic market. theoretically, the total demand and supply curves can be used in trade to determine the equilibrium relative price (christa, 2017). in the domestic market, the selling price and the purchase price are the equilibrium prices formed as a result of market mechanisms. equilibrium price is a price condition when producers and consumers do not wish to increase or decrease the quantity of goods sold or consumed (raharja & manurug, 2008). in consumption activities, consumers do not only consider taste but also consider price (pyndick & rubinfeld, 2012). a previous study that discussed coffee exports was conducted by indah sri wulandari (2010) with the aim of research to determine the differences between indonesian coffee exports and brazilian coffee, identify the role of variables that influence coffee exports from indonesia and brazil in destination countries and compare the results of research that affect the amount of coffee exported to indonesia and brazil. this study uses panel data analysis. the results show that the tastes of coffee connoisseurs in the destination country and the price of brazilian coffee have a positive and significant effect on the amount of coffee export demand, but have a negative correlation with the price of indonesian coffee, the income of the destination country and distance. manalu, et al (2020) conducted a study to observe the things that affect the demand for indonesian coffee in foreign markets. this study uses time series data from 1995 – 2017 with a data analysis method in the form of a linear approximate almost ideal demand system (la/aids) model. as a result, it is known that the price of row coffee and carea ntm affects the demand for indonesian coffee beans in the united states market. the population of japan, the price of vietnamese coffee, and japan's ntr against the dollar have an effect on the japanese market. meanwhile, what drives the demand for indonesian coffee beans in the german market are row prices and carea ntm. judging from the cross-elasticity value, indonesian coffee is a substitute in the japanese and german markets, while in the united states it is complementary to vietnamese coffee. sitanini, sutanto and wijayanti's research (2020) aims to study and analyze aspects that affect the number of coffee exports from indonesia to japan. through the error correction model (ecm) method, the results show that the increase in population in japan, world tea prices and the indonesia japan economics partnership (ijepa) policy will also increase the volume of coffee exports from indonesia to japan, while the variables that reduce the volume of coffee exports from indonesia to japan is coffee consumption in japan, world coffee prices and inflation. the increase in coffee production, japan's gdp and the exchange rate did not increase or decrease the volume of coffee exports to japan. richie jeff komaling (2013) conducted a study to find out the things that affect coffee exports from indonesia to germany, using the multiple regression model as the method of data analysis. the result is that indonesia's coffee export capacity to germany is significantly influenced by world coffee prices, germany's per capita income, and coffee consumption in germany. benedicta rafensca merry chista's research (2017) to identify economic aspects that affect the export capacity of indonesian robusta coffee in the german market. the multiple linear regression model with stata was chosen to analyze the data, and the results show that the amount of indonesian coffee exported to the german market is significantly influenced by the total production of robusta coffee in indonesia, international prices of robusta coffee and gdp https://creativecommons.org/licenses/by/4.0/ indonesian coffee export analysis to germany from 1990 to 2019 77 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) per capita of germany, while the exchange rate of the rupiah against the us dollar and international cocoa prices have no significant effect. from this research, it is shown that the international price of robusta coffee is the research variable that has the greatest influence on the export of robusta coffee. setiawan and sugiarti's research (2016) aims to examine the competitiveness and determinants of indonesian coffee exported to the malaysian market through the cept-afta scheme. the multiple regression method was chosen by the researchers to see the variables that have an influence on the amount of indonesian coffee exported in the malaysian market and the revealed comparative advantage (rca) method is used for export competitiveness analysis. as a result, it is shown in multiple linear regression analysis that the amount of coffee production in indonesia, coffee export prices and the rupiah exchange rate against the us dollar are variables that affect the amount of indonesian coffee exported in the malaysian market and from the rca review it is known that coffee from indonesia is able to compete in the malaysian market. however, its competitiveness has declined since cept-afta was enacted. meanwhile, the variables that have no effect are the cept-afta dummy and the rca. 3. methodology the use of quantitative methods used in this study. quantitative method is defined as a method in research that is based on the principle of positivism, with a quantitative/statistical population or sample as research material in order to test the specified hypothesis (sugiyono, 2008). the data sources in this study are secondary data in the form of time series from 1990 to 2019. the data used are sourced from the direktorat jenderal perkebunan (ditjenbun), badan pusat statistik (bps), world bank, international coffee organization (ico), and the use of other literature such as books, journals and articles. multiple regression model with error correction model (ecm) method is used in this study to analyze the data. the formation of the ecm model begins with the formation of a long-term equation model based on the applicable theory. in this study, the regression equations we tested were: 𝑬𝑲𝑺𝑷𝑶𝑹𝒕 = 𝜷𝟎 + 𝜷𝟏𝑷𝑹𝑶𝑫𝒕 + 𝜷𝟐𝑮𝑫𝑷𝒕 + 𝜷𝟑𝑯𝑲𝑫𝒕 + 𝒆𝒕..............(1) description : eksport = indonesian coffee export volume to germany (tonnes) prodt = total indonesian coffee production (tonnes) gdpt = germany’s gdp (usd) hkdt = world coffee price (usd) et = standar error year –t β0 = constant β1β4 = estimated coefficient of independent variable from the above equation, the short run is made. the characteristic of ecm is that the model contains an error correction term (ect) element. the use of stationary ect in the long-term equation, not only to identify the presence or absence of cointegration but also to be used as one of the variables in the short-term equation. statistically, if the ect coefficient is significant or if the probability value is less than 5%, it can be said that the model is valid, so the short-term equation in this study can be formulated as follows: 𝑫𝑬𝑲𝑺𝑷𝑶𝑹𝒕 = 𝜷𝟎 + 𝜷𝟏𝑫𝑷𝑹𝑶𝑫𝒕 + 𝜷𝟐𝑫𝑮𝑫𝑷𝒕 + 𝜷𝟑𝑫𝑯𝑲𝑫𝒕 + 𝑬𝑪𝑻 + 𝒆𝒕 .............(2) description : deksport =export volumet –export volumet-1 dprodt =productt – productt-1 https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 78 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) dgdpt =germany’s gdpt – germany’s gdpt-1 dhkdt = wrold coffee pricet – world coffee pricet-1 ect = rest-1 et = standar error year –t β0 = constant β1β4 = estimated coefficient of independent variable 4. result and discussion stationarity test identification of data stationarity is very necessary in analyzing data in the form of time series. it is very likely that the data will be pseudo if the stationarity test is not carried out. this study conducted a stationarity test using augmented dickey-fuller (adf). the data is said to be stationary if the adf value is greater than the critical value, but if the adf value is less than the critical value, the data is said to be non-stationary (widarjono, 2018). after processing the e-views 10 data, the stationarity test results are shown in table 2. table 2. unit root test results with the adf method at level level variable probability at level level description ekspor 0.0019 stationary prod 0.7006 not stationary gdp 0.6519 not stationary hkd 0.1211 not stationary critical value α = 5% -2.967767 source : data processed with e-views 10 based on the results of the stationarity test in table 2, there is only one significant variable at = 5%, while the other three variables are not stationary at the level level. degree of integration test the next step as a consequence of the non-fulfillment of the assumption of stationarity at zero degrees is to perform a degree of integration test. the purpose of this test is to detect at the level of differentiation to what extent the variables are already stationary. the degree of integration test was carried out through the augmented dickey-fuller (adf) test at the first difference level. if the adf value is greater than the critical value, then the data can be said to be stationary. and if the adf value is less than the critical value, the data is said to be non-stationary. table 3 is the result of the degree of integration test. https://creativecommons.org/licenses/by/4.0/ 79 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) table 3. unit test results with the adf method at the first difference level variable probability at first difference level description ekspor 0.0000 stationary prod 0.0000 stationary gdp 0.0004 stationary hkd 0.0000 stationary critical value α = 5% -2.971853 source: data processed with e-views 10 the results obtained after testing the degree of integration with the degree of integration of 5% indicate that the adf value of the overall variables studied is higher than the critical value, so it can be concluded that all variables are stationary. cointegration test cointegration test is a tool to ensure the existence of a long-term equilibrium relationship between the independent and dependent variables. the prerequisites needed to know that the variables studied are cointegrated by looking at the behavior of the residuals from the regression carried out. by unit root test, it is stated that ect is stationary at the level level. with this, the stationary test on the residuals confirms that there is cointegration between the variables used. the cointegration test is mutually cointegrated which means that there is a long-term equilibrium. error correction model (ecm) based on the results of cointegration analysis (long term), changes in coffee export volume, coffee production, german gdp and world coffee prices have a cointegration relationship. so for the next short-term estimation with the ecm model. the use of the error correction model is to estimate the model in the short term. error correction modeling is a method used to identify the relationship between non-stationary variables. the regression results are as follows. table 4. short-term regression estimation results variable coef t-statistic prob d(prod) 0.007371 0.078110 0.9384 d(gdp) -0.012937 -0.907781 0.3730 d(hkd) -9100.285 -0.889454 0.3826 ect -0.542131 -3.423560 0.0022 c -2453.945 -0.696060 0.4931 r-squared 0.433130 https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 80 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) adjusted r-squared 0.338652 source: data processed with e-views 10 based on the short-term estimation results, coffee production does not have a significant impact on the amount of coffee exported by indonesia to germany, with a coefficient value of -0.012937 and a probability value of 0.3730, meaning that any increase or decrease in indonesian coffee production does not affect the increase or decrease of indonesian coffee export capacities to germany. research (sitanini et al., 2020), states that indonesian coffee production does not increase or decrease the volume of indonesian coffee exports to japan. germany's gdp also does not have a big influence on the volume of indonesian coffee exports to germany. it can be seen from the coefficient value of -0.012937 with a probability value of 0.3730, meaning that it can be said that every 1% increase in german gdp occurs, the effect will reduce indonesian coffee exports by 0.013% (cateris paribus). research (marpaung, 2016), states that the gdp of the destination country has a but not substantial effect on the volume of arabica coffee exports in north sumatra, the income that has increased is thought to be not only related to the demand for coffee because some residents in the importing country have realized the importance of food safety in the future. world coffee prices have a negative and insignificant effect on indonesian coffee exports to germany. the coefficient value is -9100.285 with a probability value of 0.3826, every time the world coffee price increases by 1 dollar, the effect will decrease coffee exports by 5436,196 kg. in the period 1990-2019, world coffee prices experienced developments and tended to increase in recent years. this certainly affects the volume of coffee exports from indonesia to germany. the world coffee price has a big impact on indonesian coffee exports because in the trading activities of coffee products in the international market, the coffee price benchmark in the world market is used. this result is in accordance with research (sitanini et al., 2020) where the movement of coffee demand in destination countries to the increase in world coffee prices has a high negative response. 5. conclusion in the long term, all of the independent variables, namely coffee production, german gdp and world coffee prices, did not have a significant impact on the volume of indonesian coffee exports to germany for the period 1990-2019. in the short term, germany's gdp and world coffee prices negatively and insignificantly affected coffee exports, while coffee production had a positive but not significant effect and the error correction term (ect) negatively significantly affected the volume of indonesian coffee exports to germany. suggestions that can be given from this research. coffee producers need to improve the quality and quantity of coffee produced in indonesia in order to compete in the international market share and to gain added value and make it a leading commodity now and in the future. by knowing several aspects that affect the demand for indonesian coffee to germany, it is hoped that the management and related authorities can maintain trade relations with the european continent, especially in germany by maintaining and safeguarding the existing market. in addition, the promotion of coffee commodities in the international market needs to be carried out with the support of government policies that can mutually benefit all parties in the coffee industry. https://creativecommons.org/licenses/by/4.0/ 81 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) reference chandra, d., ismono, r. h. dan, & kasymir, e. (2013). prospek perdagangan kopi robusta indonesia di pasar internasional. jiia jurnal ilmu ilmu agribisnis, 1(1), 10–15. directorate general of estate crops. (2019). 2018 2020. 77. ismail, d., masbar, r., syechalad, m. n., & nasir, m. (2017). the analysis of competitiveness and export demand of acehnese coffee in the international market. journal of economics ads sustainable development, 8(8), 102–114. kloter, p. (2001). manajemen pemasaran di indonesia. salemba empat. komaling, r. (2013). analisis determinan ekspor kopi indonesia ke jerman periode 19932011. jurnal riset ekonomi, manajemen, bisnis dan akuntansi, 1(4), 2025–2035. https://doi.org/10.35794/emba.v1i4.3412 manalu, d. s. t., harianto, suharno, & hartoyo, s. (2020). permintaan kopi biji indonesia di pasar internasional. agriekonomika, 9(1), 114–126. https://doi.org/10.21107/agriekonomika.v9i1.7346 marpaung, k. p. 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(2018). ekonometrika pengantar dan aplikasinya (kelima). upp stim ykpn. wulandari, i. s. (2010). perbandingan ekspor kopi dua pemasok utama dunia indonesia dan brazil: sebuah analisis ekonomi data panel 2001 2006. unisia, 33(73), 3–16. https://doi.org/10.20885/unisia.vol33.iss73.art1 https://creativecommons.org/licenses/by/4.0/ analysis of intra-industry trade in cosmetic commodities between indonesia and nine trading partners in the asian region in the period of 2004-2018 44 analysis of intra-industry trade in cosmetic commodities between indonesia and nine trading partners in the asian region in the period of 2004-2018 tuhfah ikbar ramadhan1), firmansyah2)* 1,2 faculty of economics and business, diponegoro university, indonesia abstract this research aims to analyze the level of intra-industry trade and the effect of average country size, average per capita income, difference in per capita income, distance, and average tariff on intra-industry trade of cosmetic commodities between indonesia and nine trading partners (singapore, malaysia, thailand, philippines, india, china, hong kong, japan, and south korea) from 2004-2018. this study uses a grubel-llyod index to determine the level of intra-industry trade and static panel data method to see the effect of independent variables on the level of intra-industry trade. the result shows that the level of intra-industry trade of cosmetic commodities between indonesia and its trading partners (except india) still tended to be low. the average country size, average per capita income, and average tariff have a positive and significant effect on the level of intra-industry trade. meanwhile, the difference in per capita income and distance have a negative and significant effect. keywords: intra-industry trade, grubel-llyod index, cosmetic commodities. jel classification: f10, f12 introduction throughout history, the theory of international trade has continued to experience change and development. as for the concept of international trade in terms of traditional thinking, international trade occurs if each country possesses and utilizes the difference of factor endowments. each country will specialize in producing commodity that has a comparative advantage and then will import other commodity that also has a comparative advantage from other country (halwani, 2002). nevertheless, many studies have stated that international trade is not enough if only explained by the theory of international trade which was based on comparative advantage. this is because the pattern of trade that occurs today is characterized by the dominance of trade between countries that generally have the similar factor endowments and also characterized by the exchange of similar goods, especially * *corresponding author. email address: firmansyah@live.undip.ac.id mailto:firmansyah@live.undip.ac.id afebi economic and finance review (aefr) volume 5, no 02 (2020) 45 among developed countries (krugman, 1981; basri, 1992), therefore, a new trade theory emerged that referred to as intra-industry trade which is considered as the answer to the new reality in the current pattern of international trade (bato, 2014). in contrast to inter-industry trade, the intra-industry trade occurs when countries trade goods from the same industry. intra-industry trade is mainly based on economies of scale and product differentiation. historically, cosmetics have been used by women and men to enhance their beauty, gain self-confidence, soften their skin, or even protect their health (ramli, 2015). nowadays in indonesia, cosmetic products have become a part of society’s lifestyle. many people began to care about their appearance and cleanliness which was caused partly by the increased awareness of their cleanliness, cultural influences, or even because of their income level. according to the ministry of industry or kemenperin (2018), currently, the domestic cosmetic industry has reached more than 760 firms, even in 2017 the number increased by 153 firms. the national cosmetic industry also experienced a fairly high growth to reach more than 20 percent in 2017. this is partly due to the high demand from the domestic and export market in line with the trend of people who considered beauty products and body care products as their primary needs. figure 1 the dynamics of indonesia’s cosmetics export and import value in the period of 2004-2018 (thousand us$) source: international trade centre, processed (2019) figure 1 shows the value of export and import of indonesia’s cosmetic commodities which consist of hs 3303, hs 3304, hs 3305, hs 3306 and hs 3307. based on figure 1 it can be seen that the value of indonesia’s cosmetics export tends to increase. this indicates that the performance of indonesia’s cosmetics export continues to improve. the increasing value of export indicates that the spread of 0 100000 200000 300000 400000 500000 600000 700000 800000 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 nilai ekspor nilai impor export value import value analysis of intra-industry trade in cosmetic commodities between indonesia and nine trading partners in the asian region in the period of 2004-2018 46 indonesia’s cosmetics market and its product recognition abroad also increase subsequently. on the other hand, the value of indonesia’s import from 2004-2018 also tends to increase. this indicates that the increase in export of indonesia’s cosmetics was also followed by an increase in foreign cosmetics import. one of the causes of this increasing import is due to high domestic demand for foreign products, especially products from countries such as usa, uk, france, japan, china, and south korea. furthermore, according to eibn report (2019), the high import of cosmetics can be caused by the behavior of upper-middle-class people who tend to be willing to pay more for products with well-known brands from abroad because it reflects a higher social status. based on the data of export and import of cosmetic commodities in the international trade center, indonesia was seen to mutually export and import cosmetic commodities with fellow asean members and other countries in the asian region, namely singapore, malaysia, thailand, philippines, china, hong kong, india, japan, and south korea. the export and import value of indonesia’s cosmetic commodities from these nine countries are quite high, especially when compared to other asian countries. table 1 export value of indonesia’s cosmetics based on nine trading partners in the asian region in the period of 2014-2018 (thousand us$) country 2014 2015 2016 2017 2018 singapor e 116. 311 101. 255 126. 021 154. 298 173. 867 malaysi a 49.1 40 45.6 96 44.3 62 37.7 67 35.0 18 thailand 39.2 16 41.2 66 45.3 44 44.8 54 44.8 91 philippi nes 45.4 57 32.2 49 31.0 20 32.9 72 30.0 72 china 1.91 7 1.68 9 2.23 9 3.56 4 3.13 7 hong kong 15.0 97 11.4 74 7.68 7 4.88 9 4.73 2 india 5.08 5 4.24 2 4.21 2 5.66 2 7.65 7 japan 8.25 3 3.86 3 7.25 1 6.65 4 8.53 3 south korea 1.96 8 1.88 4 1.97 9 2.25 1 1.69 8 source: international trade centre, processed (2019) table 1 shows the value of indonesia’s cosmetic exports based on nine of its trading partners in asia, namely singapore, malaysia, thailand, philippines, china, afebi economic and finance review (aefr) volume 5, no 02 (2020) 47 hong kong, india, japan, and south korea. the value of indonesia’s export to the nine countries have fluctuated, however, the value of indonesia’s cosmetic export to singapore and thailand tended to increase. as for the past five years, singapore is a country that has the highest contribution to the value of indonesia’s cosmetic export compared to other countries. on the other hand, the value of indonesia’s import from these nine countries is fluctuated and tended to increase, especially countries such as china, hong kong, india, japan, and south korea (see table 2). as for the past five years, the highest value of indonesia’s cosmetic import is from thailand, although in 2017 and 2018, the value of indonesia’s cosmetic import from thailand had decreased significantly compared to previous periods. table 2 import value of indonesia’s cosmetics based on nine trading partners in the asian region in the period of 2014-2018 (thousand us$) country 2014 2015 2016 201 7 201 8 singapor e 2.205 1.611 1.332 12.9 37 4.94 8 malaysia 13.39 4 11.38 7 11.94 2 8.93 0 14.5 95 thailand 161.6 70 151.0 20 139.9 25 72.3 07 76.9 10 philippin es 794 1.132 1.784 3.84 6 1.50 5 china 36.77 9 31.92 8 35.98 8 48.5 79 81.1 80 hong kong 628 249 966 2.11 7 20.5 94 india 4.919 7.237 10.88 1 16.2 66 20.5 82 japan 23.56 4 27.41 2 28.69 8 32.7 13 35.6 07 south korea 4.833 4.825 7.950 13.1 82 34.2 20 source: international trade centre, processed (2019) grimwade (1989) mentioned several factors that can affect the level of intraindustry trade, namely the size of the country as indicated by the size of gdp, the level of income per capita, the difference in the level of income per capita, and distance. the tariff which is one of the trade barriers can also affect the level of intra-industry trade. the higher the average tariff, the lower the level of intraanalysis of intra-industry trade in cosmetic commodities between indonesia and nine trading partners in the asian region in the period of 2004-2018 48 industry trade (caves (1981), falvey (1981), davis (1998) in jaimin and sangyong (2008)). although the trade between indonesia and each of these trading partners in cosmetic commodities has been seen to have a two-way trade pattern (intraindustry), however, there is still a possibility of a low level of intra-industry trade. this is because some of the trading partners are developed countries, whereas indonesia is still said to be a developing country. trade that occurs between countries with different level of development still tends to have a one-way trade pattern. however, it is also possible that there is a high intra-industry trade because most trading partners are developing countries as well. usually, developing countries have a similar pattern of demand and similar product preference. intra-industry trade is becoming more important for every country because it is related to the competitive capability and the competitiveness of industry on an international scale (bato, 2014). in addition, intra-industry trade is believed to have a positive impact and a better advantage than inter-industry trade. this is because intra-industry trade promotes the increase of economies of scale and encourages innovation. hence, this study will analyze the level of intra-industry trade in cosmetic commodities between indonesia and nine trading partners in the asian region (singapore, malaysia, thailand, philippines, india, china, hong kong, japan, and south korea) so that it can be known whether the level of intra-industry trade in cosmetic commodities between indonesia and its nine trading partners is already high or still low. this study will also see the effect of average country size, average per capita income, difference in per capita income, distance, and average tariff on the level of intra-industry trade between indonesia and its nine trading partners. literature review international trade theory in the 17th and 18th centuries, a thought of international trade by mercantilists developed. according to mercantilists, the way for a nation to become rich and powerful, the country must export more than import. the mercantilists strongly believed in the power of government where government power can be used to stimulate or inhibit export and import. besides, according to mercantilists, a nation would gain an advantage when it sacrifices another nation because nations cannot simultaneously gain an export surplus. later on, the theory of absolute advantage was introduced by a classical economist, namely adam smith. this theory is very contrary to the assumption of mercantilists, where adam smith and other classical economists believed that every nation would get an advantage from free trade and strongly recommend the laissezfaire policy. every nation would get an advantage when they specialized in the production of a commodity that has an absolute advantage and then exchange it with other commodity from other country that also has an absolute advantage. however, this theory has a weakness in the case where the trade will not occur if afebi economic and finance review (aefr) volume 5, no 02 (2020) 49 there is one country that does not have an absolute advantage because it is considered to not provide benefits (salvatore, 2013). the weaknesses of adam smith's theory were later criticized by david ricardo who later introduced the comparative advantage theory. according to this theory, trade could still occur even though there is one country that has no absolute advantage. trade can provide benefits when each country specializes in goods where the country has a comparative advantage. then the country will export goods that have a comparative advantage and import goods that have no comparative advantage. what is meant by the comparative advantage is the ability of a country to produce goods with a smaller opportunity cost where it must sacrifice a few of the goods produced to produce other goods compared to other countries (mankiw, 2001). david ricardo's theory also has a weakness where international trade can occur when there is a difference in productivity or difference in efficiency between countries. however, this theory not able to explain the differences in productivity, except the possible differences in climate (salvatore, 2013). this was later refined by the hekchsher-ohlin theory. the hecksher-ohlin theory was introduced by the swedish economist namely eli hecksher and his student bertil ohlin. according to the hecksher-ohlin theory, the cause of the difference in productivity is due to differences in the proportion of production factors (labor, capital) owned by each country which then causes the difference in the price of goods. each country will export commodity whose production intensively uses relatively abundant and cheap factors in their country and will import commodity whose production intensively uses relatively rare and expensive factors in their country (salvatore, 2013). however, in reality, the pattern of trade that occurred today turns out to be more characterized by trade between countries which generally have the same factor endowments as well as characterized by the pattern of exchange of similar goods (krugman, 1981). thus, the conventional theory is considered unreliable in explaining the phenomenon of international trade with this pattern. intra-industry trade (iit) intra-industry trade is a new trade theory that emerged as the answer to the new reality in current pattern of international trade which cannot be explained by the conventional theory (bato, 2014). intra-industry trade is a trade of products from the same classification or industry. this pattern of trade was mostly practiced among developed countries in the 1980s and later in the 1990s, similar thing also happened in developing countries with high growth rates such as asean countries and new industrial countries in the east asia (suidarma, 2019). unlike interindustry trade which is based on comparative advantage, intra-industry trade is based more on economies of scale (increasing return to scale). in this case, the international competition encourages each firm in countries to specialize in producing only one or at most a few varieties and styles of the same product rather than producing many different varieties and styles. this is crucial in keeping cost per unit low. the goods will later be produced on a higher amount and with better quality as a result of the specialization. the country will later import other varieties analysis of intra-industry trade in cosmetic commodities between indonesia and nine trading partners in the asian region in the period of 2004-2018 50 and styles from other countries. intra-industry trade benefits consumers because it provides a wider choice of products and the price of these products will be cheaper as a result of economies of scale (salvatore, 2013). grimwade (1989) in his book entitled “international trade: new patterns of trade, production and investment”, as well as balassa and bauwens (1987), mentions several factors that can affect the level of intra-industry trade which are reviewed based on country characteristics, namely the level of income per capita, the degree of income per capita equality or the difference of per capita income, the size of the country, size differences, the degree of integration exiting between countries, differences in the level of development between countries, distance, et cetera. while the factors that can affect the level of intra-industry trade which are reviews based on industry characteristics are economies of scale, product differentiation, foreign investment, tariff, et cetera. methodology the research unit in this study is cosmetic commodities based on the 4-digit hs (harmonized system) classification namely hs code 3303 (perfumes and toilet waters), hs code 3304 (beauty or makeup preparations and preparations for the care of the skin, including sunscreen or suntan preparations (excluding medicaments); manicure or pedicure preparations), hs code 3305 (preparation for use on the hair), hs code 3306 (preparation for oral or dental hygiene, incl. denture fixative pastes and powders) and hs code 3307 (shaving preparations, incl. pre-shave and aftershave products, personal deodorants, bath and shower preparations, depilatories and other perfumery). while the research objects in this study are countries in the asian region, namely indonesia, singapore, malaysia, thailand, philippines, india, china, hong kong, japan, and south korea. the type of data used in this study is secondary data which was obtained from united nations comtrade database (un comtrade), international trade centre, world bank, haveman, wits (world integrated trade solution), central bureau of statistics (bps), ministry of trade, ministry of industry, et cetera. iit index analysis (grubel-llyod index) in measuring the level of intra-industry trade, this study uses an index called grubel-llyod index. the grubel-llyod index was developed by grubel and llyod in 1967 and became the most commonly used calculation in determining the level of intra-industry trade. the grubel-llyod index is formulates as follows: iitijkt = [1 − ∑|xijkt − mikjt| ∑(xijkt + mijkt) ] x 100 where: iit = intra-industry trade x = export (us$) m = import (us$) i = reporter country afebi economic and finance review (aefr) volume 5, no 02 (2020) 51 j = partner country k = type of cosmetic product or commodity based on hs 4-digit classification t = year if trade transaction is balanced or two-way (two-way trade) then the index is worth 100 percent, but if trade transaction between countries is one-way trade then the index is worth 0. based on the classification used by oecd (2002) if the iit index value above 50 then a country is classified as having a high level of intraindustry trade, however, if the iit index is low (below 50), then the country has a low level of intra-industry trade. panel data analysis to analyze the determinants of intra-industry trade of cosmetic commodities between indonesia and nine trading partners in the asian region, this study uses the static panel data method. panel data is a combination of time-series data and individual or cross-section data (baltagi in gujarati, 2011). this study uses timeseries data for fifteen years, namely data from 2004 to 2018 and cross-section data of nine trading partners which produced 135 observations. there are several models in the panel data analysis, namely pooled least square or common effect model, fixed effect model, and random effect model. however, this research emphasized the fixed effect model and random effect model because the pooled least square model is considered to ignore the trait of cross-section and time-series. the hausman test is used to determine the best regression model between fixed effect model (fem) or random effect model (rem). the variables used in this study are the level of intra-industry trade of cosmetic commodities (iit) as the dependent variable and the average size of the two countries (asize), the average income per capita of two countries (apc), the difference in income per capita of two countries (dpc), the distance between two countries (dist) and the average tariff of cosmetics import imposed by each country (atrf) as the independent variable. the research model to be estimated is as follows: 𝐈𝐈𝐓𝐢𝐣𝐭 = 𝛃𝟎 + 𝛃𝟏 𝐥𝐧(𝐀𝐒𝐈𝐙𝐄𝐢𝐣𝐭) + 𝛃𝟐 𝐥𝐧(𝐀𝐏𝐂𝐢𝐣𝐭) + 𝛃𝟑 𝐥𝐧(𝐃𝐏𝐂𝐢𝐣𝐭) + 𝛃𝟒 𝐥𝐧(𝐃𝐈𝐒𝐓𝐢𝐣𝐭) + 𝛃𝟓(𝐀𝐓𝐑𝐅𝐢𝐣𝐭) + 𝛆𝐢𝐣𝐭 where: iitijt = the level of intra-industry trade between country i and j asizeijt = the average size of country i and j in the year t (us$) which is calculated using the following formula: asizeij = gdpi + gdpj 2 apcijt = the average income per capita of country i and j in the year t (us$) which is calculated using the following formula: apcij = gdpci + gdpcj 2 dpcijt = the difference in income per capita of country i and j in the year t analysis of intra-industry trade in cosmetic commodities between indonesia and nine trading partners in the asian region in the period of 2004-2018 52 (us$) which is calculated using the following formula: dpcij = 1 + [vlnv + (1 − v) ln(1 − v)] ln2 v = gdpci gdpci + gdpcj distijt = the distance between country i and j in the year t (km) geographical distance is constant overtime, so the distance used in this study is the weighted distance between country i and j or what is often referred to as economic distance. refer to li et al. (2008), turkcan and ates (2010), widyastutik (2013), and inayah et al., 2016, distance is calculated using the following formula: distij = dij ∗ gdpj total gdpj where dijis the geographical distance between country i and j atrfijt = the average tariff applied by country i and country j on imported cosmetics from country j and country i in the year t (%) 𝛽0 = constanta (intercept) 𝛽 = regression coefficient i = reporter country j = 1,2,…,9 (cross-section data of trading partners) t = 1,2,…,15 (time-series data: 2004-2018) εijt = error term result and discussion based on the grubel-llyod index calculation, the average level of intraindustry trade in cosmetic commodities between indonesia and each of its trading partners during the period of 2004-2018 are shown in the table 3. table 3 average level of iit in cosmetic commodities between indonesia and each of its trading partners during the period of 2004-2018 (%) country average level of iit (%) indonesiasingapore 21.40 indonesia-malaysia 42.86 indonesia-thailand 18.73 indonesiaphilippines 11.80 indonesia-india 58.68 indonesia-china 24.40 afebi economic and finance review (aefr) volume 5, no 02 (2020) 53 indonesia-hong kong 12.62 indonesia-japan 35.50 indonesia-south korea 46.00 source: un comtrade, processed (2020) based on table 3, it can be seen that the level of intra-industry trade between indonesia and each of its trading partners are still low, where the average value of the iit index is still below 50 percent (except india). based on the classification used by oecd (2002), if the iit index value is below 50 percent then intra-industry trade is low. the low average value of the iit index is due to a quite big difference on the export and import value between indonesia and the trading partners. by looking at the data of indonesia’s cosmetic commodities trade flow, it turns out that indonesia is still more dominant in exporting cosmetic commodities to philippines, hong kong, and singapore compared to importing from these countries, but still more dominant in importing from thailand, china, japan, and south korea compared to exporting to these countries. the greater value of indonesia’s import from the four trading partners could be caused by the mismatched of indonesia’s cosmetic product with the partner countries’ preference, where the partner countries are not so favored to indonesia’s products. on the contrary, the cosmetic products by the four countries are highly favored by indonesians. the high import of indonesia from south korea can be caused by the “hallyu wave” or “korean wave” phenomenon which is a phenomenon where people are introduced to south korean culture through music, fashion, drama and so on. through these media, people are become interested too in beauty trends of south korean-style, so this result in people from around the world including indonesia to become very fond of south korea’s beauty products in order to keep up with this trend. then, the deficit trade balance in the trade of cosmetic commodities between indonesia and thailand could also be caused by the tariff imposed by thailand on indonesia’s cosmetic products that are still quite high, subsequently, indonesia’s cosmetic products will become expensive in thailand and reduce their competitiveness which then implicates to indonesia’s low export. on the other hand, only the level of intra-industry trade between indonesia and india can be said to be high, where the average value of the iit index is already above 50 percent. the high level of intra-industry trade between indonesia and india can be caused by the influence of similar taste, where indian people prefer and also produce cosmetics made from natural ingredients (itpc chennai, 2013), similar case with indonesian people who tend to favor natural products. moreover, each year, the level of intra-industry trade in cosmetic commodities between indonesia and each of its trading partners still tend to fluctuate, which sometimes experience an increasing or decreasing (shown in figure 2). this is because the export and import values between indonesia and the nine trading partners tend to be unstable and continue to fluctuate. the fluctuation in the value of export and import can be caused by factors such as changes in exchange rate, analysis of intra-industry trade in cosmetic commodities between indonesia and nine trading partners in the asian region in the period of 2004-2018 54 changes in the level of gdp and gdp per capita, inflation, changes in the behavior or pattern of public demand, et cetera. figure 2 the development of the level of iit in cosmetic commodities between indonesia and nine trading partners in the asian region in the period of 2004-2018 (%) information: idn (indonesia); sgp (singapore); mys (malaysia); phl (philippines); ind (india); chn (china); hkg (hong kong); jpg (japan); kor (south korea). source: un comtrade, processed (2020) as for based on the product or commodity type, for 15 years (2004-2018), there was a fairly high two-way trade on hs 3304 and 3307 products between indonesia and most of its trading partners, where the average value of iit index for both products tend to be the greatest (can be seen in table 4) table 4 average level of iit in each cosmetic commodity type between indonesia and nine trading partners in the asian region during the period of 20042018 (%) country hs 3303 hs 3304 hs 3305 hs 3306 hs 3307 indonesiasingapore 26.2 7 28.3 0 12.0 5 14.2 0 49.2 5 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 idn-sgp idn-mys idn-tha idn-phl idn-ind idn-chn idn-hkg idn-jpn idn-kor afebi economic and finance review (aefr) volume 5, no 02 (2020) 55 indonesiamalaysia 8.45 59.1 4 17.7 5 25.6 6 72.9 1 indonesiathailand 17.7 8 69.8 5 17.2 2 0.92 45.2 5 indonesiaphilippine s 12.0 7 32.1 3 1.80 0.48 23.3 5 indonesiaindia 12.1 4 70.7 1 63.5 9 20.6 4 44.5 4 indonesiachina 25.6 2 6.55 39.8 3 49.2 8 30.0 9 indonesiahong kong 19.2 7 11.3 2 9.17 9.28 46.2 5 indonesiajapan 20.1 8 50.5 9 41.5 1 11.5 3 44.3 1 indonesiasouth korea 17.7 1 48.5 5 38.1 8 10.1 0 42.4 2 source: un comtrade, processed (2020) then, in analyzing the determinants of intra-industry trade in cosmetic commodities between indonesia and its nine trading partners, the panel data method was used. based on the result of hausman test and the results of classical assumptions test or econometrics criteria (multicollinearity test, heteroscedasticity test, autocorrelation test, and normality test), the best regression model is fixed effect model using generalized least square (egls) method with weighting cross-section sur. the results of panel data regression estimation can be seen in table 5. table 5 panel data regression estimation result dependent variable: iit variable coefficient tstatistic explanation ln_asize 0,381044 3,194877 sig at α =5% ln_apc 0,536402 2,982379 sig at α =5% ln_dpc -0,011341 2,023017 sig at α =5% ln_dist -0,832257 8,851652 sig at α =5% atrf 0,573386 3,651619 sig at α =5% r2 0,859473 f-statistic 56,92660 sig at α =5% analysis of intra-industry trade in cosmetic commodities between indonesia and nine trading partners in the asian region in the period of 2004-2018 56 dw statistic 1,801532 source: estimation result with eviews 10, processed (2020) in table 5 it can be seen that the coefficient of determination (r2) is 0,8594 percent, meaning that 85,94 percent of the level of intra-industry trade between indonesia and each of its trading partners can be explained by the independent variables in the model. while the rest which is 14,06 percent is explained by other variables outside the model. the coefficient of determination shows that the research model is good to be used. then in table 5, it can also be seen that the level of f-statistic is 56,92660, so f-statistic (56,92660) > f-table (2,28), then it can be concluded that the independent variables simultaneously have a significant effect on the dependent variable (the level of intra-industry trade). the effect of average country size (asize) on the level of intra-industry trade in cosmetic commodities based on the estimation results shown in table 5, the average country size variable (asize) has a positive and significant effect on the level of intra-industry trade (iit). as the average country size increase by 1 percent, the level of intraindustry trade will increase by 0,3810 percent. this is very likely to occur because a large average country size (gdp) indicates a large market in each country where there is a high demand for products and the possibility of the variety of differentiated goods produced under conditions of scale economies (increasing return to scale) is also great. so, the greater the average country size (gdp), the higher the level of intra-industry trade (lancaster, 1980; balassa and bauwens, 1987; grimwade, 1989; phan and jeong, 2014). this result is supported by research conducted by phan and jeong (2014) related to intra-industry trade in manufacturing sector between korea and asean, the research by turkcan and ates (2010) related to intra-industry in auto-industry between the us and 37 trading partners, research by jing et al., (2010) related to intra-industry trade in agricultural products in china and research by setyawati (2018) related to intra-industry trade in all sectors between indonesia and trading partners in the asian region which also found that the average country size (gdp) has a positive effect on intra-industry trade. the effect of average per capita income (apc) on the level of intra-industry trade in cosmetic commodities the estimation results in table 5 show that the average per capita income (apc) variable has a positive and significant effect on the level of intra-industry trade (iit). as the average per capita income increase by 1 percent, the level of intra-industry trade will increase by 0,5364 percent. there is a positive correlation between average income per capita with the level of intra-industry trade and the average per capita income represents the demand for differentiated products (balassa and bauwens, 1987; linder, 1961), thus the higher afebi economic and finance review (aefr) volume 5, no 02 (2020) 57 the average per capita income of the two countries, the greater the demand for variety in both countries. the demand for variety will encourage an increase in production that focuses on product differentiation, so that intra-industry trade will increase and inter-industry trade will decrease (grimwade, 1989). this result is supported by previous research that conducted by marius-răzvan and camelia (2015) related to intra-industry trade in the motor vehicle parts and accessories sector between romania and 13 eu countries and research by bahari (2015) related to intra-industry trade in agricultural sector between indonesia and its nine trading partner countries which also found that average per capita income has a positive effect on the level of intra-industry trade. the effect of difference in per capita income (dpc) on the level of intraindustry trade in cosmetic commodities based on the estimation results shown in table 5, the variable difference in per capita income (dpc) has a negative and significant effect on intra-industry trade. as the difference per capita increases by 1 percent, the level of intra-industry trade will decrease by 0,0113 percent. according to grimwade (1989), the level of per capita income has a strong influence on the pattern of demand. oftentimes a product that produced by a country to meet local taste also tends to be in demand by other countries that have a similar level of per capita income. therefore, the difference in per capita income has a negative effect on the level of intra-industry trade where the greater the difference in per capita income of the two countries, the more dissimilar the pattern of demand (the more different the taste) and the lower the level of intra-industry trade. in this case, a country with a high level of per capita income reflects the high standard of living, so the demand for high-end cosmetic products which have a high quality and luxury will be high. as a result, producers in rich countries will be encouraged to produce cosmetic products by their country’s standards and the country will get benefit if the country exports its products to other rich countries. however, such products would not obtain a large market in countries with a level of income per capita that still tends to be low, because they tend to have no need such products, including indonesia. although high-end cosmetic products are still able to be bought by people in countries with low income per capita (especially people with middle to upper income), but usually people will tend to prefer more affordable products but still have good quality and suitable for their skin, face, hair, and so on. because there are so many good quality products that are not inferior to high-end products and the price of the products are much cheaper than the high-end products, both cosmetic products which produced by domestic or imported cosmetic products from other countries. this result is supported by research conducted by jing et al., (2010) related to intra-industry trade in agricultural products between china and its trading partners, and research by bahari (2015) related to intra-industry trade in agricultural sector between indonesia and its nine trading partner countries which also found that the difference in per capita income has a negative effect on the level of intra-industry trade. analysis of intra-industry trade in cosmetic commodities between indonesia and nine trading partners in the asian region in the period of 2004-2018 58 the effect of distance (dist) on the level of intra-industry trade in cosmetic commodities the estimation results in table 5 show that the distance variable (dist) has a negative and significant effect on the level of intra-industry trade. as the distance increase by 1 percent, the level of intra-industry trade will decrease by 0,08322 percent. according to grimwade (1989), the greater the distance between countries, the lower the level of intra-industry trade. distance shows the transportation and transaction costs faced by trading countries. high transportation or transaction costs can have an impact on declining international trade (export and import). this is what later led to the decline in the level of intra-industry trade, so it can be said that the greater the distance, the greater the transportation costs and the lower the level of intra-industry trade. this result is supported by research conducted by turkcan and ates (2010) related to intra-industry trade in auto-industry between the us and 37 trading partners, and research by pitaloka (2019) related to intra-industry trade in the machinery and transportation equipment sector which found that distance has a negative effect on the level of intra-industry trade. the effect of average tariff (atrf) on the level of intra-industry trade in cosmetic commodities based on the estimation results shown in table 5, the average tariff has a positive and significant effect on the level of intra-industry trade. as the average tariff increase by 1 percent, the level of intra-industry trade will increase by 0,5733 percent. this result is different from the previous research conducted by jaimin and sangyong (2008) where the average tariff has a negative effect on the level of intraindustry trade. in the case of cosmetic commodities trade between indonesia and its trading partners such as with singapore, philippines, and hong kong, the low average tariff apparently have not been capable to increase the level of intraindustry trade where the level of intra-industry trade tend to be low, even though their average tariff are very low every year (0 percent – 5 percent). conversely, the average tariff of indonesia-india still tends to be higher than philippines, singapore, and hong kong, but their level of intra-industry trade tends to be large every year, so this could be the cause of the different result. moreover, the tariff applied by indonesia on imported cosmetic products from trading partners and the tariff imposed by trading partners on imported cosmetic products from indonesia are not always the same every year and basically the demand or behavior of society is always changing too. so it is probable that at certain times high tariff can increase the intra-industry trade in cosmetic commodities. conclusion afebi economic and finance review (aefr) volume 5, no 02 (2020) 59 the grubel-llyod index calculation results show that the level of intra-industry trade in cosmetic commodities between indonesia and each of its trading partners (except india) are still low, where the average value of the iit index are still below 50 percent. in this case, indonesia is still more dominant in exporting cosmetic commodities to philippines, hong kong, and singapore compared to importing from these countries, but still more dominant in importing from thailand, china, japan, and south korea compared to exporting to these countries. consequently, the government and cosmetic industry or cosmetic companies needs to create various efforts to maintain or increase the export of indonesia’s cosmetic commodities. this can be done by developing market intelligence and increasing promotional strategies which appropriate and efficient, such as participating in exhibitions or foreign trade shows that focus on cosmetic products, holding the socialization in the partner countries and other countries, and increasing the promotion through social media, print media or television. cosmetic companies can also cooperate with beauty vloggers or beauty influencers in promoting indonesia’s cosmetic products so that in the future indonesia’s cosmetic products will be even more known and desirable by foreign countries. moreover, government also needs to simplify the investment procedure as well as provides incentive for investment so that it will encourage the enhancement of investment which can help the cosmetic industry to increase the productivity and able to increase the export. based on the estimation results, the average country size, average per capita income, and average tariff have a positive and significant effect on the level of intraindustry trade in cosmetic commodities. the positive effect of the average country size on the level of intra-industry trade shows that the economies of scale and product differentiation are very important in encouraging intra-industry trade, so the cosmetics industry needs to increase the use of technology, optimize the use of inputs, as well as increasing innovation and creativity while still paying attention to safety and health matter so that later the number of cosmetic products that produced will be greater, varied, safe to use and suitable for every society (does not trigger allergies, irritants, or dangerous for health). then, it is also found that the difference in per capita income has a negative and significant effect on the level of intraindustry trade in cosmetic commodities. the difference in per capita income itself reflects the difference in taste between countries. therefore, the business actors need to conduct market research continuously and intensively or carry out an r&d (research and development) programs to obtain information about cosmetic products that are currently popular and favored by other countries and domestic. other than that, through the r&d program, it is also possible to find out what kind of product that is suitable and safe to use for every society (both foreign and domestic society), so that later the business actors can produce or develop products according to their preference. distance also has a negative and significant effect on the level of intra-industry trade. hence, the government and other parties involved need to create various efforts to minimize the transportation cost, one thing that can be done is to provide good transportation facilities for the smooth process of international trade. analysis of intra-industry trade in cosmetic commodities between indonesia and nine trading partners in the asian region in the period of 2004-2018 60 references bahari, f. 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(2013). pengaruh variabel ekonomi dan non ekonomi terhadap impor indonesia dari asean+6 melalui moda transportasi laut. buletin ilmiah litbang perdagangan, 7(2), 231-247. analysis of competitiveness and determinant of seaweed export value (hs 121221) indonesia to export destination in the period of 2012-2018 29 analysis of competitiveness and determinant of seaweed export value (hs 121221) indonesia to export destination in the period of 2012-2018 novida henidar1) firmansyah2)* 1,2 faculty of economics and business, diponegoro university, indonesia abstract the study was examined of indonesian export of seaweed commodity (hs 121221) in 13 main export destination country (china, korea, vietnam, chilli, hong kong, france, spain, the philippines, denmark, japan, malaysia, tunisia, and the united states) by using method of rca (revealed comparative advantage) index and epd (export product dynamics) index, and factors affecting the export of indonesian seaweed to the main export destinations for 2012-2018. the panel data regression method with a fixed-effect model is used to analyze the export model from the demand and supply side. the results showed that within 7 years period (2012-2018), rca (revealed comparative advantage), trade openness, and gdp had a positive and significant effect while lcu (local currency unit), consumer price index (cpi), and seaweed prices international influence negatively and significantly. keywords: seaweed, competitiveness, revealed comparative advantage, export product dynamics 1. introduction international trade is one component of the driving economic growth to achieve national development goals in the country. domestic offerings and demand from abroad are one of the main causes of export activities. in the export activities of a commodity, salvatore (1997) states that theoretically the volume of exports of a particular commodity from one country to another is the difference between domestic supply and domestic demand, referred to as excess supply. indonesia is one of the countries with the largest archipelago that has 17,499 islands with a total area of 7.81 million square kilometers where the area of indonesia's water is greater than the land. it is one of the wealth of natural resources that has the potential. where almost all coastal areas of indonesia can be utilized for cultivation development. based on table 1 shown percentage contribution per sectoral of indonesian gross domestic product (gdp) in 2015-2019, it is seen that agriculture, forestry, and fisheries sectors have the second highest contribution to gdp after the processing industry sector. although contributions tend to be slightly decreased from 2015 to 2019, contribution of agriculture, forestry, and fisheries sectors reached an average of 13.13% per year. therefore, the agriculture sector needs to be encouraged and managed well in order to improve indonesia's economy. the following table is 1.1 * *corresponding author: firmansyah@live.undip.ac.id mailto:firmansyah@live.undip.ac.id afebi economic and finance review (aefr) volume 5, no 02 (2020) 30 percent of contributions per sector of indonesian gross domestic product (gdp) in 2015-2019. table 1. indonesia's sector contribution to gdp period of 2015-2019 (%) sector 2015 2016 2017 2018 2019 1 agriculture, forestry, and fisheries 13.49 13.48 13.16 12.81 12.72 2 mining and excavation 7.65 7.18 7.58 8.08 7.26 3 industrial processing 20.99 20.52 20.16 19.86 19.7 4 procurement of electricity and gas 1.13 1.15 1.19 1.19 1.17 5 water procurement, waste management, waste and recycling 0.07 0.07 0.07 0.07 0.07 6 construction 10.21 10.38 10.38 10.53 10.75 7 large and retail trade; car repair and motorcycles 13.3 13.19 13.02 13.02 13.01 8 transportation and warehousing 5.02 5.2 5.41 5.38 5.57 9 accommodation & food preparation 2.96 2.93 2.85 2.78 2.78 10 information and communication 3.52 3.62 3.78 3.77 3.96 11 financial services and insurance 4.03 4.19 4.2 4.15 4.24 12 real estate 2.84 2.83 2.81 2.74 2.77 13 company services 1.65 1.71 1.75 1.8 1.92 14 government administration, defence and social security mandatory 3.9 3.84 3.67 3.65 3.62 15 education services 3.36 3.37 3.29 3.25 3.3 16 health services and social activities 1.07 1.07 1.07 1.07 1.1 17 other services 1.65 1.7 1.76 1.81 1.95 source: bps (2017), processed. according to the ministry of maritime and fisheries or kkp (2013), seaweed or algae has been a long time to be a product that consumed by the people of the world. in indonesia, seaweed consumed by the community, especially in coastal areas. however, at that time, the use of seaweed was generally only to be eaten or consumed directly. here figure 1.1 showing the position of indonesia as a producer of seaweed commodity in the 2015. analysis of competitiveness and determinant of seaweed export value (hs 121221) indonesia to export destination in the period of 2012-2018 31 figure 1. the world's seaweed producing country in 2015 (in tonnes) source: un comtrade (2018), processed based on figure 1., the world's leading producer of seaweed countries can be sorted by the total production as follows: 1. china produced 13,924,535 tonnes of seaweed in the year 2015 which placed it as the country producing the most seaweed, 2. indonesia was in second order by producing seaweed for 11,269,341 tonnes in 2015, 3. philippines produced 1,566,361 tonnes of seaweed in 2015, 4. korea produced 1,197,129 tonnes of seaweed in 2015, 5. japan produced 399,300 tonnes of seaweed in the year 2015. with many sectors that require seaweed both from domestic and foreign, make the commodity of seaweed as one of the important commodities and have a high demand. according to the food and agriculture organization (2018), recorded more than 100 countries in the world to become a commodity importer of seaweed. where the indonesian state is also one of the seaweed importing countries. here are pictures of 2 countries exporting seaweed to the world year 2016. figure 2. seaweed exporting countries to the world year 2016 source: un comtrade (2018), processed based on figure 2 the main exporting country order of seaweed (hs 121221) in the world in 2016 is as follows: 13,924,535 11,269,341 1,566,361 1,197,129 399,300 5,000,000 10,000,000 15,000,000 china indonesia philippines korea japan tonnes 20,000 40,000 60,000 80,000 100,000 120,000 indonesia korea china japan malaysia e x p o rt v o lu m e ( t o n n e s) afebi economic and finance review (aefr) volume 5, no 02 (2020) 32 1. indonesia is the country with the largest export amount of seaweed in the dinia with an export volume of 100,972 tonnes, 2. korea with the export volume of seaweed 31,719 tons, 3. china with the export volume of seaweed 14,721 tons, 4. japan with a volume of exports of seaweed of 14,620 tons, 5. and malaysia with the export volume of seaweed of 2,224 tons. the development of globalization also affects the economic performance of a country either directly or indirectly. g. lobalization of economics is a process of integrating the national economy into a global economic system. according to todaro and smith (2000), this international trade will affect the country's economic growth, as all countries compete in the international market. high competitiveness causes voleme export demand to be increased. based on data from the united nation commodity trade statistics database, the volume of indonesian seaweed exports (hs 121221) in 2018 amounted to 176,481 tonnes in the first order and was followed by korea, china and the philippines. while the value of indonesian seaweed exports in 2018 amounted to usd 190,671 or 31% of the total value of the world's seaweed reached usd 624,922 with the country's main export of seaweed exports including china, korea, vietnam, chile, hongkong, france, spain, the philippines, denmark, japan, malaysia, tunisia, and usa. world seaweed market share based on the value of seaweed exports shown in figure 3, where indonesia occupies second place after china. figure 4. world seaweed market share in 2018 source: un comtrade (2018), processed fluctuations in both the volume and export value of indonesian seaweed are caused by many factors. based on the fact that there is a need to do research to analyze how the competitiveness of indonesian seaweed commodity in 13 main destinations export seaweed, in addition to the problems in the implementation of seaweed exports and the number of factors that influence the increase in export demand into something that needs to be analyzed in order to keep the commodity of seaweed to remain a mainstay of indonesia in the next period. 2. literature review international trade is a trade conducted by a resident of a country on the basis of mutual agreement. in his book, the wealth of nations (1776) adam smith stated 42% 31% 9% 18% korea indonesia cina lainnya analysis of competitiveness and determinant of seaweed export value (hs 121221) indonesia to export destination in the period of 2012-2018 33 that a country would trade when the country had absolute advantage. if a country is more efficient than other countries in producing a commodity, but less efficient than other countries in producing other commodities, then the two countries benefit by the way each country specializes in producing commodities that have absolute advantage, and exchange it with other commodities that have absolute losses. meanwhile, david ricardo in his book principles of political economy and taxation (1817) through his comparative theory of excellence explains that a country will still be able to trade internationally and benefit from international trade even if the country has no commodity advantages. the comparative advantage is the ability of a country to produce goods with a smaller opportunity cost where the need to sacrifice a small amount of goods manufactured to produce other goods than other countries (mankiw, 2012) or a country capable of producing goods in more quantities with a cheaper cost (more efficient) than other countries. heekscher and ohlin stated that the commodity exported by a country is a commodity whose production absorbed many relatively abundant and inexpensive production factors in the country, and will import commodities requiring relatively scarce and costly resources in the country (salvatore, 1997). this theory states that every country will specialise in production as well as exporting commodities that absorb a lot of the production factors available in the country and import comiditi or goods that absorb a lot of the rare and expensive production factors in the country. based on figure 4 shown that before the international trade process, the price of goods x in country a (exporting country) is 𝑃𝐴, while the price of goods x in country b (importing country) is 𝑃𝐵. prior to the international trade process the total production of x goods in country a was 0 – 𝑄𝐴, while the total production of x goods in country b is 0 – 𝑄𝐵. if the price of goods x in country b is 𝑃𝐵 then this will cause an excess demand, whereas if the price of goods x in country a is 𝑃𝐴 then this will cause the condition of excess supply. the meeting between the conditions of excess supply and excess demand is what will eventually form the price in the international market as 𝑃𝐸 that the two countries have agreed to. in this case a country will export the x goods to country b, whereas country b will import the x goods from country a. this is what caused the international trade process to be presented, and shown in figure 4. figure 4. the process of international trade source: salvatore (1997) 𝐷𝐴 𝑆𝐴 0 0 0 𝑃𝐵 𝑃𝐴 𝑃𝐸 𝑄𝐴 𝑄𝐸 𝑄𝐵 x m 𝐸𝑆 𝐸𝐷 𝑆𝐵 𝐷𝐵 country a (exporting country) country b (importing country) international trade afebi economic and finance review (aefr) volume 5, no 02 (2020) 34 according to lipsey (1995) commodity export demand is influenced by several factors such as competitiveness and exchange rate. a commodity's competitiveness plays an important role in the export amount demand. therefore, a country does export activities because it has a comparative advantage in producing a particular commodity, both in terms of resource abundance and efficient in the production process. if the state's real exchange rate of importers against the united states dollar is appreciable, then the price of goods abroad will be relatively cheaper than the price of goods traded in the country. this causes the import price for the domestic population to be relatively cheaper, while for the exporters this will have an impact on the price increase of their product because it becomes relatively more expensive. conversely, if the real exchange rate of state importers against the united states dollar is depreciation, then the price of goods abroad will be relatively more expensive and the price of goods traded in the country will be cheaper. as a result the country imports will decline and its exports will increase due to the many export demand. competitiveness is the ability of a manufacturer to produce a commodity with a low cost so that at prices that occur in the international market the production activities can be profitable. if the exporter country has high competitiveness capability in the importing country, then the demand for exports will increase according to mankiw (2012), the export of a country is influenced by several factors, such as consumer appetite for domestic production goods, prices of goods in the country and abroad, the exchange rate that determines the amount of local currency needed to buy foreign currency, consumer income in and outside the country, the cost of freight between countries, and government policy on international trade. changes in the volume of exports to changes in the exchange rate, in this case rill exchange rate is positive meaning real depreciation makes domestic products relatively cheaper so as to stimulate exports (krugman, 2003). one important factor that affects the demand for exporting a commodity is the price. the export price is a representation of the value paid by the other country for the purchase of a commodity or goods expressed in a specific unit of scale. on a simple economic concept, prices are always inversely proportional to demand. in the export price there are several combinations of prices of production factors used in the commodity production. the increase in the export price of a country will cause foreign consumers to reduce the number of requests to the goods, causing the volume of exports of a country to be decreased (lipsey, 1997). inflation is a condition in which prices increase generally and sustainably (pohan, 2008). the price increase of one or two goods alone cannot be called inflation unless the increase extends (or results in a price increase) on other goods. while the decline in the price level of goods and services is called deflation. the calculation of inflation is carried out through the consumer price index (cpi) approach used as an indicator in measuring the cost of the goods and services consumption market. the higher the rate the cpi will eat the faster the infect. in the short term, inflation has a positive impact that results in the circulation and turnover of goods faster so that the production of goods increases, job opportunities increase because of additional investment that means opening the field to reduce unemployment problems. but in long term can give a bad impact. a high rate of inflation can lead to a hike in domestic prices so that, domestically priced prices analysis of competitiveness and determinant of seaweed export value (hs 121221) indonesia to export destination in the period of 2012-2018 35 will be more expensive than imported prices. in case of domestic inflation, it means that domestic products will be difficult to compete in the international market and imports of those countries will be higher in comparison with the export. gross domestic product can also be interpreted as income received by a country. gdp will be used in consumption and investment activities by governments and private sectors such as exporters. therefore, gdp is a factor that is also important in terms of export demand, if gdp increases then income is also increased, so that the consumption of a country is also increased. economic openness is a measure of policy to regulate the flow of goods and services and the flow of capital internationally, both in the form of limiting and loosing international relations between countries. in the economic openness there are two currents of international movement, the first of which is trade openness that regulates the movement of the flow of goods and services, and the second is financial openness (yanikkaya, 2003). 3. research methods the research unit in this research is the commodity of seaweed based on standard harmonized system (hs) with 6-digit hs code 1221221 (seaweeds and other algae, fresh, chilled, frozen or dried, whether or not ground, fit for human consumption). variable research in this study, the dependent variable used was the export volume of indonesian seaweed in the main export destination country. the independent variables used are the rca index (revealed comparative advantage), consumer price index (cpi) importer country, trade openness, real local currency unit exchange rate (lcu ) against usd, gross domestic product (gdp) relative to the country's export destination, and international seaweed prices. the object of this research is the country with the export purpose of seaweed indonesia, namely china, south korea, vietnam, chile, hongkong, france, spain, the philippines, denmark, japan, malaysia, tunisia, and the united states. methods of analysis the research uses two types of research: descriptive research and associative research. descriptive research is used to provide an overview and explanation of the competitiveness of indonesian seaweed using the revealed comparative advantage (rca) and export product dynamics (epd) methods. associative research is used to analyse the value of indonesian seaweed export determinant. analysis revealed comparative advantage to measure the comparative advantage of the exported commodity will use the following formula: 𝑅𝐶𝐴 = xij/xt wj/wt where: xij : the value of export of indonesian seaweed commodity to the country's importer of seaweed indonesia afebi economic and finance review (aefr) volume 5, no 02 (2020) 36 xt : total value of indonesia's exports to indonesian seaweed importer wj : the value of exporting the world seaweed commodity to the country importers of seaweed indonesia wt : total world export value to indonesian seaweed importer country if the value of rca is more than 1 then commodities have comparative advantages and conversely if rca values less than 1 then commodities have comparative advantages (granabetter, 2016). analysis of export product dynamics the export product dynamics approach model is used to identify competitive advantages and to determine the performance of a dynamic commodity. the epd index measuresthe market position of a country's commodity. this indicator has the ability to compare the export performance of each country around the world. the formula used in this epd calculation, including: the x-axis, which indicates business strength growth or is called the export market share i: ∑ [ x𝑖𝑗 𝑊𝑖𝑗 ]𝑡 𝓍 100% 𝑡 𝑡=1 − ∑ [ x𝑖𝑗 𝑊𝑖𝑗 ]𝑡−1 𝓍 100% 𝑡 𝑡=1 𝑇 the y-axis, which shows the growth of attractiveness or called commodity market share: ∑ [ x𝑡 𝑊𝑡 ]𝑡 𝓍 100% 𝑡 𝑡=1 − ∑ [ x𝑡 𝑊𝑡 ]𝑡−1 𝓍 100% 𝑡 𝑡=1 𝑇 where : xij : the value of export of indonesian seaweed commodity to the country's importer of seaweed indonesia xt : total value of indonesia's exports to indonesian seaweed importer wj : the value of exporting commodity of world seaweed importer of indonesian seaweed wt : total world export value to indonesian seaweed importer country 𝑇 : number of years analysis the epd matrix consists of market appeal and business strength information. the combination of market attractiveness and business strength produce the position character of the commodity that wants to be analyzed into four categories: figure 5. market position quadrant according to product dynamic export (epd) falling star retreat rising star lost opportunity y x analysis of competitiveness and determinant of seaweed export value (hs 121221) indonesia to export destination in the period of 2012-2018 37 source: estherhuizen (2006) where: x-axis: increased share of product exports in a particular destination country y-axis: increased market share of a product in world trade data regression analysis panel the method of estimation of data panels can be done with two different approaches: fixed effect model (fe) and random effect model (re). to determine the use of a good model between fixed effect (fem) and random effect (rem) models, it is necessary to do with test hausman. the hausman test criteria are as follows: a. if the value of χ2 (chi-square) statistics on the hausman test is significant, then the appropriate model to use is the fixed effect model b. if the value of χ2 (chi-square) statistics on the hausman test is not significant, then the appropriate model to use is a random effect model. the regression models used in this study are as follows: 𝐿𝑁𝐸𝑉𝑖𝑡 = 𝛼 + β1𝐿𝑁𝑅𝐶𝐴𝑖𝑡 + β2𝐿𝑁𝐿𝐶𝑈𝑈𝑆𝐷𝑖𝑡 + β3𝐿𝑁𝑇𝑂 + β4 𝐿𝑁𝐶𝑃𝐼𝑖𝑡 + β5 𝐿𝑁𝑃𝑖𝑡 + β6 𝐿𝑁𝐺𝐷𝑃𝑖𝑡 + 𝜀𝑖𝑡 where: 𝛼 : constanta (intercept) ; β1 β5 : regression coefficients of any independent variable; ln : natural logarithm; 𝐿𝑁𝐸𝑉𝑖𝑡 : the export volume of seaweed in t time for unit cross section i; 𝐿𝑁𝑅𝐶𝐴𝑖𝑡 : revealed comparative advantage (rca) indonesia in a destination country export in time t for unit cross section i 𝐿𝑁𝐿𝐶𝑈𝑈𝑆𝐷𝑖𝑡 : lcu exchange rate against usd at time t for unit cross section i; 𝐿𝑁𝑇𝑂𝑖𝑡 : trade openness at t time for unit cross section i; 𝐿𝑁𝐶𝑃𝐼𝑖𝑡 : consumer price index (cpi) for export destination country at t time for unit cross section i; 𝐿𝑁𝐺𝐷𝑃𝑖𝑡 : gdp relative in time t for unit cross section i; 𝐿𝑁𝐻𝐵𝑖𝑡 : international seaweed prices at t time for unit cross section i; i : 1, 2, 3,..., 13 (cross-section of the country's export destination of seaweed indonesia); t : 1, 2, 3,..., 7 (time-series, year 2012-2018); ε : error term. the gdp model of the country's export destination relative to the indonesian gdp (y *) is derived as follows: y/y * = b (y – y *) log y/y * = b (log y – log y *) where: b : parameters y/y * : gdp of the country's relative importers of gdp indonesia y : gdp of importer y * : gdp of indonesia afebi economic and finance review (aefr) volume 5, no 02 (2020) 38 4. results of research and discussion analysis results revealed comparative advantage and export product dynamics the revealed comparative advantage (rca) method is used to determine the comparative advantages of indonesian seaweed commodity in the export destination country. if the value of rca is greater than one, then the commodity analyzed has comparative advantages or strong competitiveness so that it can be maintained to keep exporting to the destination country and if the rca value less than one indicates that the commodity analyzed does not have the comparative advantage or commodity is weak competitiveness so it should not be encouraged to export to the destination country. while to know the competitive advantages of indonesian seaweed commodity in the destination country, can use the export product dynamic method by looking at the market position. the market position of rising star is the most ideal market position so that the country has potential and can be used as the purpose of exporting the indonesian seaweed commodity. the market position of lost opportunity can also be used as the purpose of exporting the indonesian seaweed commodity because in that position there is an increase in the demand for the export of seaweed commodities, but indonesia does not provide the amount of exports in accordance with the increasing demand of the destination country while the market position of falling star and retreat does not reflect the market potential as the export destination of indonesian seaweed commodity, this is due to the decline of export demand from export destination country. table 2. rca and epd seaweed indonesia in export destination country country rca epd rca value competitiveness export market share growth (%) product market share growth (%) market position chinese 59.65 strong 0.44082 0.00228 rising star korean 25.13 strong 1.28671 -0.0294 falling star vietnamese 23.77 strong -0.4156 -0.0007 retreat chile 375.82 strong 0.01757 -0.0003 falling star hongkong 80.76 strong -0.0609 -0.0003 retreat france 108.46 strong 0.65344 -0.0003 falling star spanish 39.27 strong -0.0749 -0.0028 retreat philippines 17.58 strong -0.4258 0.02907 lost opportunity danish 205.4 strong -0.3353 -0.0012 retreat analysis of competitiveness and determinant of seaweed export value (hs 121221) indonesia to export destination in the period of 2012-2018 39 country rca epd rca value competitiveness export market share growth (%) product market share growth (%) market position japanese 0.14 weak 0.00736 -0.0246 falling star malaysia 1.6 strong -0.3207 -0.019 retreat tunisia 277.28 strong -0.4746 -0.0035 retreat usa 2.21 strong -0.0013 0.00151 lost opportunity based on the results revealed comparative advantage of table 2 was found calculation of the competitiveness of indonesian seaweed in china, korea, vietnam chile, hongkong, france, spain, philippines, denmark, malaysia, tunisia and usa strong competitiveness demonstrated by the value of revealed comparative seaweed of seaweed in each country the export destination more than one. while the competitiveness of indonesian seaweed in japan country has a low competitiveness with rca value of 0.14 or less than one. based on the estimation of export product dynamics, indonesia's seaweed commodity exports in china besides having a strong competitiveness, its market position also occupies the rising star position, so that marketing can continue to be maintained. indonesian seaweed commodity in korea, chile, france occupies the position of falling star which causes no export potential, while japan besides occupying the falling star position, competitiveness in the country is also weak. likewise in vietnam, hong kong, spain, denmark and tunisia seaweed commodity has strong competitiveness, but because seaweed commodity in this country occupies a retreat position then this export potential is not due to indonesia's export share in the country and indonesia's export share in the world experiences decrease. while in the philippines and the united states, despite their strong competitiveness, they occupy the position of lost opportunity, thereby losing the opportunity to gain market share in dynamic products, this is due to a decline in indonesia's export share in the country. panel data regression analysis results based on the hausman test results, the regression model used is the fixed effect (fem) model. the equation used is multiple linear equations, where the independent variables namely rca, consumer price index (cpi), trade openness, local currency unit (lcu), gdp per capita, and international seaweed prices, while the dependent variable is export volume. the regression results for this equation can be seen in table 3. afebi economic and finance review (aefr) volume 5, no 02 (2020) 40 table 3. summary of regression estimation results (dependent variable: export volume) variable coefficient t-statistic explanation c 21,570 3,5323 sign at α=5% ln_rca 0,8869 14,6761 sign at α=5% ln_lcu -0,2045 -2,2263 sign at α=5% ln_to 0,4018 0,5036 sign at α=5% ln_cpi -1,980 -1,5170 sign at α=5% ln_p -0,8449 -7,6596 sign at α=5% ln_gdp 0,8298 0,6659 sign at α=5% r2 0,9473 f-statistik 71,865 sign at α=5% durbin-watson stat 1,7507 source: processed data output with eviews 10. the coefficient of determinationr2 is 0.9473 which means that 94.73 percent of the variation in the dependent variable ev (export volume) as a proxy of indonesian seaweed exports is quite capable of being explained by the independent variables in the model. meanwhile the rest, which is 5.27 percent, is explained by other variables not included in the research model. the estimated results of the influence of rca, lcu, trade openness, cpi, international prices and gdp on the volume of indonesian seaweed exports using a level of confidence of 95 percent (α = 5 percent), degree of freedom for numerator (dfn) = 6 (k-1 = 7-1) and degree of freedom for denominator (dfd) = 84 (nk = 91-7), obtained f-table of 2.21 based on the regression results obtained f-statistics of 71.8653, it can be said that the independent variables together all affect the dependent variable (f-statistics > f-tables). effect of revealed comparative advantage (rca) on the export volume of indonesian seaweed the estimation results show that the influence of indonesia's revealed comparative advantage (rca) in export destination countries on the export volume of indonesian seaweed is positive and significant with a coefficient of 0.887, which means that an increase in revealed comparative advantage (rca) of 1 percent can increase the volume of export of grass indonesia's sea by 0.887 percent. this research is in accordance with ragimun (2012) and krisna (2013) which examines the competitiveness assessed using the rca index shows that the higher the rca, the value of exports also increases. exporting countries that have high competitiveness in their export destination countries will increase the country's export volume. effect of local currency unit (lcu) on the export volume of indonesian seaweed estimation results show that the influence of the local currency unit (lcu) of export destination countries on the export volume of indonesian seaweed is negative and significant with a coefficient value of 0.204, which means that an increase in the local currency unit (lcu) of export destination countries by 1 percent can reduce analysis of competitiveness and determinant of seaweed export value (hs 121221) indonesia to export destination in the period of 2012-2018 41 export volume indonesian seaweed by 0.204 percent. this result is in line with previous research conducted by kadir karagoz (2015) related to factors affecting export performance, where on the demand side there is a negative relationship between the country's exchange rate and export volume. effect of trade openness on the export volume of indonesian seaweed the estimation results show that the effect of trade openness of export destination countries on the export volume of indonesian seaweed is positive and insignificant with a coefficient value of 0.402, which means that an increase in trade openness by 1 percent can increase export volume by 0.402 percent. the greater trade openness of export destination countries shows that the process of international trade such as exports and imports is easier to do. effect of consumer price index (cpi) on the export volume of indonesian seaweed estimation results show that the influence of the consumer price index (cpi) of export destination countries on indonesia's seaweed export volume is negative and insignificant with a coefficient of 1.980, which means that an increase in consumer price index (cpi) of export destination countries by 1 percent can reduce volume indonesia's seaweed exports amounted to 1.980 percent.. an increase in inflation causes an increase in money supply. but in this case, when money supply increases and inflation occurs, it will cause weakening purchasing power of imported products, which is caused by a depreciating domestic currency, so the price of imported products becomes expensive. this result is in line with previous research conducted by amir machmud (2016), related to the impact of depreciation on import development. effect of international seaweed prices on the export volume of indonesian seaweed estimation results show that the effect of international seaweed prices on the export volume of indonesian seaweed is negative and significant with a coefficient value of 0.845, which means that an increase in international seaweed prices by 1 percent can reduce the volume of indonesian seaweed exports by 0.845 percent. this is consistent with the hypothesis that international seaweed prices negatively affect export volumes. these results are in line with previous research conducted by puspi eko wiranthi and faizul mubarok (2017), related to factors that affect exports. the effect of relative gross domestic product (gdp) on the export volume of indonesian seaweed estimation results show that the relative influence of gross domestic product (gdp) of export destination countries on the export volume of indonesian seaweed is positive and insignificant with a coefficient of 0.830, which means that an increase in the relative gross domestic product (gdp) of export destination countries by 1 percent can increase the volume of indonesian seaweed exports by 0.830 percent. gdp is the aggregate income of a country that can be used in consumption and investment activities by the government and the private sector such as exporters. so the gdp of export destination countries has an important role in export demand in indonesia. afebi economic and finance review (aefr) volume 5, no 02 (2020) 42 these results are in line with previous research conducted by puspi eko wiranthi and faizul mubarok (2017), related to factors that affect exports. 5. conclusion based on the results of the analysis that has been done, the following research conclusions are obtained: revealed comparative advantage (rca) competitiveness analysis shows that indonesian seaweed in the main export destination countries has a comparative advantage or strong competitiveness, except in japan. while through the analysis of export product dynamics (epd), the results show that the position of competitiveness of indonesian seaweed commodities in china is in the rising star position. the position of competitiveness in korea, chile, france occupies the position of falling star. vietnam, hong kong, spain, denmark and tunisia are in the position of retreat. while in the philippines and the united states occupies the position of lost opportunity. the second analysis of competitiveness shows that indonesia's seaweed commodity has a strong competitiveness and yet has only increased export demand to china. the estimation results show that the rca variable has a positive and significant effect on the export volume of indonesian seaweed, the to and gdp variable has a positive and not significant effect on the export volume of indonesian seaweed, the lcuusd and p variables have a negative and significant effect on the seaweed export volume indonesia. while the cpi variable has a negative and not significant effect on the export volume of indonesian seaweed. 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http://faostat.fao.org/ analysis of competitiveness and determinant of seaweed export value (hs 121221) indonesia to export destination in the period of 2012-2018 43 lipsey, r.g, p.n courant, d.d purvis, dan p.o steiner. pengantar makroekonomi edisi sepuluh 1995. jakarta: binarupa aksara. machmud, a. 2016. dampak depresiasi rupiah terhadap perkembangan impor indonesia. quantitative economics journal, 5(1). mankiw, n gregory dkk. 2012. pengantar ekonomi makro. jakarta: salemba empat. pohan, aulia. 2008. ekonomi moneter buku ii (edisi 1). bpfe ugm: yogyakarta. porter, michael e. 1990. the competitive advantage of nation. boston: harvard bussines review. ragimun. 2012. analisis daya saing komoditi kakao indonesia. jurnal pembangunan manusia. badan peneliti dan pengembangan daerah provinsi sumatera selatan. volume no 2 halaman 169-188. salvatore, dominick. 1997. ekonomi internasional (terjemahan). jakarta: penerbit erlangga. todaro, michael p. 2000. pembangunan ekonomi di dunia ketiga. jakarta: erlangga. united nations commodity trade statistics database. www.un.comtrade.org. diakses tanggal 10 januari 2020. wiranthi, e. pusphi dan mubarok, faizul. 2017. competitiveness and the factors affecting export of indonesia canned pineapple in the world and destination countries. second international conference on sustainable agriculture and food security: a comprehensive approach, kne life sciences. world bank. 2020. world bank databank. http:///databank.worldbank.org. diakses tanggal 18 januari 2020. yanikkaya, halit. 2003. trade openess and economic growth: a cross-country empirical investigation. journal of developmenteconomics 72 (1): 57-89. http://www.un.comtrade.org/ http://databank.worldbank.org/ analysis of palm oil price in southeast asia 63 analysis of palm oil price in southeast asia dwi lestari1), shanty oktavilia2)** 1, 2 fakultas ekonomi, universitas negeri semarang, semarang, indonesia abstract this study aimed to analyze some factors influencing fluctuations of palm oil (cpo) prices in 3 (three) countries in southeast asia. this study analyzes the factors that influence domestic cpo prices from the supply and demand side. international cpo prices, coconut oil prices, and cpo consumption are factors that influence domestic cpo price fluctuations from the demand side, while cpo production is a factor affecting domestic cpo price fluctuations from the supply side. this study uses a quantitative method, where the type of data used in this study is panel data taken from 3 countries, namely indonesia, malaysia, and thailand from 1998-2019. the data were analyzed using multiple linear regression, where the variables used included domestic cpo prices, international cpo prices, coconut oil prices, cpo production, and cpo consumption as independent variables. this study shows that all the independent variables significantly affect the domestic cpo price variable, except for the cpo consumption variable, and all the independent variables have a positive effect on the domestic cpo price variable, except for the cpo production variable. the international cpo price variable is the most dominant in influencing domestic cpo price fluctuations. keywords: domestic cpo prices, analysis, southeast asia 1. introduction palm oil is one of the plantation crops that has a very rapid productivity compared to other plantation crops. based on data from the indonesian central statistics board, indonesia’s palm oil production was 26,015 million tons in 2012 and became 40,567 million tons in 2018 (a rise of 55.93 percent), while rubber platations only experienced a 20.51 percent increase in productivity and coffee by 4.53 percent. the productivity of other plantation crops, such as coconut, cocoa, sugar cane, tea and tobacco, decreased during 2012-2018. palm oil produced in several countries especially indonesia, was a small part of which is consumed domestically as a raw material in the manufacture of coking oil, soap, etc., and most of it was exported in the form of crude palm oil (cpo), palm oil and palm kernel (palm kernel oil/pko) (novianti, 2019). cpo is a leading export commodity in several countries in the world. based on data from the mundi index (2019), there were 10 countries as the world’s largest cpo exporting countries. for the asian region, especially the southeast asia region, indonesia, malaysia, and thailand were included in the 10 countries. in fact, * corresponding author. email address: oktavilia@mail.unnes.ac.id mailto:oktavilia@mail.unnes.ac.id afebi economic and finance review (aefr) volume 5, no 02 (2020) 64 indonesia and malaysia were the two largest cpo exporting countries in 2019 respectively with total exports reaching 29.11 million metric tons (mt) and 18 million metric tons (mt). thailand was in 8th position with total exports of 0.375 million mt. the number of indonesian cpo exports increased by 0.831 million mt (an increase of 2.94 percent) compared to the previous year which was only 28,279 million mt. thailand’s total cpo exports also increased by 0.1 million mt (an increase of 36.36 percent), while malaysia’s total exports actually decreased by 0.364 million mt (down 1.98 percent) compared to 2018. the increase in cpo exports on the one hand is a positive international trade performance for the macro economy, because this can increase the country’s foreign exchange earnings originating from exports. on the other hand, an increase in exports can lead to a shortage of domestic supply, which will result in an increase in the price of cpo itself. based on data from the united states department of agriculture (usda) in 2019, indonesia, malaysia, and thailand were the countries that produced the largest cpo in the world. indonesia and malaysia in total produced around 85-90% of the world’s total cpo production, with cpo production in 2019 of 42,5 million metric tons (mt) and 19,8 million mt respectively, while thailand ranks third as country’s largest producer of cpo in the world, with production of 4 million mt in 2019. according to soetrisno in hariyanto (2008), palm oil played a very important role in the economy of a country. palm oil is the main raw material in the manufacture of cooking oil, so the amount of its supply also affects the stability of the cooking oil price. cooking oil is included in one of the 9 (nine) basic commodities needed by the community; therefore, the price of cpo must be stable so that the price of cooking oil can be reached by all levels of society. cpo is one of the mainstay agricultural commodities for non oil exports in several coutries, so that fluctuations in the price of this commodity affect the amount of foreign exchange earnings and also the country’s income. in addition, in the process of production and processing, cpo is able to create jobs that can later improve the welfare of the community. based on this, considering the important role of cpo in the economy, the stability of commodity prices is also important. table 1 domestic cpo prices in indonesia, malaysia and thailand 1998-2019 year domestic cpo prices (usd/mt) indonesia malaysia thailand 1998 513.95 671.08 688.48 1999 374.06 436.00 454.10 2000 241.20 310.25 302.28 analysis of palm oil price in southeast asia 65 year domestic cpo prices (usd/mt) indonesia malaysia thailand 2001 243.34 285.67 247.55 2002 394.42 390.25 378.55 2003 445.22 443.25 459.58 2004 447.79 471.33 528.34 2005 375.25 422.08 444.83 2006 453.40 478.35 483.32 2007 726.41 780.25 836.67 2008 696.26 948.54 888.48 2009 718.06 682.83 741.89 2010 869.48 900.83 1,001.35 2011 979.70 1,125.42 1,248.94 2012 892.82 999.33 1,053.21 2013 693.88 856.90 786.71 2014 713.68 821.44 918.65 2015 539.24 663.39 787.93 2016 636.44 735.70 980.72 2017 656.80 750.90 913.46 2018 530.46 638.70 738.70 2019 505.51 601.61 618.02 source: bappebti, usda, and department of internal trade thailand (2020) cpo prices in indonesia, malaysia, and thailand based on the table 1 fluctuated form year to year and tended to increase. the price of indonesian cpo afebi economic and finance review (aefr) volume 5, no 02 (2020) 66 was the lowest among the three countries with a price level of 505.51 usd/mt, while the malaysian cpo price was 601,61 usd/mt and thailand’s was 618,02 usd/mt. the increase in domestic cpo prices in the three countries, on the one hand had a positive impact on the country’s economy, where the three countries were the largest cpo producers and exporting countries in the world. the increase in cpo prices also affects the country’s foreign exchange earnings, because this will have impact on increasing the value of exports in the three countries, which will later have an impact on the trade balances of each country. cpo was one of the mainstay export commodities in the three countries and had a strategic role in the economy in each of these countries. the increase in domestic cpo prices on the other hand is actually detrimental to consumers (the community), because with the increase in cpo prices, the commodity cannot be reached by all levels of society so that people cannot fulfil one of their basic needs, considering that cpo is the main ingredient in making cooking oil. the important role of cpo in the economy of the three countries and the price fluctuations that have occurred form year to year, made this commodity interesting to study. this can not be separated from the influence of various influencing factor, such as the price of cpo in the international market, the price of substitute goods (coconut oil), cpo production and domestic consumption of cpo. research on the factors that affect domestic cpo prices has been carried out by previous studies, both domestically and abroad, such as research conducted by rahman et al. (2013), zainal (2013), athikulrat et al. (2015), kittichai (2015), arshad and mohamed (2000), and chansuchai (2017). rahman et al. (2013) said that the price of cpo was strongly influenced by supply and demand factors. on the supply side, cpo production and palm oil stock had a significant role in influencing cpo prices, while on the demand side, cpo exports were a key factor influencing cpo price behavior. cpo production and palm oil stock variabels had a negative relationship to cpo prices, while cpo export variables, soybean oil prices, and crude oil prices had a positive relationship to cpo prices. the result of research by arshad dan mohamed (2000) found that the finalstock variable of cpo had a negative relationship with cpo prices, while the consumption variable as a positive relationship with the dependent variable (cpo price). chansuchai (2017) found that soybean oil prices had a significant effect on cpo prices, while the amount of bio-diesel consumption exchange rates, and imports had no significant effect on cpo prices. the price of soybean oil had a significant effect on the price of cpo, because soybean oil was a substitute for cpo and was often used to replace cpo. if the price of soybean oil rises, consumers will prefer to consume cpo instead because the price is relatively cheaper. the first difference between this study and previous studies lied in the factors that influence the price of palm oil (cpo) in southeast asia, with the scope of the research object covering 3 (three) countries which were the largest producers and exporters of cpo in southesast asea, namely indonesia, malaysia, and thailand. while in the previous study, conducted by rahman et al. (2013) and zainal (2013) analysis of palm oil price in southeast asia 67 only analyzed the factors that affected cpo prices in malaysia, in the research of athikulrat et al. (2015) only analyzed the factor that affected cpo prices in thailand, and buana (2006) analyzed the factors that affected domestic cooking oil prices in indonesia. in other words, previous studies only covered one state object, while this study covered 3 (three) countries at once. the second difference from this study with previous research is that this study used the substitution price variable of cpo, namely coconut oil, because coconut oil was the most consumed vegetable oil in the three countries after cpo. while in previous studies, such as that conducted by rahman (2013) and kittichai (2015), they used the soybean oil price variable as one of the variables that affected the domestic cpo price. the third difference that distinguished this research form previous research is that this study used the latest data for the last 22 years, namely from 1998-2019. the results of this study are expected to provide theoretical benefit to enrich the study of knowledge about the factors that influence cpo price fluctuations in southeast asia (especially indonesia, malaysia, and thailand). the practical benefit of this research is as useful information for the government and can provide solutions for the government in determining the right steps or policies in maintainaning the stability of cpo commodity prices, so that this indirectly helps keep the economic stability in indonesia, malaysia and thailand. 2. literature review and hypothesis formulation price is a unit of value given to an item or commodity as counterachievement information from the producer as the owner of the commodity. an important factor in price formation is the existence of forces between demand and supply, where demand and supply will be at market price equilibrium if the quantity demanded is equal to the quantity supplied. alfred marshall (1842-1924) in his book entitled principle of economics published in 1980 explained that demand and supply simultaneously determined prices. according to marshall, supply and demand together determined the price (price/p) and the equilibrium quantity of an item (quantity/q). this study also paid attention to the theory of purchasing power parity (ppp) which explained the relationship between commodity prices in domestic currency and exchange rates. this theory stated that the exchange rate will adjust over time to reflect the difference in inflation between the two countries, due to the purchasing power of consumers to buy domestic products which is considered the same as the purchasing power to buy foreign products (madura, 2000:208). if a commodity is traded by several countries in the international market, then when there is a change in the price of the commodity in the international market, the domestic price of the commodity will change following the changes in commodity prices in that market. if the exchange rate of the country is low, then it will definitely be affected. the effect of international cpoprices on domestic cpo prices afebi economic and finance review (aefr) volume 5, no 02 (2020) 68 the formation of domestic cpo prices can not be separated from fluctuations in world cpo prices. changes (fluctuations) in international cpo prices have resulted in changes in domestic commodity prices. rising international cpo pricess will ecourage domestic cpo producers to export their products abroad, because it is more profitable. the large number of cpo producers who export their products to foreign countries will result in a decrease in the amount of domestic cpo supply so that this will increase domestic cpo prices. based on this, the influence between international cpo prices and domestic cpo prices is positively related, which means that the higher the international cpo price, the higher the domestic price. h1: international cpo prices have a positive effect on domestic cpo prices. the effect of coconut oil prices on domestic cpo prices the price of coconut oil is very influential on the price of cpo, because the two products are substitutes that replace each other. the increase in the price of coconut oil will reduce the demand for coconut oil which has an impact on the increase in demand for cpo as a substitute product. this condition certainly has an impact on the increase in world and domestic cpo prices. based on this, the effect of coconut oil prices on domestic cpo prices is positively related, which means that the higher the price of coconut oil, the higher the domestic cpo price. h2: coconut oil prices have a positive effect on domestic cpo prices. the effect of domestic cpo production on domestic cpo prices cpo, like other commodities, the price is relatively dependent on the amount of supply of cpo, in this case is domestic production. the increasing production of cpo causes an abundant supply of goods in the market, causing prices to decline. based on this, in general, the effect of cpo production with domestic prices is negatively related, which means that the greater the production of cpo, the lower the domestic price. h3: domestic cpo production has a negative effect on domestic cpo prices. the effect of domestic cpo consumption on domestic cpo prices the effect of consumption of a commodity on the price of the commodity itself is 2 (two) things that influence each other. the greater the consumption of a commodity the higher the price of that commodity. the relationship between consumption variables and domestic prices is directly proportional (positive), which means that when there is an increase in consumption, then there will be an increase in the domestic price of cpo. h4: domestic cpo consumption has a positive effect on domestic cpo prices. 3. research method this study used a quantitative research type, where the data obtained in the form of numbers and analyzed using econometrics. the data used in this study is analysis of palm oil price in southeast asia 69 secondary data obtained from various sources. the type of secondary data used in this study is a combination of time series and cross section data which are combined into panel data. in this study, there were 3 countries observed (cross section) for a period of 22 years (time series) from 1998 to 2019. the countries observed included indonesia, malaysia, and thailand. these three countries were the largest producers and exporters of palm oil (cpo) in the world, especially in southeast asia. definition of operational variabel the variable used in this study include domestic cpo prices as the dependent variable, and international cpo prices, cpo production and cpo consumption as independent variables. the domestic cpo price was the cpo price from each country observed in this study, namely domestic cpo price in indonesia, malaysia and thailand in 1998-2019 in usd/mt units. the second variable was the international cpo price, which was the average selling price of cpo in the international market, measured in usd/mt units. the third variable was the price of coconut oil, which was the average selling price of coconut oil on the international market, measured in usd/mt units. coconut oil in this study is a substitute for palm oil (cpo). the fourth variable was cpo production which was the total amount of cpo production produced by each country within a period of 1 (one) year in tons. the last variable was domestic cpo consumption, which was the total amount of cpo production consumed by a number of downstream industries. domestic cpo industries that consume cpo include the food and nonfood industries. these variabel are measured in tons. analysis techniques the analysis technique used in this research was descriptive analysis and panel data regression analysis. descriptive analysis is a simple analysis of a distribution of data with presentation in the form of tabulation and graphs/pictures. decsriptive analysis in this study is used to describe the development of data related to the variables used in this study. while panel data regression analysis is an analysis of the data that has been obtained to be processed using a regression tool to determine the effect of the relationship between the independent variables on the dependent variables used in the study. panel data or panel pooled data is a combination of cross section data (cross objects) and time series (cross time), or in other word panel data is data that is composed of several objects and observed within a certain period of time. the analytical tools used is tsls (two stage least square) or multiple linear regression processing using eviews 9.0 software. the panel data equation model used in this study is as follows: dompriceit = α + β1intpriceit + β2copriceit + β3cpoprodit + β4 cpoconsit + eit ..................1 where domprice is the price of domestic cpo, intprice is the price of international cpo, coprice is is the price of coconut oil, cpoprod is the afebi economic and finance review (aefr) volume 5, no 02 (2020) 70 production of cpo, cpocons is the consumption of cpo, β1 – β4 is the estimated parameter, i is the order of countries (i=1,2,3 countries), t is the 1998-2019 series, α is the intercept, and e is the error term. 4. analysis and discussion general description cpo is the mainstay of export commodities in several countries in the world. indonesia, malaysia and thailand were the 3 (three) largest cpo producing and exporting countries in the southeast asia region as well as in the world. indonesia and malaysia were the two main cpo producing countries that cotrol around 85 percent of the world market share (pahan, 2008). cpo produced by indonesia, a small part (about 20-25%) is used for domestic consumption and the rest is exported to other countries. indonesia’s cpo exports in 2019 were 29.11 million tons and increased by 2.94% compared to previous year which was only 28,279 million tons. according to 2018 indonesia palm oil statistic, around 76.02% of indonesia’s cpo exports are destined for asian countries, 19.96% to europe, and the rest to other parts of the world. malaysia is indonesia’s main competitor in trading cpo commodities. countries that became malaysia’s market share as indonesia’s competitors include china, india, eu, pakistan, and japan. however, as a cpo exporting country, malaysia had also imported cpo from several countries for further processing. based on data obtained from oil world, in 2007 malaysia imported cpo from indonesia, thailand (39,3 thousand tons), and papua new guinea (6,1 thousands tons) (hafizah, 2011). thailand is the largest cpo producer in the world besides indonesia and malaysia. thailand is the third largest cpo producer in the world, with annual production reaching around 2 million tons or about 1.2% of global production. based on data from the thailand foreign agricultural trade statistics 2017, in 2016, thailand’s total cpo export value of 4,613,444 thb and in 2017 experienced a significant increase to reach 429,959 mt with an export value of 11,751,679 thb. the main destinations for thailand’s cpo exports were india and malaysia with an export quantity of 265,688 mt (india) and 114,531 mt (malaysia). domestic cpo price outlook analysis of palm oil price in southeast asia 71 figure 1 cpo domestic price in indonesia, malaysia, and thailand year 1998-2019 (in usd/mt) source: bappebti, usda, and department of internal trade thailand figure 1 shows that in the period 1998-2019 indonesia’s cpo price was at its lowest point, namely in 2000 at the level of 241.2 usd/mt. meanwhile, the lowest cpo prices for malaysia and thailand occurred in 2001, respectively, with prices of 285.67 usd/mt for malaysia) and 247.55 usd/mt for thailand. the low price of indonesia cpo in 2000 was caused by a decrease in the quality of fresh fruit bunches (ffb) produced by smallholder plantations, which was the impact of the increase in fertilizer prices in 1999. the low price was the impact of the policy of imposing a tax on cpo exports in order to overcome crisis which occurred in 1998. at that time, the indonesia government issued a policy in the form of stipulating an export tax of 60% to limit cpo exports due to the scarcity of cpo availability in the country, which resulted in a fairly hugh price increase and the scarcity of cooking oil in indonesia. after the emergence of the policy of imposing an export tax, the availability of domestic cpo began to stabilize again, so that the price of domestic cpo began to fall (agustian dan hadi, 2008). the economic crisis that occurred in 1998 also had an impact on the economies of malaysia and thailand, especially on the plantation sector which led to the price increase of cpo commodities. the cpo prices booming that occurred as a result of the crisis in 1998 prompted the two countries to issue policies to stabilize domestic cpo prices. domestic cpo prices always fluctuate and tend to increase from year to year. changes in cpo prices in recent years were not only influenced by fluctuations in world cpo prices, but were also influenced by changes in world oil prices. at this time, besides being used for the food industry, cpo has begun to be used as a substitute for diesel fuel (diesel). international cpo price outlook 0 200 400 600 800 1000 1200 1400 h a rg a c p o d o m e st ik u s d /m t ) tahun indonesia malaysia thailand afebi economic and finance review (aefr) volume 5, no 02 (2020) 72 figure 2 the world cpo price and domestic cpo price movements in indonesia, malaysia, and thailand year 1998-2019 (in usd/mt) source: worldbank, usda, bappebti, and doit thailand, 2020 figure 2 shows that the international cpo price movements in 1998-2019 were fluctuated from year to year, and these price fluctuations were always followed by fluctuations in domestic cpo prices in indonesia, malaysia, dan thailand. international cpo prices were at their lowest point in 2001, at 287.46 usd/mt. the lower the international cpo price, the lower the domestic cpo prices in indonesia, malaysia, and thailand, where in that year, cpo price in each country also reached its lowest point during 1998-2019 period. international cpo prices were at their highest point in 2011, where the prices for that year reached 1,193.37 usd/mt. the increase in cpo prices in the world vegetable oil market resulted in an increase in soybean oil consumption, but the transition was only temporary due to the limited world soybean oil stock. international cpo prices continued to fluctuate until in 2019, which reached 601.61 usd/mt. the fluctuations in international cpo prices have received serious attention from the government because they will affect the domestic cpo prices and domestic cooking oil prices. the high and low international cpo prices were the basic reference for the government in setting policies related to the determination of the price of palm oil (ffb) and the price of domestic cooking oil. the domestic cpo prices will continue to move following the international cpo prices. when the international cpo price increases, the domestic cpo price will usually move up in line with the increase in the international cpo price, vise versa. 200.00 400.00 600.00 800.00 1,000.00 1,200.00 1,400.00 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 2 0 1 9c p o p r ic e (u s d /m t ) years indonesia malaysia thailand internasional analysis of palm oil price in southeast asia 73 coconut oil price outlook figure 3 coconut oil prices and domestic cpo prices movements in indonesia, malaysia, and thailand year 1998-2019 (in usd/mt) source: worldbank, bappebti, usda, and doit thailand, 2019 figure 3 shows that the price of coconut oil in the period 1998-2019 fluctuated from year to year and these fluctuations were followed by changes in domestic cpo prices in indonesia, malaysia, and thailand. in 1998, the price of coconut oil was 657.92 usd/mt. in the following year, the price of coconut oil continued to decline and was at its lowest point in 2001 at 318.08 usd/mt. this condition affected the price of cpo, especially the price of domestic cpo in indonesia, malaysia, and thailand, because cpo and coconut oil were substitutes for each other. during the period 1998-2001, domestic cpo prices in these three countries also decreased from year to year. the rise and fall of coconut oil prices were in line with domestic cpo prices. when the price of coconut oil increased, the price of domestic cpo tended to move up following the price of coconut oil, and vise versa. cpo production outlook 500.00 1,000.00 1,500.00 2,000.00 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 2 0 1 9 p ri c e (u s d /m t ) years minyak kelapa cpo indonesia cpo malaysia cpo thailand 200.00 400.00 600.00 800.00 1,000.00 1,200.00 1,400.00 10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 c p o p ri c e (u s d /m t ) c p o p ro d u c ti o n ( to n ) axis title prod.ind prod.mys prod.tha harga ind harga mys harga tha afebi economic and finance review (aefr) volume 5, no 02 (2020) 74 200.00 400.00 600.00 800.00 1,000.00 1,200.00 1,400.00 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 c p o p ri c e ( u s d /m t ) c p o c o n su m p ti o n (t o n ) kons. ind kons. mys kons. tha harga ind harga mys harga tha figure 4 total cpo production (in tons) and cpo prices (in usd/mt) in indonesia, malaysia, and thailand year 1998-2019 source: bappebti, usda, and doit thailand, 2019 figure 4 shows that the amount of cpo production in indonesia, malaysia, and thailand continued to fluctuate and tended to increase from year to year. the high and low cpo production in indonesia, malaysia, and thailand had affected the fluctuations in domestic cpo prices in each of these countries. in 1998, indonesia’s cpo production was 5.8 million tons, while malaysia’s cpo production was 9,758 million tons and thailand was 0.4 million tons. based on figure 4, it can be seen that in 1998, indonesia’s cpo production was the highest compared to malaysia and thailand. however, when viewed from the side of domestic cpo prices, domestic cpo prices in indonesia were the lowest among the three countries. in this case, thailand had the lowest cpo production, but it had the highest domestic cpo prices compared to indonesia and malaysia. based on this, it can be concluded that the higher the cpo production of a country, the lower the domestic cpo price in that country, and vise versa. cpo consumption outlook figure 5 cpo consumption and domestic cpo price in indonesia, malaysia, and thailand year 1998-2019 (in tons) source: index mundi, bappebti, usda, and doit thailand, 2019 based on figure 5, cpo consumption in indonesia, malaysia, and thailand tends to increase from year to year in line with the increase in population. the increase in domestic cpo consumption has an impact on the high and low prices of domestic cpo in the country. domestic cpo prices in indonesia, malaysia, and thailand as seen in figure 5 tended to increase during 1998-2019, so it can be concluded that an increase in cpo consumption will increase domestic cpo prices analysis of palm oil price in southeast asia 75 in these three countries, and vise versa. regression analysis resuts the selected model used to estimate the relationship between international cpo prices, coconut oil prices, cpo production, and cpo consumption on domestic cpo prices is the fixed effect model (fem). in this studi, the classical assumption test used includes autocorrelation and heteroscedasticity tests, in accordance with gujarati dan porter (2012), which in their book stated that if the selected model is a fixed effect or random effect model, then a classical assumption test must be carried out, including the autocorrelation and heteroscedasticity, because the occurrence of multicollinearity in panel data is very small. based on the classical assumption test, the model used is free from auto correlation and heteroscedasticity problems. the regression estimation results from the research model used in this study can be seen in table 2: table 2 fixed effect model estimation result variable coefficien t std. error tstatistic prob. c 27.44254 21.89583 1.25332 3 0.215 0 intpric e 0.797077 0.049364 16.1468 0.000 0 coprice 0.123666 0.032034 3.86051 1 0.000 0 cpopro d 0.0000077 4 0.0000031 3 2.47471 8 0.016 2 cpocon s 0.0000204 0.0000103 1.98475 3 0.051 8 where : * significant α = 5% source : processed data, 2020 based on the results of the regression analysis listed in appendix 1, we can see that the r-squared value is 94.83%, which means that the independent variables (international cpo prices, coconut oil prices, cpo production, and cpo consumption) could explain the dependent variable (price of domestic cpo) of 94.83% and the remaining 5.17% was explained by other variables outside the model. based on the results of the regression estimation in table 2, it can be seen that the coefficients of all variabels showed a positive relationship, except for the cpo production variable and all variables had a significant influence on the domestic cpo price variable, except for the cpo consumption variable. the international cpo price variable has a regression coefficient value of 0.797077which means that an increase in international cpo prices by 1% will cause an increase in domestic cpo prices by 0.797%. an increase in international cpo afebi economic and finance review (aefr) volume 5, no 02 (2020) 76 prices will lead to an increase in domestic cpo prices, because a rise in cpo prices in the international market will encourage producers to sell or export cpo abroad, causing a domestic shortage. the lack of supply of cpo in the country has resulted in an increase in the price of domestic cpo. the results of this study are in line with the research conducted by applanaidu et al. (2011) in his research on econometric analysis of the relationship between biodiesel demand and the malaysian palm oil market, where in the study it was concluded that the international cpo prices had a positive and significant effect on domestic cpo prices. the coconut oil price variable had a regression coefficient value of 0.123666. this means in that period, if the price of coconut oil increases by 1%, it will cause an increase in domestic cpo prices by 0.12%. in this study, coconut oil was a substitute for cpo. the increase in the price of coconut oil will cause a rise in the price of domestic cpo, because the increase in the price of coconut oil will make consumers tend to prefer to consume cpo compared to coconut oil. the increase in demand for cpo which is driven by increased consumption will automatically increase the price of cpo in the country. the results of this study were in line with the research conducted by rahman et al. (2013), athikulturat et al. (2015), and zainal (2013). rahman et al. (2013) and athikulturat et al. (2015), in his research used coconut oil as a substitute for cpo. both of them came to the same conclusion, that the price of substitte goods, in this case the price of coconut oil was used, had a positive and significant relationship with the domestic cpo price. based on the regression results, the cpo production variabel had a regression coefficient value of -0.00000774 which indicated that cpo production had a negative effect on domestic cpo prices. this shows that an increase in cpo production by 1% tended to result in a decrease in domestic cpo prices by 0.00000774%. the increase in cpo production tended to cause the domestic cpo price to decrease, because the increase in production tended to increase the number of goods on the market so that it will cause excess supply which has an impact on decreasing domestic cpo prices. the results of this study were in line with the research conducted by rahman et al. (2013) that studied the impact of supply and demand on the behavior of palm oil prices, in that study, he concluded that the production variable had a significant role and had a negative relationship to cpo prices. the cpo consumption variable has a regression coefficient value of 0.0000204. this showed that cpo consumption had a positive effect on domestic cpo prices. the interpretation was that if cpo consumption increases by 1%, it tended to increase domestic cpo prices by 0.0000204%. an increase in the amount of cpo consumption tended to lead an increase in domestic prices. this was in accordance with the theory of the demand, that the excess of demand will shift the demand curve to the right so that prices will increase. the results of this study were in line with research conducted by mohamed & mohd. arshad (2000) and mohammadi et al. (2015), which concluded that cpo consumption had a positive effect on domestic cpo prices. analysis of palm oil price in southeast asia 77 conclusion, limitation and suggestion based on the research hypothesis testing, it can be concluded that the international cpo price variable and the coconut oil price had a positive and significant effect on the domestic cpo price in southeast asia, while the cpo production variable had a negative and significant effect on the domestic cpo price in southeast asia. meanwhile, the cpo consumption variable had a positive and insignificant effect on domestic cpo prices in souteast asia. in addition, of the four variables used, the international cpo price variable was the variable that had the most dominant effect in influencing domestic cpo price fluctuations in southeast asia, especially in indonesia, malaysia and thailand. this study still had limitations, since it only covered 3 (three) countries and did not include all countries in the southeast asian regions as research objects. in southeast asia there were only 4 (four) countries that were cpo producers in the southeast asia region, namely indonesia, malaysia, thailand and philippines. the philippines was not included in the research object, because the available data were very limited. the data used in this study were data from 1998-2019, while the data for the philippines was available only from 2010-2019 so it is not compatible to be included in this study. suggestions that can be given based on the results of this study include: (1) international price variables were the most dominant variables in influencing domestic cpo prices, so that international cpo price fluctuations must always be considered and the government should be able to overcome by maintaining the availability of domestic cpo stocks; (2) the government is advised to maintain that cpo products and substitute commodities (in this case coconut oil) had to go hand in hand, considering that indonesia, malaysia and thailand were producers of these two commodities. in addition, the prices of the two commodities were substitutes for each other; (3) the government was advised to take policies that benefit all parties, both producers and consumers of cpo so that the balance between production and consumption was maintained; (4) the government was advised to continue to monitor fluctuations in domestic cpo prices so that prices remain stable and accessible to all levels of society; (5) indonesia is the largest producer and exporter of cpo in the world. therefore, indonesia needs to strive to become a price maker or world cpo price maker. in addition, indonesia was expected to be able to improve the quality of cpo in accordance with the standards set by cpo importing countries in the international market; (6) the government was advised to shorten the marketing or distribution chain system for palm oil from farmers to cpo producers, because the price of fresh fruit bunches (ffb) of palm oil among palm oil farmers was still quite low. in addition, the government must also establish a policy in the form of determining price for palm oil fresh fruit bunches (ffb) among farmers so that the price is not too low, and later on can improve the welfare of palm oil farmers. (7) further research should involve more varied variables, such as the use of a various models of equations to replace the variable price of substitute goods for cpo substitutes. afebi economic and finance review (aefr) volume 5, no 02 (2020) 78 references agustian, a., & hadi, p. u. (2008). analisis dinamika ekspor dan keunggulan komparatif minyak kelapa sawit (cpo) di indonesia. pusat penelitian sosial ekonomi pertanian badan penelitian dan pengembangan pertanian, bogor, 1, 1–24. athikulrat, k., rungreunganun, v., & talabgaew, s. (2015). factors affecting the reliability of the price of palm oil in thailand. 3(3). badan pusat statistik indonesia. (2020). statistik kelapa sawit indonesia 2018. jakarta: badan pusat statistik. bappebti. (2020). harga bursa (forward-futures-spot). retrieved february 15, 2020 from http://bappebti.go.id. chansuchai, p. (2017). factors affecting the palm oil price in thailand. 4(5). gilarso, t. (2003). pengantar ilmu ekonomi mikro edisi revisi. kanisius: yogyakarta. gujarati, damodar n. dan dawn c. porter. (2012). dasar–dasar ekonometrika. jakarta: salemba empat. hafizah, d. (2011). kajian kebijakan pemerintah indonesia dalam perdagangan cpo indonesia menggunakan pendekatan analisis integrasi pasar (study on indonesian government policy on cpo trade using market integration approach ). agrisep, 10(2), 154–170. mankiw, n. gregory, dkk. (2003). teori makroekonomi. jakarta: erlangga. marshall alfred. (1890). principles of economics. mohamed, z., & mohd. arshad, f. (2000). price discovery through crude palm oil. international management development association (imda) and universiti sains malaysia, 1994, 1–19. novianti, f. (2019). motivasi indonesia ekspor cpo (crude palm oil) ke tunisia tahun 2010-2014. jom fisip, 6. nur, ermon muh. (2012). “konsumsi dan inflasi indonesia”. dalam jurnal kajian ekonomi, volume 1 no. 1. hal. 55-77. pahan, iyung. (2008). panduan lengkap kelapa sawit: manajemen agribisnis dari hulu hingga hilir. penebar swadaya, jakarta. rahman, a. k. a., balu, n., faizah, & shariff, m. (2013). impact of palm oil supply and demand on palm oil price behaviour. oil palm industry economic journal, 13(1), 1–13. http://bappebti.go.id/ the dynamics of the rupiah exchange rate in 2017-2020 1 the dynamics of the rupiah exchange rate in 2017-2020 muhammad arief aldila susanto1), rr. retno sugiharti2)* 1,2 department of economics development, faculty of economics, universitas tidar, indonesia abstract the exchange rate is one of the most important indicators in the economy. moreover, with the increasing intensity of trade between countries, commonly referred to as international trade, this economic indicator becomes important for every country, including indonesia. the change in the indonesian exchange rate system to a freefloating system has made the exchange rate fluctuations more dynamic. the fluctuations are influenced by various factors, both internal and external. this study aims to determine the effect of the money supply (m2), foreign exchange reserves, sbi interest rates and world crude oil prices on the rupiah/dollar exchange rate in 2017-2020 both in the short run and in the long run. the data used is monthly time series data from 2017-2020. the analytical method used in this study is the error correction model (ecm). the results in this study indicate that in the short run and long run the money supply and foreign exchange reserves variables have a significant effect on the rupiah exchange rate in 2017-2020. keywords: money supply, foreign exchange reserve, sbi interest rate, world crude oil prices, exchange rate 1. introduction the rapid flow of globalization and technological advances has made the flow of information between regions increasingly swift without being constrained by distance and regional boundaries. globalization makes the international trade easier and more intensive. in practice, the international trade requires an acceptable and mutually agreed currency unit that will become the standard reference for the value of money. the american dollar is a currency that has been widely used in international trade transactions. however, for indonesia, the use of us dollar in its international trade transactions will cause the exchange rate of the rupiah against the us dollar to continue to fluctuate. according to muzaky (2015) this can lead to the risk of changes in currency exchange rates that arise due to the uncertainty of the exchange rate itself. nevertheless, the fluctuations in the exchange rate can be considered reasonable because since august 1997 indonesia has begun to adopt free floating system (yuliyanti, 2014). in such system, the position of the rupiah exchange rate against foreign currencies is determined by the market mechanism. *corresponding author. email address: retno.sugiharti@untidar.ac.id mailto:retno.sugiharti@untidar.ac.id afebi economic and finance review (aefr) volume 5, no 02 (2020) 2 figure 1. overview of the rupiah exchange rate against the us dollar year 20172020. source: (kemendag, 2021a) (processed data). figure 1 show that in the 2017-2020 period, the rupiah exchange rate fluctuated against the dollar. in addition, the rupiah exchange rate against the us dollar also tends to weaken or depreciate over the past four years. in january 2017, the rupiah exchange rate was at rp 13,343/dollar. the exchange rate has continued to depreciate for the last 4 years until in december 2020 which was at rp 14,105/dollar. the depreciation of the rupiah against the us dollar was triggered by the strengthening of the dollar against all world currencies. the weakening of the rupiah exchange rate against the us dollar is influenced by various factors, one of which is the money supply. demak, kumaat, & mandeij (2018) stated that the money supply can be defined in two ways, namely currency (m1) held by the public, and quasi-money and securities (m2) issued by the monetary system and owned by the domestic private sector with a remaining term of up to one year. the money supply plays an important role in the economy. in term of money, triyono (2008) stated that an increase in the supply of money or the amount of money in circulation will increase the price of goods while at the same time also increasing the price of foreign exchange as measured in domestic currency. according to (demak et al., 2018) (yuliyanti, 2014) in the short and long run, the money supply had a positive effect on the exchange rate. this is in line with the research of triyono (2008) which had proved that in the short run analysis the money supply has a positive impact on the exchange rate, but it has a negative effect on the exchange rate in the long run. the dynamics of the rupiah exchange rate in 2017-2020 3 figure 2. overview of the indonesian money supply year 2017-2020. source: (kemendag, 2021b) (processed data) another factor that is considered to influence the exchange rate of a country’s currency is foreign exchange reserves. according to emmanuel (2013) foreign exchange reserves are in the form of foreign currency, time deposits and foreign bonds held by the central bank and monetary authority of a country. meanwhile hady (2006) found that high foreign exchange reserves in a country indicate that the country has a great ability to conduct international economic and financial transactions. research conducted by yuliyanti (2014) found that in the short run, foreign exchange reserves had a negative and significant effect on the exchange rate, while in the long run it had a positive and significant effect. figure 3. indonesia’s foreign exchange reserves (million us dollar) year 2017-2020. source: (bi, 2021b) (processed data) the next factor that is assumed to influence the exchange rate of a country’s currency is the interest rate. mishkin (2014) stated that the interest rate is the cost of borrowing or the price paid for the borrowed fund. in addition, the higher interest rate the more increase the demand for currency (mirchandani, 2013), and the lower interest rate tends to reduce the exchange rate. the bank indonesia interest rate (sbi) is one of the mechanisms used by central bank to control the stability of the rupiah. changes in interest rates will affect changes in the amount of demand and supply in the domestic money market. according to (muchlas, z., & agus, 2015) if afebi economic and finance review (aefr) volume 5, no 02 (2020) 4 a country adheres to a free foreign exchange regime, then it also allows an increase in capital inflows from abroad. this will result in changes in the exchange rate of the country’s currency against foreign currencies in the foreign exchange market. figure 4. sbi indonesia year 2017-2020 (in percentage). source: (bi, 2021a) (processed data) the figure above shows the amount of indonesia’s sbi for the last four years. during this time span, sbi has experienced fluctuations, where in january 2017 sbi was in the range of 4.75%; in august 2017 sbi fell to 4.5%. in september 2017, the sbi fell back to 4.25%. this figure continued to hold until april 2018. it continued to experience an upward trend in may 2018 until june 2019, with the highest figure of 6%. in july 2019, sbi began to experience a downward trend, where the trend occurred until december 2020 with the lowest figure of 3.75%. the government’s efforts to lower interest rates showed that the government wanted people to use bank loans to develop their business activities. hazizah, n., viphindrartin, s., & zainuri (2017) stated that with low interest rates, it was expected to spur people to use their funds in economic activities, rather than just saving them in the form of deposits. research conducted by yuliyanti (2014) had the result that in the short and long run the sbi rate had a negative and significant effect on the exchange rate. meanwhile triyono (2008) conducted research on the analysis of changes in the rupiah exchange rate against the dollar, and found that in the short run the sbi variable had a positive and insignificant effect on the exchange rate. while in the long run, the sbi variable had a positive and significant effect. the last factor that is thought to affect the exchange rate is the world crude oil prices. world crude oil prices are measured from the spot price of the world oil market, generally west texas intermediate (wti) or brent (artha et al., 2014) that are used as the standard. crude oil traded on wti is high quality crude oil. the crude oil is light-weight and has low sulfur content. this type of oil is very suitable for use as fuel. this causes the price of oil to be used as a benchmark for oil trade in the world. indonesia as one of the world’s largest oil -importing countries is still very dependent on oil to drive the economy. the increase in world oil prices, in theory, will cause indonesia to buy the oil at a higher price. this causes payments in dollar to increase that lead the demand for dollar increases and next will cause the rupiah to depreciate. findings form research conducted by pardede, a.s.m. & setiawina, (2018); wijaya, (2020) that world oil prices had a negative effect on the rupiah exchange rate. the dynamics of the rupiah exchange rate in 2017-2020 5 figure 5. world oil prices (us$) year 2017-2020 (percentage). source: (index mundi, 2021) (processes data) previous studies related to the rupiah exchange rate, among others, is the study of demak et al. (2018) which had the result that in the long run deposits rates, money supply, and inflation had a positive and significant effect on the exchange rate. in the short run, deposit rates had a positive and significant effect on the exchange rate, while the money supply and inflation had a positive but not significant effect on the exchange rate. research conducted by triyono (2008) using the error correction model (ecm) analysis method, had the result that in the short term inflation, sbi and imports variables had no significant effect on the exchange rate at α = 5%. meanwhile, the amount of money in circulation had a significant effect on the exchange rate at α = 5%. in the long-term regression variables of inflation, the money supply, sbi, and imports had a significant effect on the exchange rate at α = 5%. then research of yuliyanti (2014) which also had use the error correction model (ecm) showed the result that in the short run the variables that affect the exchange rate were foreign exchange reserves and sbi interest rates. meanwhile, in the long run, all variables, namely the money supply, sbi interest rate, imports and foreign exchange reserves had a significant effect on the rupiah /us dollar exchange rate in 2001-2013. then research by pardede, a.s.m. & setiawina (2018) showed that based on the results of simultaneous testing, the composite stock price index, interest rates and world oil price had a significant effect on the rupiah exchange rate for the period 2012-2016. partially, the composite stock price index and interest rates had a significant and positive effect on the rupiah exchange rate in 2012-2016. meanwhile, the variable world crude oil prices partially negatively and significantly affected the rupiah exchange rate in 2012-2016. next, research by wijaya (2020) which had the result that in the short run, the interest rates and world oil prices had a significant effect on exchange rates. world oil prices had a significant negative effect on exchange rates both in the short run and in the long run. the importance role of the exchange rate in supporting the economy of a country made it interesting to discuss and see changes or fluctuations that are influenced by various factors. based on the description above, it is important to conduct an in-depth study of the dynamics of the rupiah exchange rate. the purpose of this study was to afebi economic and finance review (aefr) volume 5, no 02 (2020) 6 determine the effect of the money supply, foreign exchange reserves, sbi interest rates and world crude oil prices on the rupiah exchange rate in 2017-2020 in the short and long run. 2. literature review the influence of the money supply on the rupiah exchange rate in demak et al. (2018), the excess money supply in a country’s economy put pressure on the exchange rate of the country’s currency against foreign currencies. triyono (2008) highlighted an increase in the supply of money or the amount of money in circulation increased the price of goods as measured by the terms of money and would also increase the price of foreign exchange as measured by the domestic currency. then the first hypothesis in this study was: h1: the money supply has a positive influence on the exchange rate in the 20172020 period, both in the short and long run. the effect of the foreign exchange reserves on exchange rates the more foreign exchange or foreign exchange owned by the government and residents of a country, the greater the ability of that country to conduct international economic and financial transactions and the stronger the value of that country’s currency. then the second hypothesis in this study was: h2: foreign exchange reserves have a negative effect on exchange rates in the 2017-2020 period, both in the short and long run. the effect of interest rates on exchange rates interest rates greatly affect the exchange rate of a currency against another currency. the higher the interest rate of a currency, the higher the demand for that country’s currency. according to (mishkin, 2014) a decrease in domestic interest rates caused a depreciation or weakening of the domestic currency exchange rate and an increase in domestic interest rates caused an appreciation or strengthening of the domestic currency exchange rate. then the third hypothesis in this study was: h3: sbi have a negative effect on the exchange rate in the 2017-2020 period, both in the short and long run. the effect of world oil prices on exchange rates mulyani (2015) stated that world oil prices have a relationship with the exchange rate. in the short run, an increase in oil prices caused an increase in the price level which leads to a decrease in demand and output. according to pardede, a.s.m. & setiawina (2018) in the medium term, the increase in oil prices caused a decrease in the real wages paid by companies, thereby increasing natural unemployment and further lowering the natural level of output. a rise in world prices would also cause an increase in the price of domestic goods because most domestic companies still use oil as a raw material for production. this increase in the price of domestic exchange rate against the us dollar to depreciate. so, the fourth hypothesis in this study was: h4: world oil prices have a negative influence on exchange rates in the 2017-2020 period, both in the short and long run. 3. research method the method used in this research was the error correction model (ecm) analysis. this regression analysis aims to determine the short run and log run effects the dynamics of the rupiah exchange rate in 2017-2020 7 of the independent variables on the dependent variable and help to overcome nonstationary data and avoid spurious regressions. in analyzing the data using ecm method, there are several tests, namely stationarity test, cointegration test, error correction model and classical assumption test. data processing was carried out using the e-views version 10 software. for this study, the data used was monthly time series data using data on the rupiah/us dollar exchange rate, the money supply (m2), foreign exchange reserves and sbi interest rates and also oil prices/world oil prices for 2017-2019. this type of data is secondary data obtained from several sources, namely bank indonesia, the ministry of trade of the republic of indonesia and the mundi index. error correction model estimation (ecm) the equation function model used in this study was: er = ƒ (𝑴𝟐, 𝑪𝑨𝑫𝑬𝑽 , 𝑺𝑩𝑰, 𝑶𝑷) (1) from the equation of the function, the long run model used in this study was: 𝑬𝑹𝒕= 𝜶𝟎+ 𝜶𝟏𝑴𝟐𝒕 + 𝜶𝟐𝑪𝑨𝑫𝑬𝑽𝒕 + 𝜶𝟑𝑺𝑩𝑰𝒕 + 𝜶𝟒𝑶𝑷𝒕 + 𝒆𝒕… (2) while the short run model used was: ∆𝑬𝑹𝒕= 𝜶𝟎+ 𝜶𝟏∆𝑴𝟐𝒕 + 𝜶𝟐∆𝑪𝑨𝑫𝑬𝑽𝒕 + 𝜶𝟑∆𝑺𝑩𝑰𝒕 + 𝜶𝟒∆𝑶𝑷𝒕 + 𝜶𝟓𝑬𝑪𝑻 + 𝒆𝒕 (3) where: er = rupiah exchange rate against united states dollar m2 = money supply cadev = indonesian foreign exchange reserves sbi = bank indonesia certificate op = oil price ∆er = exchange rate changes ∆m2 = money supply changes ∆cadev = indonesian foreign exchange reserves changes ∆sbi = sbi changes ∆op = oil price changes ect = error correction term 𝛼0 = constant 𝛼1, 𝛼2, 𝛼3, 𝛼4= coefficient of ecm 𝛼5 = coefficient of ect 𝑒𝑡 = error term 𝑡 = time period 4. result and discussion data stationarity test stationary is a time series data condition where the mean, variance, and covariance of the variables are not affected by time (juanda, 2012). the stationary test method and the unit root that will be used in this research is the method of augmented dickey fuller (adf). table 1. data stationarity test variable unit root test level 1st difference adf prob adf prob afebi economic and finance review (aefr) volume 5, no 02 (2020) 8 exchange rate -2.7447 0.0742 7.6443 0.0000 m2 1.2025 0.9977 11.417 0.0000 foreign exchange reserves -1.6278 0.4607 6.5020 0.0000 sbi -0.9889 0.7496 3.8707 0.0045 oil price -2.5259 0.1161 5.3040 0.0001 source: e-views 10 output, processed data the processing results in the table 1, show that all variables are not stationary at the df level, but have been stationary at the first difference level. cointegration test after knowing that the data was not stationary, the next step was to identify it to find out whether the data was cointegrated or not. for this reason, a cointegration test is needed. cointegration test is used to give an initial indication whether the model used has a long-term relationship. cointegration test results are carried out by forming residuals obtained by regressing the independent variable to the dependent variable through ols. the residual formed can be said to have cointegration, if it passes at the df level stationary. the next step in this research that the residual was being tested for stationarity. table 2. residual stationarity test variable adf tstatistic critical value 5% prob. result residual -3.8077 -2.9251 0.005 4 stationary source: output of e-views 10, processed data from the table above, it is found that the residual is stationary at the level with a significant t statistic value at the critical value of 5%, with a probability value of 0.0054. these results indicated that the data was cointegrated. classic assumption test normality test table 3. normality test result histogram normality test jarque-bera 5.20630 5 probability 0.074040 the dynamics of the rupiah exchange rate in 2017-2020 9 source: output of e-views 10, processed data the result showed that the probability of 0.074040 is greater than 5% so that the data used is normally distributed. multicollinearity table 4 multicollinearity test result variable centered vif c na d1_m2 1.225934 d1_foreign exchange reserves 1.317348 d1_sbi 1.042498 d1_op 1.055228 ect(-1) 1.174097 source: output of e-views10, processed data based on the results of multicollinearity testing using the partial correlation method between independent variables, the results obtained that the model was free from multicollinearity symptoms. that was because all independent variables have a centered vif value of less than 10. heteroscedasticity test table 5. heteroscedasticity test result heteroscedasticity test: breusch-pagan-godfrey obs* r-squared 3.58492 0 prob chisquared 0.6106 source: output of eviews10, processed data based on the results of the heteroscedasticity test, the results obtained that the prob chi-square value obs*r-squared of 0.6106 was greater than 5%. so, it can be concluded that the model was free from heteroscedasticity problems. autocorrelation test table 6. autocorrelation test result breusch-godfrey serial correlation lm test obs* rsquared 0.905279 prob chi-squared 0.6359 source: output of eviews10, processed data afebi economic and finance review (aefr) volume 5, no 02 (2020) 10 based on the results of the autocorrelation test using breusch-godfrey serial correlation lm test, the prob value was obtained. chi-square of 0.6359 is greater than 5%. it can be concluded that the ecm model was free from autocorrelation problems. error correction model the error correction model (ecm) test was conducted to determine the shortrun equation. the establishment of this ecm model is intended to determine changes in the variables of inflation, foreign exchange reserves, sbi and world oil process against the rupiah exchange rate. short-run estimation the short-run is a short-term equation made by changing the form of the dependent and independent variables into the first difference form. table 7. short-run regression result dependent variables : exchange rate independent coefficient t-statistic prob. d1_m2 0.001853 3.909089 0.0003 d1_foreign exchange reserves -0.098961 6.614621 0.0000 d1_sbi -177.4282 0.826222 0.4135 d1_op -12.96510 1.995014 0.0527 ect(-1) -0.480257 3.517776 0.0011 constant -20.14144 0.471763 0.6396 r-squared 0.733479 f-statistic 22.56681 prob. f-statistic 0.000000 source: output of eviews10, processed data based on the table above, the estimation results of the short-run model using the error correction model (ecm) method are as follows: dexchangeratest = -20.14144 + 0.001853 dm2t – 0.098961 dforeignexchangereservest – 177.4282 dsbit – 12.96510 opt – 0.480257 ect(-1) + et the dynamics of the rupiah exchange rate in 2017-2020 11 this study showed that ect (-1) had a probability of 0.0011 which means that the probability value was less than 0.05. in other words, the ect variable showed significant results at the 5% and was negative, which means that the ecm model was valid and there was an adjustment in the short-term model to achieve long-run equilibrium. in the short-run, the money supply variable or m2 had a positive and significant effect on the rupiah exchange rate. so that changes in the money supply in the short-run of one billion rupiah will cause the rupiah exchange rate to increase by 0.001853. in the short-run, the variable of foreign exchange reserves had a negative effect on the rupiah exchange rate. so that the change in foreign exchange reserves in the short-run of one million dollars will make the rupiah exchange rate decrease by 0.098961. in the short-run, the sbi variable had a negative and insignificant effect on the rupiah exchange rate. in the short-run, every 1% change will cause a decrease in the rupiah exchange rate of 177.4282. in the short-run, the world oil price had a negative and insignificant effect on the rupiah exchange rate. in the short-run, every 1 dollar change in world oil prices will cause a decrease in the rupiah exchange rate of 12.96510. the value of the coefficient of determination in the short-run estimation was 0.733479. this showed that the magnitude of the influence of the independent variables on the dependent variable was 73.35%. while the remaining 26.65% was explained by variables outside the model. long-run estimation table 8. long-run regression result dependent variable: exchange rate independent coefficient t-statistic prob. m2 0.001242 10.90638 0.0000 foreign exchange reserves -0.099418 7.023941 0.0000 sbi -153.9605 1.542590 0.1303 op -4.775080 1.001537 0.3222 constant 20461.40 10.84553 0.0000 r-squared 0.772328 f-statistic 36.46714 prob. f-statistic 0.000000 source: output of eviews10, processed data table 8 shows the estimation result of the long run model in this study are as follows: exchangeratet = 20461.40 + 0.001242 m2t – 0.099418 foreignexchangereservest – 153.9605 sbit – 4.775080 opt + et afebi economic and finance review (aefr) volume 5, no 02 (2020) 12 in the long run, the money supply variable or m2 had a positive and significant effect on the rupiah exchange rate, so that a change in the money supply in the long run of one billion rupiah will cause the rupiah exchange rate to increase by 0.001242. in the long run, the foreign exchange reserve variable had a negative and significant effect on the rupiah exchange rate, thus a change in foreign exchange reserves in the long run of one million dollars will make the rupiah exchange rate to decrease by 0.099418. in the long run, the sbi variable had a negative and insignificant effect on the rupiah exchange rate, so a 1% change in the sbi in the long run will cause a decrease in the rupiah exchange rate of 153.9605. in the long run, the variable world oil price or oil price had a negative and insignificant effect on the rupiah exchange rate. therefore, any change in world oil prices in the long run of 1 dollar will cause a decrease in the rupiah exchange rate of 4.775080. the coefficient of determination value in the long run estimation was 0.772328. this showed that the magnitude of the influence of the independent variable on the dependent variable was 77.23%. while the remaining 22.77% was explained by variables outside the model. discussion in the short and long run, the variable of money supply or m2 had a positive and significant effect on the rupiah exchange rate in 2017-2020. this result is in line with the research of demak et al., (2018) and yuliyanti (2014) that in the short run and long run the money supply has a positive influence on the exchange rate. this condition is in accordance with the money supply theory which says that the money supply and the exchange rate have a positive relationship. when there is an increase in the domestic money supply, the domestic currency depreciates. in the short run and long run, the variable of foreign exchange reserves had a negative and significant effect on the rupiah exchange rate in 2017-2020. this result is in line with research of yuliyanti (2014) which found that in the short run foreign exchange reserves had a negative and significant effect on the value of the exchange rate. however, the long run results in this study are not in line with yuliyanti (2014) which found that in the long run the foreign exchange reserves have a positive and significant effect on the exchange rate. this condition is in accordance with the theory which states that there is a negative relationship between foreign exchange reserves and the exchange rate. the greater the amount of foreign exchange reserves, the foreign confidence in the country’s ability to cope with external shocks also increases so that suppress speculation on the domestic currency which then makes the exchange rate strengthen. in the short and long runs, the sbi variable had a negative and insignificant effect on the rupiah exchange rate in 2017-2020. this result is in line with research of yuliyanti (2014) which was stated that in the short run and long run the sbi interest rate had a negative effect on the change rate. this is also in accordance with the international fisher effect (ife) theory which says that the exchange rate of a currency with another currency will change depending on the difference in interest rates between the two countries. in keynesian theory, a country’s currency will appreciate if its interest rate is higher than that of other countries. conversely, it will depreciate if the country’s interest rate is lower than other countries. the dynamics of the rupiah exchange rate in 2017-2020 13 in the long and the short run, the world oil price variable had a negative and insignificant effect on the exchange rate. these results are in accordance with research conducted by wijaya (2020) that world oil prices have a negative effect on exchange rates both in the short and long run. this is in accordance with the theory that an increase in world oil prices will lead to an increase in the price of domestic goods. this increase in the price of domestic goods will cause the real domestic exchange rate against the us dollar to depreciate. 5. conclusion based on the results and discussion in this study, several conclusions can be drawn. first, in the short and long run, the money supply variable or m2 had a positive and significant effect on the rupiah exchange rate in 2017-2020. second, in the short run and long run, the variable of foreign exchange reserves had a positive and significant effect on the rupiah exchange rate in 2017-2020. third, in the short and long run, the sbi variable had a negative and insignificant effect on the rupiah exchange rate in 2017-2020. fourth, in the short and long run, the variable world oil price or oil price had a negative and insignificant effect on the rupiah exchange rate in 2017-2020. based on these conclusions, several things are recommended. first, the government must improve the balance of payments by suppressing indonesia’s imports so that the existing foreign exchange reserves do not decrease further for import payments so that the foreign exchange reserves can be saved and are expected to be able to support the rupiah exchange rate in the future. second, the government must begin to reduce dependence on world crude oil and try to replace the use of fossil-based fuels with alternative fuels such as electricity, gas and other renewable energies. with the enactment of this policy, it is hoped that indonesia will no longer have a high dependency on oil imports, so that indonesia’s foreign exchange reserves can be saved and the rupiah exchange rate will be better. meanwhile, for further research, it is recommended to examine the effect of other macroeconomic variables that are not used in this research model. one of these limitations in this study is that the independent variables used have often been used by other researchers, and only the world oil price variable which is quite rarely used. therefore, it is hope that the next research will use a combination of other independent variables so that the results of the next research are more diverse. references artha, d. r., achsani, n. a., & sasongko, h. 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(2014). pengaruh jumlah uang beredar (m2), tingkat suku bunga sbi, impor, dan cadangan devisa terhadap nilai tukar rupiah / dolar amerika tahun 2001 2013. economics development analysis journal, 3(2), 284–292. https://doi.org/https://doi.org/10.15294/edaj.v3i2.3834 analysis between inflation, exports, imports, and interest rate on exchange rate in indonesia 2010-2019 42 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) analysis between inflation, exports, imports, and interest rate on exchange rate in indonesia 2010-2019 nurasita indah lingga suri*, banatul hayati economics and development studies, faculty of economics and business, diponegoro university, semarang, indonesia abstract this study aims to analyze the effect of the inflation rate, import-export activities, interest rates simultaneously on fluctuations in the rupiah exchange rate against the us dollar from 2010 to 2019. the method used in this study is the var/vecm with the eviews analysis tool. to see whether there is a long-term or short-term effect between variables. the results of this study all have a positive influence on the rupiah exchange rate against the us dollar and are in accordance with the hypothesis and theory used, but the export activity variable is not in accordance with the hypothesis and theory because of the influence of imports on raw materials to produce export goods. this study also provides an update where the interest rate variable uses the theory of interest rate parity, which states that there is a balance of international interest with domestic interest so that the relationship between interest can affect fluctuations in the rupiah exchange rate against the us dollar and increase incoming capital flows. keywords: exchange rate, inflation, export, import, interest 1. introduction the economic system in indonesia is an open economy. the activities of the international trade is one of the activities of the system of open economy. in the era of globalization such as this, the movement of the mea (masyarakat ekonomi asean) strongly encourage the indonesian economy to trade with countries other so that the development of indonesia's economy expanded through international trade. “international trade is increasingly less resistance and easy to do in international trade can increase the volume and value in the international trade”. to perform international trade activities required a medium of exchange agreed upon by the two countries as a means of transaction. the exchange rate or exchange rate is an agreement known as the exchange value of the currency to make payments between the two countries. the following is the movement of exchange rate fluctuations in the rupiah against the us dollar from the years 2010-2019. *coressponding author. email address: nurasitaindahlinggas@students.undip.ac.id https://creativecommons.org/licenses/by/4.0/ mailto:nurasitaindahlinggas@students.undip.ac.id afebi economic and finance review (aefr) volume 7, no 1 (2022) 43 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) figure 1. fluctuations in the value of the rupiah exchange rate over the american dollar the years 2010-2019 the graph shows the movement of the fluctuations in the value of borne in the rupiah against the us dollar less stable. in 2010 the value of the rupiah exchange rate over the u.s. dollar experienced an appreciation of 4% with an average of rp. 9.081/us dollar. then in 2011 to depreciate by 1,3% due to getting in your way the impact of the economic instability in the countries of europe. from year 2010-2013 fluctuations around rp. 8000-rp.9000. in september 2013 experience the depreciation amounted to 6.3% and then re-experiencing the appreciation of 3.3% in october 2013. the rupiah is rp. 12.226 in january 2014 due to the influence of the investors. in 2015 bi lowering the exchange rate to keep the volatility of the exchange rate itself. year 2018 exchange rate reached rp. 14.292 then experienced an appreciation in the year 2019. changes in the value of the rupiah stable greatly affect the macro economy of indonesia. depreciation is the value of the rupiah exchange rate reflects the demand of the community will rupiah currency because the national economy or rising dollar as a means of international payment. the impact that occurs on the addition of the cost of imported materials raw materials which caused the price of imported goods become expensive. depreciation can also reduce the competitiveness of export products, which means that goods and services in indonesia, will be expensive if seen from the value of the dollar. in general, the relationship in the form of purchasing power parity prevails in developing countries, which stated that the currency classified as soft (soft currency). in indonesia itself using a system of free floating exchange rate, where in this system does not involve the intervention of the government and the fluctuations of the exchange rate is influenced by the money market. by using a system of free floating exchange rate, economists distinguish exchange rate into two, namely the nominal exchange rate and the real exchange rate. the nominal exchange rate is the degree to which people can trade in a country's currency to buy another country's currency. while the real exchange rate is the level where people can trade goods produced by the two countries. the hypothesis that famous in the science of economics is the law of one price (the law of one price) or commonly referred to as purchasing power parities (purchasing power parity) states that the goods be not be sold at different prices in different locations at the same time. the percentage change in the nominal exchange rate between the currencies of two 6,000.00 7,000.00 8,000.00 9,000.00 10,000.00 11,000.00 12,000.00 13,000.00 14,000.00 15,000.00 16,000.00 2 0 1 0 j a n u a ri 2 0 1 0 m e i 2 0 1 0 s e p te m b e r 2 0 1 1 j a n u a ri 2 0 1 1 m e i 2 0 1 1 s e p te m b e r 2 0 1 2 j a n u a ri 2 0 1 2 m e i 2 0 1 2 s e p te m b e r 2 0 1 3 j a n u a ri 2 0 1 3 m e i 2 0 1 3 s e p te m b e r 2 0 1 4 j a n u a ri 2 0 1 4 m e i 2 0 1 4 s e p te m b e r 2 0 1 5 j a n u a ri 2 0 1 5 m e i 2 0 1 5 s e p te m b e r 2 0 1 6 j a n u a ri 2 0 1 6 m e i 2 0 1 6 s e p te m b e r 2 0 1 7 j a n u a ri 2 0 1 7 m e i 2 0 1 7 s e p te m b e r 2 0 1 8 j a n u a ri 2 0 1 8 m e i 2 0 1 8 s e p te m b e r 2 0 1 9 j a n u a ri 2 0 1 9 m e i 2 0 1 9 s e p te m b e r https://creativecommons.org/licenses/by/4.0/ analysis between inflation, exports, imports, and interest rate on exchange rate in indonesia 2010-2019 44 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) countries is equal to the percentage change in the real exchange rate is added with the difference in the rate of inflation in both countries. this analysis shows how monetary policy affects the nominal exchange rate. the growth of the money supply that led to high inflation. the consequences of high inflation is a currency will depreciate (mankiw, 2007). to overcome the instability of the economy because the rate of inflation increased. the central bank sets policy by raising interest rates so that the circulation of money in the community is reduced. when the central bank increases the interest rate then the flow of capital into the country it will be increasing foreign exchange in the country. this causes the value of the rupiah exchange rate over the u.s. dollar experienced an appreciation. however, the situation is opposite if the central bank lowers the interest rate in the country. investors are likely to be pulling their capital out of the country and invest funds to countries that have more certainty in the economy. the relationship between the interest rate to fluctuations in the value of the rupiah exchange rate over the american dollar can be explained through the theory of interest rate parity or parity of interest rates, where this theory states that the exchange rate can be determined if the level of interest rates between two countries is the same. this theory also states that the interaction between market participants and the state will affect the flow of capital between countries. the above explanation is in accordance with research conducted by kadek arya diana and ni putu martini dewi (2017) with the title “analysis of the factors that affect the value of the rupiah exchange rate over the united states dollar in indonesia” the results of the research says that interest rates have a positive influence and significant impact on the value of the rupiah exchange rate over the american dollar. that is, the increase or decrease in the interest rate is not necessarily influence on exchange rate fluctuations. the results of these studies are also supported by research conducted by hazizah, viphindrartin, and zalnuri (2017) with the title “the influence of jub, interest rates, inflation, exports and imports to the value of the rupiah exchange rate over the dollar of the united states”. next on the variable inflation does not give effect to the exchange rates for the us dollar, it is because the economic conditions in each country is different. based on the theory of ppp, said that the inflation rate will weaken the currency exchange rate. in general, rising prices of goods in the country, the price of goods in the country will rise, so will lose currency exchange rate. the results of this study are supported by research conducted by silitonga, isaac, and mukhlis with the title “the influence of exports, imports, and inflation to exchange rate of the rupiah in indonesia,” stated that inflation does not have a significant influence on the exchange rate. 2. literature study the rate is used as a medium of exchange to conduct international trade with many countries. the exchange rate is divided into two, namely the fixed exchange rate and the real exchange rate, while in indonesia, this time using a free floating exchange rate system where the sistemn only rely on the activities of money market and does not involve the intervention of the government. the us dollar is used as a means of exchange to perform activities of international trade can be explained in the model mundell-flemming where on this model explains the relationship between the money market and the goods market in an open economy, thus giving rise to exchange rate of the country's other then make an agreement with the value of the domestic exchange rate to be used as a medium of exchange. the price level in each country is different so it takes the value of the exchange rate as a means of exchange for trade. https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 45 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) supply and demand occurs on the money can also affect the depreciation or appreciation of a country's currency. purchasing power parity theory for maintain the stability of exchange rate fluctuations top dollar by testing the theory of purchasing power parities (purchasing power parity theory). this theory connects between the fluctuations of the exchange rate with the rate of inflation. conceptually, this theory linking the price of an item in an open economy will be equal to the price of goods in another country after converted through a unit of exchange rates. according to cassel (1918) one of the theories that explain the relationship between the inflation rate and the exchange rate is the theory of purchasing power parity with the arguments of one price (the law of one price), that is if the trade is completely free and there are no barriers of any kind then one item definitely sold anywhere in the world with the same price. if the price of goods in two different countries would be the same if judged by the same currency. international trade this approach is seen that the exchange rate between the two currencies of both countries can be determined by the size of the trade in goods and services of the two countries. seen from international trade, the equilibrium exchange rate is the exchange rate which can balance the activities of export and import that are performed by the two countries. if imports of a country larger than exports then it will happen a trade deficit that causes the exchange rate to depreciate. the depreciation of the exchange rates of this currency also will lead to a reduction in imports and increase exports, it is done to restore the state of the trade balance. there are several theories that explain the emergence of international trade in the fundamental that is expressed by some experts of classical economics, adam smith declared adakanya the benefit of absolute (absolute advantage), j. s. mill declared a country will export goods that have comparative advantage the largest and import goods that have a comparative disadvantage and david ricardo also argued that the theory of the cost of the relative (comparative cost). interest rate parity this theory also states that the interaction between market participants and the state will affect the flow of capital between countries. monetary policy will affect the exchange rate through the comparison of domestic interest rates to international interest rates and capital inflow. monetary policy are taken by the bank of indonesia will push nominal interest rates increased domestic where international interest rates are considered constant, so that the parity of interest rates will rise and give impact to the investors so that capital can flow entered into in the country so as to make the rupiah appreciated. the hypothesis in this study, among others: h1: the inflation rate has a positive influence on the value of the rupiah exchange rate over the american dollar. h2: the export activities have a negative effect on the value of the rupiah exchange rate over the american dollar. h3: import activities have a positive influence on the value of the rupiah exchange rate over the american dollar. h4: the level of rates has a positive influence on the value of the rupiah exchange rate over the american dollar. https://creativecommons.org/licenses/by/4.0/ analysis between inflation, exports, imports, and interest rate on exchange rate in indonesia 2010-2019 46 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) 3. research methodology the variables used in this study is the dependent variable and the independent variables. the dependent variable is a variable that is very important in a study, on varabel bound can not stand alone as the independent variable and the dependent variable is very easy to get to the influence of other variables as independent variables. the dependent variable used is the value of the rupiah exchange rate over the american dollar (usd). while the independent variable is the variable that is able to stand on its own without the help of the other variables, the independent variable between alain rate of inflation (%), export activities (rp), imports (rp), and the level of interest rates (%). the type of data used in this research is time series data from the years 2010 until 2019 with data. the data obtained from multiple official website such as statistik.kemendag.go.id, trade.go.id/exchange-rates, bps.go.id, kemendag.go.id, seki.bi.go.id and fred.stlouisfed.org/. then the data was processed using the analysis tools eviews by the method of var/vecm to look at the relationship of short-term and long-term between the variables. var is used to project a system with a variable using the sequence of time and analyze the impact of the factor of disorders which are of such a system. analysis of var has similarities with the equations simultaneously because in the analysis of var consider the variableendogenous variables simultaneously in a single equation. while the vecm or restristed var busted up one of the var models used if there is data that is not terkointegrasi, vecm introduced by cristoper a. sims (1980). the following equation of the var/vecm: ert = α01 + ∑ α𝑦𝑡−𝑖 𝑘 𝑖=1 + ∑ β𝑖𝐼𝑁𝐹𝑡−𝑖 𝑘 𝑖=1 + ∑ 𝑦𝑖𝐸𝑋𝑡−𝑖 𝑘 𝑖=1 + ∑ δ𝑖𝐼𝑀𝑃𝑡−𝑖 𝑘 𝑖=1 + ∑ θ𝑖𝑆𝐵𝑡−𝑖 𝑘 𝑖=1 + ε1t inft = α02 + ∑ α𝑦𝑡−𝑖 𝑘 𝑖=1 + ∑ β𝑖𝐼𝑁𝐹𝑡−𝑖 𝑘 𝑖=1 + ∑ 𝑦𝑖𝐸𝑋𝑡−𝑖 𝑘 𝑖=1 + ∑ δ𝑖𝐼𝑀𝑃𝑡−𝑖 𝑘 𝑖=1 + ∑ θ𝑖𝑆𝐵𝑡−𝑖 𝑘 𝑖=1 + ε2t ext = α03 + ∑ α𝑦𝑡−𝑖 𝑘 𝑖=1 + ∑ β𝑖𝐼𝑁𝐹𝑡−𝑖 𝑘 𝑖=1 + ∑ 𝑦𝑖𝐸𝑋𝑡−𝑖 𝑘 𝑖=1 + ∑ δ𝑖𝐼𝑀𝑃𝑡−𝑖 𝑘 𝑖=1 + ∑ θ𝑖𝑆𝐵𝑡−𝑖 𝑘 𝑖=1 + ε3t impt = α04 + ∑ α𝑦𝑡−𝑖 𝑘 𝑖=1 + ∑ β𝑖𝐼𝑁𝐹𝑡−𝑖 𝑘 𝑖=1 + ∑ 𝑦𝑖𝐸𝑋𝑡−𝑖 𝑘 𝑖=1 + ∑ δ𝑖𝐼𝑀𝑃𝑡−𝑖 𝑘 𝑖=1 + ∑ θ𝑖𝑆𝐵𝑡−𝑖 𝑘 𝑖=1 + ε4t sbt = α05 + ∑ α𝑦𝑡−𝑖 𝑘 𝑖=1 + ∑ β𝑖𝐼𝑁𝐹𝑡−𝑖 𝑘 𝑖=1 + ∑ 𝑦𝑖𝐸𝑋𝑡−𝑖 𝑘 𝑖=1 + ∑ δ𝑖𝐼𝑀𝑃𝑡−𝑖 𝑘 𝑖=1 + ∑ θ𝑖𝑆𝐵𝑡−𝑖 𝑘 𝑖=1 + ε5t description: er : exchange rate inf : inflation ex : export imp : imports sb : interest rates α : constant i : the length of the lag ε : shock/ shocks 4. result and discussion on the method of analysis of var/vecm there are several tests that need to be done, namely test stationary, the determination of the lag, stability test, test koeintegrasi, test causality, the estimated vecm, the analysis of impulse response function, the analysis of variance decomposition. the data that has passed the test of stationary and test koeintegrasi can then estimate the vecm to see the relationship of short-term and long-term between the variables. https://creativecommons.org/licenses/by/4.0/ https://fred.stlouisfed.org/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 47 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) table 1. stationarity test the research variables augmented dickey fuller test levels level description level first difference specification er 0.8094 not stationary 0.0000 stationary inf 0.0000 stationary 0.0000 stationary ex 0.0750 not stationary 0.0000 stationary imp 0.1448 not stationary 0.0000 stationary sb 0.6155 not stationary 0.0000 stationary from the table it can be seen that all the variables are stationary at level and first difference with a level of 5% or the probability is less than 0.05. while at the level of the level of only the variable of inflation that pass the test of stationary, but in a variable exchange rate, exports, imports, and interest rates are not stationary. it can be seen from the test results stationernya by 0.8094 for the exchange rate, 0.0750 for export, 0.1448 to import, and 0.6155 to interest rates. table 2. cointegration test the level of cointegration value trace statistic value of the critical value none * 199.9711 60.06141 at most 1 * 100.9223 40.17493 at most 2 * 50.91195 24.27596 at most 3 * 23.52487 12.32090 at most 4 * 11.36207 4.129906 on the cointegration test also indicates that the data passed from the cointegration test marked than is the magnitude of the value trace statistic than the critical value , namely the value of trace statistics by 199.9711 greater than the value of the critical value of 60.06141. because the data has passed the test koeintegrasi and test stationary, then it can be done the estimated vecm. the following is the estimated vecm. table 3. the estimated vecm short-term variable coefficient t-statistics inf 141.223 -2.28518 ex 0.03546 0.12495 imp 0.02722 -0.56529 sb 156.728 1.95696 it can be seen that the estimation of vecm only variable inflation has a short-term relationship, it is seen from the more the value of t-statistics than t-table value (1.98). the value of t-statistics on the variable inflation of 2.28518, while on the variables of export, import, and interest has a value of t-statistics below the value of t-table is 0.12495, 0.56529, and 1.95696 sequentially. https://creativecommons.org/licenses/by/4.0/ analysis between inflation, exports, imports, and interest rate on exchange rate in indonesia 2010-2019 48 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) table 4. the estimated vecm long-term variable coefficient t-statistics inf 1815.35 8.50062 ex 0.38671 2.22399 imp 0.37309 0.15879 sb 340.928 0.33908 on the relationship of long-term penjang there are two variables that have a long-term relationship to the value of the rupiah exchange rate over the american dollar is the variables of inflation and exports. where the variable inflation and export has the value of t-statistic is greater than t-table that is equal to 8.50062 and 2.22399 in a row. whereas in a variable import and flowers do not have long-term relationships because the value of t-statistic is smaller than t-table that is equal to 0.15879 and 0.33908 in a row. the relationship between the rate of inflation to exchange rate of the rupiah over the american dollar based on the results of the estimation using the vecm, short-term relationship between inflation and exchange rate fluctuations in the short term to obtain the value of the coefficient of 141.223. by using the value of t-table is of 1.98 at alpha 0.05% can be interpreted that the presence of a short-term relationship a positive and significant correlation between the rate of inflation to fluctuations in the value of the exchange rate for the indonesian rupiah is the top u.s. dollar. a positive sign that there are on the coefficient indicates that when inflation increases then it will effect on the increase in the value of the rupiah exchange rate top dollar or can be said if inflation increases, then the rate weaken or depreciate. it is the same as the effect on the long-term is the value of the coefficient of 1815.35. the value of the coefficient is more than the value of t-table 1,98 at alpha 0.05%, indicating the presence of positive and significant influence between the rate of inflation and the fluctuations of the exchange rate for the indonesian rupiah against the us dollar. these results are in accordance with the theory of purchasing power parity, because when inflation recalled the value of the rupiah exchange rate over the american dollar will depreciate. research is also in line with research conducted by zumrotudz dzakiyah, zarah puspitaningtyas, yeni puspita (2018) with a paper entitled “the influence of the amount of the value of exports and the rate of inflation to exchange rate of the rupiah years 2009-2016” with the results of the relationship between the inflation rate and exchange rate fluctuations provide a positive and significant influence the relationship between export activity with the value of the rupiah exchange rate over the american dollar based on the results of the estimation of test vecm, shows the relationship of shortterm and long-term between export activities and the fluctuations in the exchange rate. the relationship between exports and exchange rate in the short term can be seen in the value of the coefficient of 0.03546, the value is less than the value that is on a t-table that is equal to 1.98 use alpha 0.05%. from the comparison of these values can be interpreted that the activities of export does not have a significant influence on exchange rate fluctuations. a positive sign that exist on the value of the coefficient of states if the export activities have increased the https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 49 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) value of the rupiah exchange rate over the dollar also increased or exchange rate depreciates. different with the relationship between exports and exchange rate fluctuations in the long term, seen from the value of the coefficient of 0.38671. by using the t-table value of 1.98 with alpha 0.005% can be interpreted that the relationship between export activity and fluctuations in the value of exchange rate is positive and significant. the same as in the short term, a positive sign that exist on the value of the coefficient means that if the export activities have increased the value of the exchange rate for the indonesian rupiah is the top u.s. dollar also be increased or it can be said that the exchange rate depreciates. this research is in line with research conducted by candra mustika, ethics umiyati, and erni achmad (2015) with the title “analysis of the effect of net exports to exchange rate of the rupiah against the u.s. dollar and economic growth in indonesia”. the results of these studies say that net exports have a positive and significant influence on the exchange rate. however, the results of this study are not in accordance with the hypotheses and theories that explain. on the theory explains that when the number of exports that is done then the value of the rupiah exchange rate over the u.s. dollar experienced an appreciation but on the results of this instead of the opposite. this happens due to the presence of import activities on the material of the raw materials to produce goods that will be exported. the relationship between the activities of the imports with the value of the rupiah exchange rate over the american dollar based on the results of the estimation of test vecm, the relationship between the activities of import and exchange rate fluctuations in the short term to obtain the value of the coefficient of 0.02722. with using t-tables of 1.98 at alpha 0.05% can be interpreted that in the short term the import activity has no significant effect on exchange rate fluctuations. the same as in the short term, in the long-term relationship between the activities of import and fluctuations in exchange rates also did not have a significant effect. it is seen from the value of the coefficient of 0.37309 greater than the value of t-table by 1,98 at alpha 0.05%. in the shortterm and long-term together to provide a positive sign, that is when the imports increased then the fluctuations in exchange rates also increased or in other words the exchange rate to depreciate. this is in line with research conducted by nurul hazizah, zainuril, sebastiana viphindrartin (2017). the value of imports of the higher will increase the value of the exchange rate so that the rate become weaker, the expectations of the activities of such imports followed by an increase in foreign exchange used to pay for goods imported into the country. the relationship between the level of rate of interest with the value of the rupiah exchange rate over the american dollar after the test vecm, produce an estimate on the value of the coefficient of 156.728. by using the t-table value of 1.98 at alpha 0.05% can be interpreted that in the short-term relationship between the level of the tribe of interest and exchange rate fluctuations did not have a significant effect. the same as in the short term, the relationship between interest rate and exchange rate fluctuations in the long-term also does not have a significant effect. it can be known from the value of the coefficient of 340.928 by using the t-table value of 1,98 at alpha 0.05%. the sign is positive given on short term and long term can give the sense that if the interest rate increases, exchange rate fluctuations over the american dollar will also increase or it can be said that the exchange rate depreciates. https://creativecommons.org/licenses/by/4.0/ analysis between inflation, exports, imports, and interest rate on exchange rate in indonesia 2010-2019 50 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) the results of such research in accordance with the theory of interest rate parity because when the interest rate increases, the flow of capital inflow is also increased so that the circulation of foreign exchange in the country is increased and make the value of the rupiah exchange rate over the american dollar has appreciated. this study is also in accordance with the research conducted by nurul hazizah, zainuril, sebastiana viphindrartin (2017) with the title “the influence of jub, interest rates, inflation, exports, and imports to the value of the rupiah exchange rate over the dollar of the united states” with the results of the level of interest rates does not have a significant influence on the fluctuations in the value of the exchange rate 5. conclusion based on the research that has been done on the analysis of the relationship between the rate of inflation, the import export activities, the level of interest rates to fluctuations in the value of the rupiah exchange rate over the american dollar in indonesia during the period of 2010 to 2019 using monthly data by the method of analysis of var/vecm can be concluded that the empirical findings on the growth of the economy shows the results of research in accordance with the hypothesis of the study except in the variable export activities that have the hypothesis of a negative however, the results in this study give positive results. this happens because there are import activities conducted on the material of the raw materials to manufacture goods that will be exported. so the more items that will be exported then the higher of the raw materials will be imported so the demand for u.s. dollars increases and makes the rupiah depreciated. variables in addition to the export activity, i.e. the rate of inflation, imports, and the level of interest rates give results that are in line with theory and hypothesis. from the results of this study, it is suggested some policies, namely: (1) to control the rate of inflation can be applied monetary policy by raising interest rates so that the circulation of money in the community is reduced and decrease the rate of inflation, while the fiscal policy can be applied to reduce government spending. (2) to reduce the use of imported material in the process of production of export goods, the government can conduct a policy of import quotas to export materials and to better utilize the resources you have available. (3) the determination of the tariff policy to protect goods local, so local goods can compete in the market. (4) the provision of subsidies to reduce the price of local goods. (5) control of interest rates to maintain the stability of the rupiah exchange rate over the american dollar. the study also does not terlebas of the limitations experienced. the limitations in this study, the lack of series a time used, therefore for further research it is recommended to add a series of time so that the results obtained from the analysis with the model vecm can be used effectively. reference achsan, n. a., fauzi, a. j., & abdullah, p. 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(2017, juni). pengaruh ekspor, impor dan inflasi terhadap nilai tukar rupiah di indonesia. jurnal ekonomi pembangunan, 15, 53-59. the effect of income, savings, education level, number of household members, and household criteria (smoker and non-smoker) on household consumption expenditure in sungailiat district 31 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) the effect of income, savings, education level, number of household members, and household criteria (smoker and non-smoker) on household consumption expenditure in sungailiat district khoirun nisa*, hidayati, nanang wahyudin universitas bangka belitung, bangka belitung, indonesia abstract the purpose of this research is to analyse and determine the effect of income, savings, education level, number of household members, and household criteria (smoker and non smoker) on household consumption expenditure in sungailiat district. this study relied on primary data from 100 household in sungailiat district. data analysis was performed with multiple linier regression. the results demonstrated and partially income, number of household member, and household criteria (smoker and non-smoker) had a positive and significant effect. savings showed a negative and significant effect. meanwhile, education level provided a positive and insignificant effect. simultaneously income, savings, eduation level, number of household member, and household criteria (smoker and non-smoker) affected household consumption expenditure in sungailiat district. on average, sungailiat district residents use nearly all of their earnings on consumption. most consumption expenditures are made to meet food needs. household with smoker spend more money on consumption than non-smokers. keywords: household consumption, income, savings, education, number of household members, household criteria (smokers and non-smokers) 1. introduction economic factors that can affect the level of household consumption are household income, consumption of durable goods, future living conditions, household wealth, interest rates, and reduced inequality in income distribution from government policies. demographic factors that can affect consumption expenditure include population size and population consumption. while non-economic factors that can affect the level of consumption are social and cultural factors such as diet, education level, principles, morals, and norms that adapt to the surrounding environmental conditions (rahardja and manurung, 2008). currently, urban communities are increasingly showing a consumptive attitude by prioritizing wants over needs. if someone applies a consumptive pattern in meeting their needs, then no matter how much income someone gets, they will not feel enough (wulan, 2018). based on data from the central statistics agency (bps) of bangka regency, the average consumption expenditure of the people of bangka regency every year always increases. the development of the average household consumption in bangka regency can be seen in figure 1. *coressponding author. email address: anissa737737@gmail.com https://creativecommons.org/licenses/by/4.0/ mailto:anissa737737@gmail.com afebi economic and finance review (aefr) volume 7, no 1 (2022) 32 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) figure 1 average household consumption bangka regency (million rupiah) in 2019 source: bangka regency bps, 2021 from figure 1, it can be seen that the average household consumption expenditure in bangka regency from 2015 to 2019 has increased every year. the tendency for an increase in household consumption expenditures every year can be caused by the high growth and population in bangka regency, especially in sungailiat district which has a larger population than other sub-districts in bangka regency (statistics bangka regency, 2019). the large number of residents can create a diversity of perceptions in determining spending for their respective household consumption. for some households, food consumption is important and must be satisfied in large quantities. while for others, they think that there are other consumptions such as health care that must be fulfilled so that food consumption can be done in small quantities (wulan, 2018). this difference also occurs in sungailiat district. moreover, sungailiat district is the sub-district with the largest population among other sub-districts in bangka regency. the number of households in sungailiat district is 29,004 households. there is an imbalance in the distribution of the population between sub-districts in bangka regency, as well as villages and villages in sungailiat district. the highest population distribution of bangka regency is in sungailiat district, which is 30.46 percent. sungailiat district is the capital of bangka regency. meanwhile, the highest population in sungailiat district is in sungailiat village with 6,701 households. another factor that can affect household consumption expenditure is the smoking habit of members in a household. in a study conducted by ginting (2020), the expenditure made for the consumption of cigarettes by a family member can lead to deviations in household consumption expenditures either directly (crowding-out) or indirectly. 56,000 58,000 60,000 62,000 64,000 66,000 68,000 70,000 72,000 2015 2016 2017 2018 2019 https://creativecommons.org/licenses/by/4.0/ the effect of income, savings, education level, number of household members, and household criteria (smoker and non-smoker) on household consumption expenditure in sungailiat district 33 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) figure 2 average per capita cigarette expenditure bangka regency source: bangka regency bps, 2021 as shown in figure 2, the average monthly per capita expenditure on cigarettes in bangka regency tends to increase every year. in 2015 household expenditure on cigarettes amounted to 84,014 rupiah. the year 2016 decreased from 2015 which was 74,238 rupiah. in 2017 again experienced an increase from the previous year of 89,783 rupiah. in 2018, the average monthly per capita cigarette expenditure again decreased by 88,499 rupiah. in 2019 there was a significant increase with a value of 103,910 rupiah and in 2020 it increased by 104,013 rupiah. 2. literature study consumption theory according to mankiw (2014), consumption carried out by a household consists of three, namely non-durable goods such as food, beverages, soap, toothpaste. second, durable goods, such as vehicles, cell phones, and household appliances. third, service consumption is the consumption of intangible goods by households in meeting secondary needs including education, health services, and others. john maynard keynes consumptiontheory in his theory, keynes states that current consumption is influenced by disposable income. even if there is no income or income equals zero, consumption must still be met. an increase in disposable income will lead to an increase in consumption even though the increase is smaller than the disposable income. the keynes consumption function is often written: 𝐶 = 𝐶0+ b𝑌𝑑 ……………………………….1 information: c : consumption value c0 : autonomous consumption b : marginal propensity to consume (mpc) byd : disposable income keynes' theory of consumption is based on three assumptions. these allegations include the propensity to consume (mpc = marginal propensity to consume), the average 0 20,000 40,000 60,000 80,000 100,000 120,000 2015 2016 2017 2018 2019 2020 https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 34 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) consumption (apc = average propensity to consume), and income is the most important determinant of consumption (sukirno, 2010). irving fisher consumption theory fisher's model removes the obstacles experienced by consumers, the tastes of consumers, and how the obstacles that occur together make decisions on saving and consumption. this theory contains individual decisions in carrying out consumption activities in accordance with current conditions and future estimates (mankiw, 2014). james duesenberry consumption theory james duesenberry issued a consumption theory of the relative income hypothesis which aims to restore the relationship between consumption and income that is balanced with unbalanced to obtain an explanation of the causes of the emergence of different consumption patterns in each individual. according to duesenberry, individual consumption expenditures are not measured based on current income, but depend on the achievement of the highest income by the individual (prabowo, 2017). income theory based on the phenomenon that often occurs, the addition of income does not only affect the amount of goods consumed, but also can improve the quality of the goods consumed. for example, when income increases, someone will buy rice in large quantities and of better quality than before (soekartawi, 2002). saving theory the desire to ensure consumption in the future makes a person have the desire to save. circumstances and conditions in the future can not be predicted. to deal with this uncertainty, savings can be used as reserves to ensure a good life in the future (prabowo, 2017). education level theory heads of families who have a high level of education will make household consumption expenditures even greater because apart from being used for large consumption, households with high incomes will use most of their income to be saved or invested. on the other hand, poor families are identical to the level of education and low income of the head of the household will cause almost all of the income to be used for consumption in small amounts (ananda, 2015). number of household members theory the number of household members has an effect on household consumption. the more members of the household, the need for consumption, especially food consumption, will also be large according to the number of family members. (agustin, 2012). household criteria (smoker and non smoker) theory in the short term, smoking can reduce living standards by diverting household income sources for basic needs. cigarette spending can reduce nutritional adequacy status for households with low income levels due to reduced allocation of household consumption expenditures for staple foods and health care (sari, 2017). 3. research methodology data the data collection methods in this study were: distributing questionnaires, heritage studies, and supporting secondary data from related agencies such as the central statistics agency for the province of bangka belitung islands and bangka regency and the regional development planning agency (sugiyono, 2016). https://creativecommons.org/licenses/by/4.0/ the effect of income, savings, education level, number of household members, and household criteria (smoker and non-smoker) on household consumption expenditure in sungailiat district 35 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) model the analytical tool used in this study is the method of multiple linear regression analysis. multiple linear regression analysis is useful to see the effect of income, savings, education level, number of household members, and household criteria on household expenses in sungailiat district. the multiple linear regression equation model of this study is: 𝑬𝑯𝑪𝒊 = 𝜶 + 𝒃𝟏𝑰𝑵𝑪𝒊 𝒃𝟐𝑺𝑨𝑽𝒊 + 𝒃𝟑𝑬𝑫𝑼𝒊 + 𝒃𝟒𝑭𝑨𝑴𝒊 + 𝒃𝟓𝑯𝑪𝑹𝒊 + 𝜺𝒊……………………………………………2 information : 𝐸𝐻𝐶𝐼 : household expenditure 𝛼 : regression constanta 𝐼𝑁𝐶𝑖 : income 𝑆𝐴𝑉𝑖 : saving 𝐸𝐷𝑈𝑖 : education level 𝐹𝐴𝑀𝑖 : number of family members 𝐻𝐶𝑅𝑖 : household criteria (smoker and non smoker) 𝜀𝑖 : error term i : cross section research hypothesis the hypothesis is a temporary estimate of the formulation of a research problem. pre-existing theories are used as the basis for guessing. based on the theory that has been described, the hypothesis is written as follows: 1. income has a positive and significant effect on household consumption expenditure in sungailiat district. 2. savings have a negative and significant effect on household consumption expenditures in sungailiat district. 3. education level has a positive and significant effect on household consumption expenditure in sungailiat district. 4. the number of family members has a positive and significant effect on household consumption expenditure in sungailiat district. 5. household criteria (smokers and non-smokers) have a positive and significant effect on household consumption expenditure in sungailiat district. 6. income, savings, education level, number of household members, and household criteria (smokers and non-smokers) have a positive and significant effect on household consumption expenditure in sungailiat district. 4. result and discussion multiple linear regression analysis this study uses multiple linear regression analysis which is useful to determine the effect of each independent variable consisting of education, savings, education level, number of household members, and household criteria (smokers and non-smokers) on the dependent variable which is consumption expenditure. households in sungailiat district. https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 36 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) table 1. multiple linear regression test results model coefficients sig. (constant) 202186.784 0.000 income 0.609 0.000 saving -0.173 0.606 eduvation level 17385.956 0.186 number of family members 210723.826 0.000 household criteria (smoker and non smoker) 116907.601 0.040 source: processed by researchers, 2021 based on table 4.1, the results of multiple linear regression testing are as follows: 𝑬𝑯𝑪𝒊 = −𝟐𝟎𝟐𝟏𝟖𝟔, 𝟕𝟖𝟒 + 𝟎, 𝟔𝟎𝟗 𝑰𝑵𝑪𝒊 – 0,173 𝑺𝑨𝑽𝒊 + 17385,956 𝑬𝑫𝑼𝒊 + 210723,826 𝑭𝑨𝑴𝒊 + 11690,601 𝑯𝑪𝑹𝒊 the equation model obtained from the regression results shows that the constant value is -202186.784 which indicates that if all variables in the research model are equal to zero, then household consumption expenditure in sungailiat district is -202.186,784 rupiah. if income increases by 1,000 rupiah, it will increase household consumption expenditure by 609 rupiah, provided that other variables are constant. the regression coefficient value for the saving variable is -0.173 percent, indicating that savings will decrease by 173 rupiah when consumption expenditure increases by 1,000 rupiah. the regression coefficient value for the education level variable is 17385.956 which indicates that the higher the level of formal education completed by the head of the household with 1 level of education, the household consumption expenditure in sungailiat district will increase by 17,385,956 rupiah. the value of the regression coefficient for the variable number of household members is 210723.826 indicating that if the number of household members increases by 1 person, it will increase household consumption expenditure in sungailiat district by 210,723,826 rupiah. the value of household criteria (smokers and non-smokers) has a positive and significant effect. the regression coefficient value for household criteria variables (smokers and non-smokers) is 116907,601. this indicates that the household criteria (smokers and non-smokers) will increase their household consumption expenditure by 116,907,601 rupiah if the household has a smoking habit. hypothesis testing partial significance test (t test) the results of the t test can be seen in table 4.2. table 2. partial significance test results (t-test) model t sig. (constant) -1.562 0.000 pendapatan 15.026 0.000 tabungan -0.517 0.606 tingkat pendidikan 1.333 0.186 jumlah anggota rumah tangga 6.709 0.000 kriteria rumah tangga (perokok dan non perokok) 2.078 0.040 source: processed by researchers, 2021 https://creativecommons.org/licenses/by/4.0/ the effect of income, savings, education level, number of household members, and household criteria (smoker and non-smoker) on household consumption expenditure in sungailiat district 37 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) based on table 4.2, it can be seen that the results of the t-test conducted regarding the effect of the independent variables on the dependent variable showed that the income variable, number of household members, and household criteria (smokers and nonsmokers) had a positive and significant effect on household consumption expenditure in sungailiat district. . savings have a negative and insignificant effect on household consumption expenditures in sungailiat district. the level of education has a positive and insignificant effect on household consumption expenditure in sungailiat district. simultaneous significance test (f test) to find out whether the independent variables together have an influence on the dependent variables then used test f table 3. simultaneous significance test results (statistical test f) model sum of square df mean square f sig. regression 7.244 5 1.449 215.491 0.000 residual 6.320 94 6.723 total 7.876 99 source: processed by researchers, 2021 based on table 4.3, the results of the f test show that income, savings, education level, number of household members, and household criteria (smokers and non-smokers) have a positive and significant effect on household consumption expenditure in sungailiat district with probability values of income, savings, education level , number of household members, and household criteria (smokers and non-smokers) of 0.000 < 0.10. coefficient of determination test (𝑹𝟐) the test results the coefficient of determination (r2) is shown in table 4.8: table 4. coefficient of determination test (𝑹𝟐) model r r square adjusted r square std. error of the estimate 1 0.959 0.920 0.915 259294.815 source: processed by researchers, 2021 based on table 4.4, the coefficient of determination of income, savings, education level, number of household members, and household criteria (smokers and non-smokers) is able to explain the variable household consumption expenditure in sungailiat district by 92 percent and the remaining 8 percent is influenced by other factors not referred to in this study such as interest rates, use of credit, and working hours. the influence of income on household consumption expenditure in sungailiat district. the results of this study are in line with research conducted by ananda, 2015, masykur et al, 2015 and adiana et al 2012 which state that income has a positive and significant effect on household consumption. based on the results of interviews, households with low incomes will buy foodstuffs with lower prices and quality, such as consuming rice with cheaper brands. households with low incomes will try to get their https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 38 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) children to attend public schools on the grounds that by attending public schools, households pay lower tuition fees than private schools. low-income households also spend less on health by choosing bpjs class 3 with lower costs. the influence of savings on household consumption expenditures in sungailiat district the results showed that savings had a negative and insignificant effect on household consumption expenditures. this is in line with research conducted by kartikawati (2017) and vera paulin kay (2013) which states that saving has a negative effect on household consumption expenditure. the household's decision to save will have a negative effect on household consumption because any increase in consumption will reduce the amount of household saving. households will save more and poor people will save less because in poor households consumption expenditure will be more than the income earned. meanwhile, for wealthy households, savings are obtained from household income that is not consumed. therefore, the greater the consumption expenditure, the smaller the savings. this can happen because it is influenced by the education level of the head of the household who on average has a high school diploma. the high level of education of the head of household makes households have the initiative to think about their future. the influence of the education level of the head of the household on household consumption expenditures in sungailiat district the results of this study are in line with research conducted by masykur et al (2015) which states that the level of education has no significant effect on the consumption of poor households in west aceh regency. low and high income households in sungailiat sub-district consume not too much different. households with higher education in sungailiat district are dominated by household heads who work in the formal sector such as civil servants and tin employees. meanwhile, households with low education are dominated by household heads who work in the informal sector such as daily laborers. however, there are still many heads of households in sungailiat district who are highly educated but have low incomes due to the narrow employment opportunities and large population in sungailiat district and bangka district. this increasing need is not only limited to food needs but also includes the need for information, higher social status in society and the need for recognition from others. the effect of number of household members on household consumption expenditure in sungailiat district the results of the study are in line with research conducted by prabowo (2017) which states that the number of families has a positive and significant effect on household consumption. this can happen because every member of the household needs food intake every day. the more household members, the higher consumption expenditure, especially in terms of food and basic needs. this also applies to the opposite, the fewer the number of household members, the lower the expenditure on food consumption. in accordance with the facts that actually occur in sungailiat district, food consumption is the consumption that has the greatest influence on household consumption expenditure. the needs that are mostly issued by households according to the number of members in each household are food needs. https://creativecommons.org/licenses/by/4.0/ the effect of income, savings, education level, number of household members, and household criteria (smoker and non-smoker) on household consumption expenditure in sungailiat district 39 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) the influence of household criteria (smoker and non-smoker) on household consumption expenditure in sungailiat district household criteria (smokers and non-smokers) have a positive and significant impact on household consumption expenditures in sungailiat district. the results showed that the average household in sungailiat district had low and medium income, which ranged from less than rp. 1,500,000 to rp. 2,500,000 and most of the heads of households worked as daily labourers. this low and moderate income level indicates that there are still many households in sungailiat district which are classified as poor households. in addition, there are more households with smoking criteria than households with nonsmoking criteria. the results of the study are in line with research conducted by ginting el al (2020) and wulandari (2019) stating that cigarette spending has a positive and significant effect on household consumption. comparison of smoker household consumption expenditure and non-smoker household consumption expenditure figure 4.1 comparison of smoker household consumption expenditure and nonsmoker household consumption expenditure source: processed by researchers, 2021 households that have smoking household members have lower consumption expenditures than non-smoking households. household smokers will reduce consumption expenditures for food needs or other needs so that they can consume cigarettes even in small quantities. meanwhile, high-income households will not reduce spending on food needs and other needs, but rich households will reduce their level of savings to buy cigarettes. this causes the expenditure of rich households with smoking criteria to increase and be higher than non-smoking households. household smokers with low incomes consume an average of a1 cigarettes, kretek salt warehouse, lucky strike bold 12, djarum super mld, lintingan, and change brands with an average consumption frequency of 5-7 packs per week. meanwhile, household smokers with high incomes consume malboro, dunhill, dji sam soe magnum, class mild cigarettes on average with an average consumption frequency of 3-5 packs per week. the habit of consuming cigarettes can create dependence because it is addictive and causes household members to continue to smoke even though their income has decreased. household smokers with low incomes or are experiencing a decline in income will reduce cigarette consumption or buy cheaper cigarettes in order to continue to consume pengeluaran rt non perokok pengeluaran rt perokok https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 40 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) cigarettes. meanwhile, households with high incomes will continue to smoke in the same amount and brand without reducing spending on food, education, health and other expenses. different things occur in non-smoking households, which consume the most on food expenditures, other needs, and educational needs. households with household heads who work in the formal sector or are headed by female households, and households with household heads over 60 years of age prefer not to smoke. this can happen because of awareness of the dangers of smoking for physical health. 5. conclusion based on the results of the discussion and analysis of the effect of income, savings, education level, number of household members, and household criteria (smokers and nonsmokers) on household consumption expenditures in sungailiat district, it can be concluded that income, number of household members, and household criteria (smokers and non-smokers) have a positive and significant effect on household consumption expenditure in sungailiat district. savings have a negative and insignificant effect on household consumption expenditures in sungailiat district. the level of education has a positive and insignificant effect on household consumption expenditure in sungailiat district. simultaneously income, savings, education level, number of household members, and household criteria (smokers and non-smokers) simultaneously have a positive and significant effect on household consumption expenditure in sungailiat district. reference adiana, p. e., karmini. n. l. 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(2019). analisis konsumsi rumah tangga penderes di desa binangun kecamatan mrebet kabupaten purbalingga. skripsi. ilmu ekonomi studi pembangunan. fakultas ekonomi dan bisnis. universitas jenderal soedirman. https://creativecommons.org/licenses/by/4.0/ analysis of factors influence smoking behavior in poor households in west sumatera province 16 2analysis of factors influence smoking behavior in poor households in west sumatera province hefrizal handra1*, zamzami2 1,2 andalas university, padang, indonesia abstract this research is purposed to learn the behaviors of poor households in managing their income for buying cigarettes using data from the national social economic survey of west sumatera province in 2013 using ols method as a tool of analysis. results of the analysis show that the cigarette spending in percentage of income in smoker households in west sumatera province is very large, far larger than the percentage of spending for education and health. household cigarette spending is influenced by income factors, cigarette prices, number of adult male household members, area of residence, age category of the household head, and education of the household head. jel classification: d10, d31, p46 keywords: cigarette spending, ols regression, smoking household, taste intervention 1. introduction data released by the world health organization (who) (www.who.ini, may 2014) shows that smokers in the whole world have reached 1 billion people, 80% of the mentioned smokers live in a low and middle income level. spending for cigarettes especially in families with low incomes, causes a decrease in household spending for basic needs, neither for buying food nor for fulfilling education and health as an investment for escaping from poverty. west sumatera province is included in where the percentage of the poor population is moderately high, which is 7.56% (badan pusat statistik provinsi sumatera barat, 2014). the spending of cigarettes also take a large amount of spending, as an illustration, the average tobacco household spending reaches 6.64% in the city, but it reaches 9.71% in rural areas (badan pusat statistik provinsi sumatera barat, 2014). from the number of cigarettes that are smoked each day the average smoker with an age of 10 years and above in west sumatera province are 15.8 cigarettes/day which is the fourth highest in indonesia (badan penelitian dan pengembangan kesehatan ri, 2013). with the mentioned illustration, the spending of cigarettes will give a large consequence to the difficulty of the eradication of poverty and causes a large waste in every layer of society in west sumatera province. * corresponding author. email address: hefrizal@yahoo.com http://www.who.ini/ mailto:hefrizal@yahoo.com analysis of factors influence smoking behavior in poor households in west sumatera province 17 if we compare with the spending for education as an important factor for increasing productivity and to decrease poverty numbers, the proportion for cigarette spending reaches 1.33 times for the cities compared to education spending. for the rural areas the proportion of cigarette spending is even larger, reaches 3.6 times spending for education. according to elfindri et. all (2008) poor families in west sumatera have an impact on the chance of children not schooling. in two periods of research in 1999 and 2003, the probabilities of children from poor families which are not in school increased in comparison to the children from wealthier families. based on the above explanation and lack of academic paper that discusses about the spending of cigarettes in poor households in west sumatera province, the objectives of this research are as follow: 1. describing profiles of poor households that have spending for cigarettes in west sumatera province. 2. analyzing factors that influence the spending of cigarettes in poor households in west sumatera province. 2. theoretical framework and previous research in conventional economics, the studies discuss more about the behavior of consumers, determination of prices, markets, corporations in the production scale and welfare economics. for that, in health economics the study approach should move from the concept of macroeconomics to the concept of household economics (elfindri, 2003). in household economics, the individual will be satisfied by consuming certain goods and services but it is not necessary that the individual will make the decision to reach the mentioned satisfaction. which means that in household economics the actions will be taken based on compromise between husband and wife in the household. goods that are consumed to satisfy household needs. the income used is also a combination between individual incomes in the household such as the incomes of the husband and wife (elfindri, 2003). the function of household in maximizing their utility according to becker (1965) is written as the following: u =u(y1,y2… … … . . ,yn) (1) where u is the household utility and y are the goods consumed. some hypothesizes, about why poor people smoke more, are proposed by bobak et. all (2000). they explain the social-economic gradient in smoking. the hypothesizes which are primarily connected to western countries, could be valid in other countries are: 1) the hypothesis that says the poor and less educated people are less aware of the dangers of smoking to health and therefore they are highly possible to adopt the smoking behavior. 2) the hypothesis that says the smoking behavior become a form of self-healing used for managing mood, stress management, and for solving the obstacle of material lack (graham 1987, 1994 in bobak 2000). however, this self-healing analysis of factors influence smoking behavior in poor households in west sumatera province 18 hypothesis is unable to be maintained because of the lack of tranquilizing medicine or the effect of anxiolytic nicotine. 3) the hypothesis that says the smoking behavior is to replace the person presentation, such as smoking is often illustrated as one thing that poor people can do for themselves (graham 1994 in bobak 2000). 4) economic hypothesizes says that since the benefit of smoking are the same, someone with low income will have less loss from health problems in the future than people with higher income. at the end, there is a proof that shows the level of nicotine in poor smokers are larger, although this observation cannot explain on its own why poor people smoke more. the research of ahsan (2006) by using 2004 national social economic survey data summarizes the factors that significantly influence the consumption of cigarettes. those are cigarette prices, income, the age of starting to smoke every day, work, location of residence age, education level, and the condition of residence. the research of surjono et. all (2013) uses panel data of the national social economic survey found that in 2008, 46.3% of poor households spent for cigarette consumption. in 2009 it decreased slightly, but then in 2010 it became 47.2%. the proportion of spending for cigarettes is as large as 0.034-0.040. the price of cigarettes consumed by poor households are relatively cheap. surjono et all (2013) is also mentioned characteristics of the household head that is suspected of influencing cigarette consumption are age, length of schooling, work status. other than that, it was known that the absolute coefficient of total spending to the proportion of cigarette spending in poor households is 0.038 in 2008. this shows that for poor households the more and more their income rises, the proportion of cigarette spending becomes larger. the cross price elasticity of cigarettes in poor households are negative. this means that an increase in cigarette prices will decrease the proportion of income for cigarettes, while the elasticity of income in the years 2008-2010 is 2.14. it means that an increase of income by 1% will increase the consumption of cigarettes in poor households by 2.14%. research done by yuwono (2013) found that the more the number of poor household smoke, the household will fall deeper into poverty. the adioetomo et. all (2005) implemented a research by using the variable household income, cigarette customs, regional variables, education (the proportion of education in the household), the occupation of the household head, region, proportion of males in the household and the composition of age in the household members using a logistic regression found that the prevalence of smoking in families with low incomes is higher. for every type of cigarette, the higher the income, the more expensive the cigarette consumed. another previous research that use the ols regression model to analyze smoking behavior is done by alachkar (2008). it uses cigarette spending and household tobacco (household expenditure on cigarettes and tobacco) in syria as a dependent variable. for its independent variable, among others, uses the income variable and some control variables such as dummy variables village/city and polygamy or not variables. analysis of factors influence smoking behavior in poor households in west sumatera province 19 3. research methodology this research was focused on poor households that reside in west sumatera province which spread in all regencies/cities. it is often founded that the poor households having financial difficulties to send their children to school, still buy cigarettes. the reverse condition that happens in west sumatra “already poor and also smoke” and very high household spending on cigarettes per day are the reasons in choosing this region for research. the data used in this research is the raw data of national social economics survey (susenas data) in 2013 done by the badan pusat statistics indonesia (central statistical agency of indonesia). the data of poor households was chosen. the criteria of poor people were based on the food poverty line and non-food rural + city in the month of september 2013, which is rp. 336.606 (bps, 2014). the number of samples used in this research is about 435 household. the model used in this research is adopted from alachkar (2008), which is a regular ols model. with some modifications in its independent variables, this research is testing the following model: ert=β1 + β2 + β3pi + β4artld i + β5ddtti + β6educi + dukrti + ui ….(2) where: ert = cigarette household spending in one month i = income (proxy from household spending in one month p = proxy cigarette price ddtt = location of the residence of poor households whether in areas with a low level of poverty or high in the form of a dummy variable. a “1” value is given for areas with a low level of poverty, a “0” value for others educ = level of education of the household head, ( value, 1 = did not finish primary school/equivalent, 2 = finished primary school/equivalent, 3 = finished junior high school/equivalent, 4 = finished senior high school/equivalent or higher) dukrt= age of household head (value “1” for household head age until 45 years old, and “0” for others). 4. finding and analysis the average cigarette spending per month in poor households is about rp. 200,593.44/household or 46,805.13/week/household. the type of cigarettes bought by poor household are as follow: table 1 types of cigarettes that are bought by poor households in west sumatera province in 2013 sources: susenas data processed by writers cigarette type number of households pack cigarettes/ week frequency % filter kretek cigarettes 299 68,7 6,56 kretek cigarettes without filter 105 24,1 7,14 white cigarettes 38 8,7 6,45 total 442 101,5 analysis of factors influence smoking behavior in poor households in west sumatera province 20 note: the total of households is more than 435 or 101.5% since there are 7 households buying 2 types of cigarette. the spending for cigarettes is about 12.59% of total household spending. the biggest spending of cigarettes is in the rage of 5%-10% and 10%-15% of the total spending. from a cross tabulation between the percentage of cigarette spending and the number of adult male household members, we can see that most adult male household members are with 1 adult male person with the most cigarette spending in the range of 10%-15% reaching 24.1% of the total sample. the second largest is in the 5%-10% range reaching 17% from the sample. the average income of poor households in west sumatera province per month in 2013 is about rp. 1,635,988/household, averagely with 5.5 household members and average per income of rp. 286,098. the average price of cigarettes bought by poor households is rp. 7,165 per pack. however, the observation shows that the cigarette price bought most by poor households in west sumatera province is at the price of rp. 5,000 to rp. 6,000 (23.9% of poor household). rp.6000/pack cigarettes are the most, which are bought by 10% of poor household from a cross tabulation between the average price of cigarettes and cigarette spending per month, we can see that the cigarette most often bought is at the price of rp. 5,000 to rp. 6,000 per (23.9% of the total samples). at this price level, the cigarette spending is at the range 10%-15% of the total spending. the average number of male household members in poor households is about 1.67 persons. most household member in west sumatera province is only one person. the data also shows that the prevalence number of female smokers is only 2.21%. therefore, the cigarette spending in a household that greater than 12% from the total spending, is mostly spent by one male. poor households with an average income of rp. 336,606 and lower, that have spent for cigarettes, live more in areas with a high level of poverty. there are 385 households or 88.5% of sample that live in areas where the poverty is high. meanwhile, there are only 50 households or 11.5% that live in areas with a low level of poverty. the following table is a comparison of cigarette spending in the two mentioned areas: table 2 comparison of cigarette spending percentage based on resident areas smoking households in west sumatera province in 2013 area of residence cigarette spending(%) regency/city with a high level of poverty 12,84 regency/city with a low level of poverty 10,73 total 12,59 sources: susenas data processed by writers from the table above, we can say that the average spending in poor households in regencies with a high level of poverty reaches 12.836%. it is higher than the regencies with a low level of poverty (10.73%.) the average spending for cigarettes in all areas is 12.59%. such cigarette spending of poor households in west sumatera province is much higher than cigarette household spending in the city areas (6.64%) and in the rural areas (9.71%) in indonesia (bps, 2014). this number is the same as the finding in china where the cigarette spending in poor analysis of factors influence smoking behavior in poor households in west sumatera province 21 households is 6.6% in the cities and 11.3% in rural areas (hu,2005). this result is also the same as nasrudin (2013) research found that the percentage of cigarette spending in indonesia is higher in poor families. the education level of household heads finished primary school is about 39.45%, while there are 32% with no certificate. a cross tabulation between the level of education of household head with the percentage amount of spending in smoking households, we can see that the cigarette spending of household head with a primary school certificate is in the range of the 5%-15% number. this is not different with the household head with no primary school certificate. the age of such household head is in the category of 45 years and under. the cigarette spending of household head with age of 45 years and under is 12.88%, which is 0.64% higher than household heads with an age of 46 years and above. table 3 results of ols regression processing model b t sig. (constant) -44117.207 -2.213 .027 household income per month .067 6.673 .000 average price 16.025 10.412 .000 number of adult male household members 18658.794 3.351 .001 area of residence in low/high poverty areas -32872.340 -2.415 .016 household head education category -8749.648 -2.076 .039 age_category 20529.071 2.148 .032 a. cigarette spending per month dependent variable r=0,614 r²=0,377 adjusted r²=0,368 f count = 43,177 sources: susenas data processed by writers the ols regression results as above table can be summarized as follows: 1. income variable the income variable has a positive relationship with cigarette spending. if the income of poor household increases by 1 (one) unit, it will increase the spending for cigarettes by 0.067. in other words, the rise of income by rp. 100,000 per month, the cigarette spending rises by rp. 6,700. the elasticity is calculated at 0.5464, in other words, the increase of income by 10%, the cigarette spending also increases by 5.5%. it means that an increase in income of poor households, a portion of such income will be allocated to buy the cigarettes, either in the form of additional numbers of cigarettes or the change in type of cigarettes that more expensive. if the income decreases, household spending for cigarettes will also decreases, it can be the decrease in the number of cigarettes or buying cheaper cigarettes. such findings are similar to other research such as by yuwono (2013) where the income elasticity of the number of cigarettes consumed is 2.14, adioetomo’s (2005) research with 0.65 income elasticity, and ahsan’s (2006) research with income elasticity of 0.6 for poor people and 0.21 for rich people. analysis of factors influence smoking behavior in poor households in west sumatera province 22 2. price variable the price has also a positive effect on household cigarette spending. from the regression results we can see that an increase of price by 1 (one) unit will increase cigarette spending as large as 16.025 units. in other words, an increase of cigarettes’ price by rp. 1,000/pack will cause poor household spending for cigarettes to increase by rp. 16,025/month. this finding is confirmed by the previous research which mentioned that the cigarette price is negatively inelastic with the number of cigarettes bought. yet, in this research we are able to see the effect to household spending as a whole. an increase in cigarette price, whether because of tax policy on cigarettes or other factors such as the effect of a raise in fuel prices, will causes more spending on cigarettes for the poor smoking households. if there is no change in income, the effect is on the decrease of household spending for other needs. with the elasticity of 0.57, it means that every time the price of cigarettes increases, the amount of money spent by smoking households for buying cigarettes will increase. an increase of 10% in cigarette prices will increase cigarette spending by 5.7% on average. this finding is different with the results of previous researches which summarizes that cigarette price is negatively inelastic. it means that if there is an increase in cigarette prices, the number of cigarette packs bought decreases. however, the decrease is not as large as the cigarette price increase so that the total spending on cigarettes still increases. meanwhile, this result is supporting by the research of adioetomo et all (2005) that suggests the government be careful in increasing cigarette tax because it will make the income proportion of households spending on cigarettes is higher. 3. number of adult male household members variable from the regression results we can see that the addition of 1 (one) adult male household member (age 15 or more) will increase the spending of poor households for cigarettes by rp. 18,658.8/month. 4. residence area variable from this variable we can see that household cigarette spending live in regencies/cities with low poverty level (dummy code “1”) are lower than those live in regencies/cities with high poverty level. the regression result shows that the poor household monthly spending in regencies/cities with low level of poverty is rp 32,872.3 smaller than the households in regencies/cities with high level of poverty. 5. education of the household head variable the education of the household head has a negative impact on the spending of poor households for cigarettes. an increase in 1 level of education will decrease the household cigarette spending by rp. 8,749.6/month. this study shows that the prevalence of smoking is higher in lower education societies. the following table shows the difference in spending for cigarettes of poor household in relation to their education level: analysis of factors influence smoking behavior in poor households in west sumatera province 23 table 4 simulation of differences in spending for cigarettes in poor households based on the household head’s education household head education code household head’s level of education cigarette spending difference one education level cigarette spending difference accumulation with those that did not finish primary school 1 did not finish primary school/equivalent 2 finished primary school/ equivalent rp8,749,6 -rp 8,749.6 3 finished junior high school/equivalent rp8,749.6 -rp 17,499.3 4 finished senior high school/equivalent or higher rp8,749.6 -rp 26,248.9 sources: susenas data processed by writers 6. age of household head variable from regression results we can see that household head aged until 45 years (dummy variable “1”) has a higher spending than those who are older by rp. 20,529.1 per month. this shows that in early periods of the household, the spending of cigarettes is larger. it means that when the household head’s age is above 45 years, the awareness for controlling household cigarette spending is higher. this is possible due to health problems or experiences. 5. conclusion from the above explanation and analysis, the conclusion is the following: 1. the average cigarette spending of poor households in west sumatera province in year 2013 per household per month is rp. 205,593.4. such spending reaches 12.59% of the total household spending. 2. the average income of poor smoking households in west sumatera province is rp. 1,635,988.4 per household per month, or rp. 296,098.4 per capita. if the income increases, spending for cigarettes also increases. the research found that the increase in cigarette spending is by changing in cigarette type that is more expensive or buying more expensive cigarettes in smaller number. 3. in 2013, the average price of cigarettes bought by poor households in west sumatera was rp.7,165.3 per pack. the elasticity of cigarette prices to the total spending for cigarettes is 0.57, which means an increase in cigarette prices will cause the rise of total spending of poor households for cigarettes. 4. factors that influence cigarette consumption based on data processing from the 2013 national 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[thesis]. depok: fe-ui. http://www.who.int/ http://www.who.int/ the effect of the impact of gross domestic product and energy consumption on carbondioxide emissions in indonesia during 19852019 period 1 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) the effect of the impact of gross domestic product and energy consumption on carbondioxide emissions in indonesia during 1985-2019 period putri indah lestari, abdurrahman shaleh*, syamsurijal a. kadir, abdul bashir fakultas ekonomi, universitas sriwijaya, palembang, indonesia abstract economic growth in indonesia will have its own impact, both positive and negative. one of the negative impacts arising from this economic growth is environmental damage such as an increase in the amount of carbon dioxide emissions. the indonesian economy itself is very dependent on energy consumption, which is still largely dominated by fossil fuels. this study aims to determine the impact of the gross domestic product (gdp) and energy consumption on carbon dioxide emissions in indonesia in the period 1985-2019. the data used are secondary data with annual quantitative type. the method used is multiple linear regression ordinary least square (ols). the conclusion from the results of this study is that gdp and energy consumption have a positive and significant effect on the level of carbon dioxide emissions. keywords: gdp, co2 emission, energy consumption, economic growth. 1. introduction indonesia is a country that is formed from dozens of islands and provinces that have a diversity of ethnic cultures and an abundance of natural resources. indonesia is a country with the second highest level of biodiversity in the world after brazil. this fact shows the high diversity of biological natural resources owned by indonesia and this will become the backbone of a sustainable economic development (green economy). the nagoya protocol itself formulates the granting of access and profit sharing fairly and evenly between the management and the countries owning the living natural resources, and contains an explanation of the mechanism for exploiting the wealth of natural resources. indonesia is a country that is abundant in natural resources but for the management of these natural resources there is still a minimum of human resources and supporting technology, so that in managing it we still need assistance from a country that has the technology and competent human resources. currently, indonesia is a country with the largest economy in the world, ranked 9th in the world based on gdp-ppp in 2015 (cia world factbook, 2016). the total population of 250 million people in 2015 (national socio-economic survey, 2015) and total household consumption which reached 56.6% of total gdp or around 492 billion us dollars (world bank data, 2016) in 2015 further illustrates the large share indonesian market. this makes indonesia have a real role in the world economy, which of course also has its own impact on the one hand. one of the issues that has surfaced is the economic impact on the environment, such as greenhouse gases. among the 6 dominant gases in greenhouse gases, carbon dioxide (co2) emissions are considered to have the greatest impact and also this co2 concentration can persist in the earth's atmosphere for a long *coressponding author. email address: shalehabdurrahman@yahoo.com https://creativecommons.org/licenses/by/4.0/ mailto:shalehabdurrahman@yahoo.com afebi economic and finance review (aefr) volume 7, no 1 (2022) 2 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) time (unfccc, 2009). judging from the percentage, co2 represents 76 % of the total volume of greenhouse gases, is very large when compared to other gas components such as ch4 at 16% and n02 at 6% (ipcc, 2014). in a report presented by the unfccc, in 2009 total global co2 emissions reached 31.3 billion tonnes, with an increase of 40% since 1990. indonesia's gdp is seen as a measure of economic progress, it continues to increase, seen from indonesia's income from 1985 amounting to 228,786 billion rupiah until 2019 amounting to 1,204,479 trillion rupiah. however, it should be noted here that gdp also takes into account the contribution of companies and foreign citizens, so there is an assumption that most of the gdp is contributed by foreigners. this is certainly a bad thing, considering that there are several consequences. first, the gdp figure is considered large but is not felt in the form of an increase in welfare by the community. second, economic progress that has its own impact on the environment, but the lack of reciprocal efforts from foreign parties in improving the environment. a real example is the natural damage to the freeport mining area, as well as the damage to the kalimantan forests due to oil palm plantations, which incidentally are owned by foreigners. it can be said that indonesia has experienced two-fold losses, and raises the question of whether our economic progress must sacrifice the environment, especially if such economic progress is not felt directly and tends to be distributionally and regionally unequal. according to zarzoso, morancho and lage (2006) in their research on european union member countries, the conclusion is that economic growth and technology intensity in energy use have a significant and positive effect on the volume of co2 emissions. even though they underline that the two countries that are actually the largest pollutants, namely britain and germany, have a negative correlation between economic growth and emission levels. farhani (2015) in his research on middle east and north africa countries concluded that in the long term there was a positive correlation between energy consumption and economic growth on co2 emissions. the same thing was also stated by hubacek (2008), in his research on china from 1980 to 2002 using the var method and structural decomposition analysis, found that energy consumption and economic growth had a significant effect on co2 emissions. up to this point, several studies that have been described previously have generally found that economic growth and the level of energy consumption have a positive and significant impact on co2 emissions, although there are some exceptions for certain conditions, for example in developed countries or in long-term situations. even so, there are several results from previous studies that generally show contradictory results from the research results in the previous description. based on the description above, the researcher is interested in researching "the effect of the impact of gross domestic product and energy consumption on carbon dioxide emissions in indonesia in the period 1985-2019" 2. literature study economic growth the first person to discuss systematic economic growth was adam smith (1723-1790). according to smith, people are given the widest freedom possible in determining what economic activities they feel are the best to do. because the free market economic system will create efficiency, bring the economy to a condition of full employment, and guarantee economic growth to a stationary position. the stationary position occurs when natural resources have been fully utilized. even if there is unemployment, it is temporary. the government does not need to interfere too deeply in economic affairs. the government's task is to create conditions and provide facilities https://creativecommons.org/licenses/by/4.0/ the effect of the impact of gross domestic product and energy consumption on carbondioxide emissions in indonesia during 19852019 period 3 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) that encourage the private sector to play an optimal role in the economy. (tarigan, 2012). robert solow develops an economic growth model known as the solow growth model. the model departs from the aggregate production function as follows (dornbusch et al., 2004): y = a.f(k,l) where y is national (regional) output, k is physical capital (capital), l is labor, and a is technology. y will increase as the input (k or l, or both) increases. an important factor affecting the provision of physical capital is investment. y will also increase if there is a development in technological progress as indicated by an increase in a. therefore, national economic growth can come from input growth and technological advancement — which is also known as total factor productivity growth. (siregar and wahyuniarti, 2007). economic growth reflects the development of a region's economic activity. the higher the economic growth of a region indicates the development of economic activities, both production, consumption, investment and trade activities in the area, which then has an impact on labor absorption (widodo, 2006). enironmental kuznet curve the environmental kuznets curve (ekc) theory states that the case in developing countries over time, technological advances can destroy nature and the environment. meanwhile, in developed countries over time technological advances can improve environmental sustainability. this theory is known as the first theory that describes the relationship between the rate of economic growth and environmental degradation. this theory states that when a country's income is still low, the country's attention both in terms of production, is an investment that can encourage an increase in income by ignoring environmental problems. as a result, the income growth will be followed by the pollution level and then will decrease with the continued growth. the environmental kuznet curve is divided into three stages, (panayotou, 2003), among others; first, the beginning of the economic development process will be followed by environmental damage which is known as the pre-industrial economy; second, the industrial economic stage, and third, the post-industrial economic or post-industrial stage. initially, industrialization started as a small industry and then developed into a large industry. this movement will increase natural resources and increase environmental degradation. after that, industrialization will expand its role https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 4 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) in the formation of domestic national products. this occurs in the second stage, along with the investment that drives the economic transformation from the agricultural sector to the industrial sector. in the third stage, there is a movement of economic transformation from the industrial sector to the service sector. this movement will be followed by a decrease in air pollution in line with an increase in income. simultaneously, the demand for environmental quality goes hand in hand with an increase in income. the community began to be able to pay for environmental losses arising from economic activities. environment externality environmental damage and co2 emissions in essence, environmental damage is a condition in which environmental quality decreases due to environmental components that are not functioning properly. environmental damage can also be interpreted as direct and / or indirect changes to the physical, chemical and / or biological characteristics of the environment that exceed the standard criteria for environmental damage, as stated in article 1 number 17 (law no.32 of 2009 concerning protection and environmental management) based on the causative factors, environmental damage can be divided into two, namely: 1. environmental damage caused by natural factors natural disasters are natural factors that play a significant role in environmental damage. some forms of natural events that have an impact on the environment are volcanic eruptions, earthquakes, tsunamis and hurricanes 2. environmental damage caused by human factors humans, as dominant living things in processing resources, often ignore the aspects of environmental sustainability and sustainability. this causes a loss of the balance of the ecosystem which results in disasters that could have been avoided. previous research the results of research conducted by (dietz, 1997) entitled effect of technology and affluence on co2 emissions show that an increase in economic growth will increase co2 emissions while technology will reduce emissions. according to (ghouali and belmoka, 2015) it shows that energy consumption and economic growth have a significant positive effect on co2 emissions, while fdi has a negative impact. mesut's research (bahbe, 2015) entitled relationships among co2 emissions, economic growth and foreign direct investment and the environmental kuznets curve hypothesis in turkey using the var research method concluded that fdi economic growth has a significant impact on increasing carbon dioxide. based on research (danar, 2017) entitled analysis of the impact of gdp and energy consumption on carbon dioxide emissions in indonesia in the 1971-2013 period, it shows that gdp has a positive and significant impact on carbon dioxide emissions. as well as energy consumption is one indicator where the level of technology can be measured, where the widespread use of environmentally friendly technology can reduce energy consumption of fossil fuels. and research (sweety & mrutyuni, 2016) with the title co2 emissions and economic growth of saarc countries; evidence from a panel var analysis shows that economic growth has a positive impact on co2 emission levels. https://creativecommons.org/licenses/by/4.0/ the effect of the impact of gross domestic product and energy consumption on carbondioxide emissions in indonesia during 19852019 period 5 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) 3. research methodology data the type of data used in this study is secondary data in the form of time series data. the data used includes data on co2 emissions (metric tonnes), energy consumption data (per capita), and real gdp per capita. the data is sourced from the central statistics agency (bps) and related agencies. model spesification the analytical tool in this study uses multiple linear regression analysis based on ordinary least square (ols) with time series data along with statistical tests and classical assumption tests which aim to determine whether the data is worth estimating and to see the effect simultaneously on the dependent variable. the data processing tool used is eviews. the following regression equation model is used: emst = β0 + β1gdpt + β2econt + et description: ems = co2 emission β0 = intercept β1, β2, β3 = estimated coefficient gdp = gross domestic product (gdp) eco = energy consumption e = error 4. result and discussion multiple regression test table 1. multiple regression output dependent variable: ems method: least squares sample: 1985 2019 included observations: 35 variable coefficient std. error t-statistic prob. c -113.1010 7.178349 -15.75585 0.0000 gdp 2.04e-10 2.03e-11 10.04281 0.0000 econ 14.86123 0.818412 18.15863 0.0000 r-squared 0.995123 mean dependent var 313.5206 adjusted r-squared 0.994818 s.d. dependent var 158.8977 s.e. of regression 11.43798 akaike info criterion 7.793571 https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 6 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) sum squared resid 4186.473 schwarz criterion 7.926887 log likelihood -133.3875 hannan-quinn criter. 7.839592 f-statistic 3264.846 durbin-watson stat 0.519647 prob(f-statistic) 0.000000 source: processed data based on the results of the statistical regression in table 1, we conclude the results of multiple linear regression for the co2 emission variable are as follows: ems = -113.1010 + 2.04e-10gdp + 14.86123econ+ ei the coefficient results show that the coefficient value for the gross domestic product (gdp) variable is 2 billion and has a positive relationship, which means that when the gdp variable increases, it will increase co2 emissions by rp. 2m with a probability value of 0.000 <0.05 degree of error of 5% so that it is statistically significant to co2 emission. the coefficient results for the variable energy consumption (econ) 14.8612 which have a positive relationship, if the variable energy consumption increases, it will increase energy consumption by 14.8612, and if people's energy consumption decreases, the use of co2 emissions will also decrease. the probability value of this variable is 0.0000 (eco) with a degree of error of 5% (0.05), so that the energy consumption variable is statistically significant to co2 emissions. normality test figure 1. normality test 0 1 2 3 4 5 6 7 8 -30 -25 -20 -15 -10 -5 0 5 10 15 20 25 series: residuals sample 1985 2019 observations 35 mean 4.97e-15 median -1.618974 maximum 20.00539 minimum -25.80782 std. dev. 11.09647 skewness -0.229523 kurtosis 2.720639 jarque-bera 0.421117 probability 0.810132 the normality test used in this study was the jarque bera test. the results of the residual normality test in the attachment show that the jarque fallow value is 0.42111 with a p value of 0.8101 where> 0.05. so that h0 is accepted, which means that the data distribution residuals are normal. https://creativecommons.org/licenses/by/4.0/ the effect of the impact of gross domestic product and energy consumption on carbondioxide emissions in indonesia during 19852019 period 7 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) multicollinearity test table 2. multicollinearity test output variance inflation factors date: 05/20/21 time: 20:41 sample: 1985 2019 included observations: 35 coefficient uncentered centered variable variance vif vif c 51.52870 13.78539 na gdp 4.14e-22 47.20787 8.446655 econ 0.669798 84.28721 8.446655 source : processed data the data above shows that the value of centered vif for both variable gross domestic product (gdp), and energy consumption is below or less than 10, so it can be stated that there is no multicollinearity problem in the model. heteroscedasticity test (breusch-pagan dan white) table 3. heteroscedasticity test output heteroskedasticity test: breusch-pagan-godfrey f-statistic 1.282401 prob. f(2,32) 0.2912 obs*r-squared 2.597095 prob. chi-square(2) 0.2729 scaled explained ss 1.867719 prob. chi-square(2) 0.3930 source : processed data the heteroscedasticity test in this research model uses a test, namely the breusch-pagan test. in the heteroscedasticity test, namely the breusch-pagan test, it can be indicated by the prob value. chi square (2) at obs * r-squared which is equal to 0.2729 or a p value of 0.2729> 0.05 then h0 is accepted or which means the regression model in the breusch-pagan test is homocedasticity or in other words there is no problem with the assumption of non-heterocedasticity.. determination coefficient test (r2) from the results of the calculation of multiple linear regression analysis, it can be seen that the value of the r2 coefficient is 0.99 which is almost close to 1.thus, it means that co2 emissions in indonesia during the period 1985-2019 can be explained around 99% by the gross domestic product variable and energy consumption. . while the remaining 1% is explained by other variables not included in this research model. https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 8 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) f statistic test the f test aims to determine the effect of all independent variables together (simultaneously)on the dependent variable. table 5. f-statistic output f-statistic 3264.846 durbin-watson stat 0.519647 prob(f-statistic) 0.000000 source: processed data in the results of the table above, it is found that the f-count value with a significance level of 5% or 0.05 is 3264.846> f-table (0.343) and the f-count probability value is 0.000 <0.05, so it can be concluded that h1 is accepted, that the independent variable is simultaneously (together) affect the dependent variable gdp (gross domestic product) based on the regression results shown in table 1, it is concluded that during the 1985-2019 period, gdp and energy consumption influenced the level of co2 emissions. if you look at the gdp variable coefficient of 2.04 with a positive sign, then the interpretation will be as follows, when gdp changes by 1%, it will cause an increase in the emission level of 2.04%. these results are consistent with the research of zarzoso, morancho and lage (2006) in their research on european union member countries which concluded that economic growth and technology intensity in energy use have a significant and positive effect on the volume of co2 emissions. other results are also consistent with research conducted by dietz & rosa (1997) in 111 countries, where they concluded that economic growth will have an impact on increasing co2 emissions. in indonesia itself, if we look at representing the conditions of other developing countries, a high gdp level does not determine if it is followed by environmental damage. this is because gdp also takes into account the production produced by foreign nationals / foreign companies so that most of the gdp is contributed not only from national production. this raises that the prosperity of the community cannot be said to be perfect or even. because the community has not felt the impact directly. if the community is not in a state of prosperity yet, environmental sustainability is not yet a very important issue. this can be exacerbated by the environmental damage that occurred during the pre-industrial period to industry, where most of it was caused by efforts to increase production which incidentally was foreign production, and the country had little or no profit at all. it could be that the state has actually experienced a double loss, namely the environmental damage is getting worse, but the community has not felt the economic improvement (danar, 2017) energy consumption the next variable is energy consumption. one component that affects economic development is the amount of energy use nationally. the increasing use of energy encourages the industrialization process. the energy demand in the manufacturing industry to run machines is indeed very high. on the other hand, energy contribution support, especially in export revenue and government revenue, is a means of accumulating development capital. by realizing that energy consumption is closely related to gdp, it can be estimated how much increase is needed to get a certain level of output. https://creativecommons.org/licenses/by/4.0/ the effect of the impact of gross domestic product and energy consumption on carbondioxide emissions in indonesia during 19852019 period 9 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) in general, indonesia's energy consumption continued to increase constantly in the 1985-2019 period. meanwhile, the energy consumption coefficient is 14,861, which means a change in energy consumption of 1% will cause an increase in the emission level of 14.86%. the same thing was stated by hubacek (2008), in his research on china from 1980 to 2002 using the var method and structural decomposition analysis, found that energy consumption and economic growth had a significant positive impact on co2 emissions. although there were several variables that were classified as having a significant impact on co2, such as capital investment and export levels, economic growth and energy consumption were at the top of the list as causes of co2 emissions. they also highlighted the absence of environmentally friendly technology in china's production and electricity systems, as two things that are closely related to economic growth and energy consumption. 5. conclusion based on the results of the above research, it can be concluded that the condition of gdp, energy consumption and carbon dioxide emissions in indonesia during the period 1985-2019 continued to increase. there are some decreases when there is a crisis or the implementation of new policies, but this decrease tends to be insignificant when compared to an overall increase. fluctuation. gdp has a positive and significant impact on carbon dioxide emissions. this means that in indonesia, when gdp increases, carbon dioxide emissions will also increase. evidenced by the estimation results where gdp has a positive coefficient. energy consumption has a positive and significant impact on carbon dioxide emissions. this means that in indonesia, when energy consumption increases, carbon dioxide emissions will also increase. evidenced by the estimation results, where the energy consumption coefficient has a positive result. in addition, energy consumption is one indicator by which the level of technology can be measured, in which the widespread use of environmentally friendly technology can reduce energy consumption of fossil fuels. however, it can also lead to an increase in energy consumption through increased levels of efficiency, increased income and human nature which tends to be wasteful and ineffective. references badan pusat statistik. 2019. survei sosial ekonomi nasional. jakarta. bargaoui, a., liouane, n., & nouri, f. z. 2014. environmental impact determinants: an empirical analysis based on the stirpat model. procedia social and behavioral sciences: elsevier. creswell, j. w. 2003. research design: qualitative, quantitative, and mixed methods approaches. london: sage publications. dewan energi nasional. 2016. indonesia energy outlook. jakarta: kementrian energi dan sumber daya mineral. dietz, t., & rosa, e. a. 1997. effects of population and affluence on co2 emissions. farhani, s. 2015. renewable energy consumption, economic growth and co2 emissions; evidence from selected mena countries. ipag working paper. ghouali, y. z., & belmokaddem, m. 2015. factors affecting co2 emissions in the brics countries: a panel data analysis. procedia economics and finance: elsevier. giambona, f., jacono, v. l., & scuderi, r. 2005. ipat model: an empirical evidence. https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 10 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) gujarati, d. n. 2004. basic econometrics. new york: the mcgraw-hill. hang, g., & yuan-sheng, j. 2011. the relationship between co2 emissions, economic scale,technology, income and population in china. procedia environmental sciences. holdren, j. p., & ehrlich, p. r. 1974. human population and the global environment. american scientist. hubacek. 2008. the drivers of chinese co2 emissions from 1980 to 2030. global environmental change. kuznets, s. 1955. economic growth and income inequality. martínez-zarzoso, i., bengochea-morancho, a., & morales-lage, r. 2006. the impact of population on co2 emissions: evidence from european countries. social science research network electronic paper collection. mercan, m., & karakaya, e. 2015. energy consumption, economic growth and carbon emission:dynamic panel cointegration analysis for selected oecd countries. procedia economics and finance elsevier. munasinge, m. 2004. sustainomic: a trans-disciplinary framework for making developmnet more sustainable. international society for ecological economies. nathan, b., & thomas, f. 1997. threshold cointegration. international economic review, 672-645. ndraha, t. 1987. pembangunan masyarakat : mempersiapkan masyarakat tinggal landas. jakarta: bina aksara. pearce, d. w., & watford, j. j. 1993. world without end : economics, environment, and sustainable development. saidi, k., & hammami, s. 2015. the impact of co2 emissions aand economic growth on energy consumptions in 58 countries. elsevier. shahbaz, m. 2015. growth-globalisation-emissions nexus: the role of population in australia. sugiyono. 2010. metode penelitian kuantitatif kualitatif dan r&d. bandung: alfabeta. tanjung, h., & devi, a. 2013. metodologi peneltian ekonomi islam. bekasi: gramatika publishing. thomas. 2011. air quality pollutant inventories for england, scotland, wales and northern ireland: 1999 2009. a report of the national atmospheric emissions inventory. london: aea group. trismidianto. 2008. studi penentuan kosentrasi co2 dan gas rumah kaca (grk) di wilayah indoneisa. skripsi. jakarta: universitas indonesia https://creativecommons.org/licenses/by/4.0/ analysis of indonesian tax revenue 71 5analysis of indonesian tax revenue amalia wijayanti1* and firmansyah2 1,2 diponegoro university, semarang, indonesia abstract this study analyzes the long-run and short-run effect of macroeconomic factors, such as real gross domestic product (gdp), inflation rate, exchange rate and government spending on indonesia’s tax revenue during 1976-2013, by utilizing the error correction model (ecm). the finding of the study demontrates that in the long-run; the real gdp, exchange rate, and government spending affect indonesia’s tax revenue, except the inflation rate. in short-run, indonesia’s tax revenue statisically affected by government spending, while others variable do not influence indonesia’s tax revenue. error correction term (ect) coefficient is 0.221, explains incompatibility tax revenue occur in long-run is corrected of 22 percent in one period. jel classification: e01, e20, h20 keywords: error correction model, macroeconomic, tax revenue 1. introduction as one of the duties, the government works to create prosperity for the people in his country through economic development. to carry out the role, the government needs funds to finance all the activities. the funding comes from government’s revenue, which is derived from various sources, such as; taxes, loans, assistance from other levels of government, administration fees, servicing, as well as the income of the business (poole, 1956). in general, the government's revenue comes from two sources: first, the tax revenue from mandatory dues, which are deducted relating to certain activities (hyman, 2011). second, the non-tax revenues, which are obtained aside of tax revenue, such as income from natural resources, the revenue from the profit enterprises or state-owned enterprises, and other non-tax revenue. in several western countries such as spain, hungary, italy, the uk, countries of the european union, and the united states, the majority of government revenue comes from tax revenues, which reached more than 50 percent of country's total revenue. in asian countries such as japan, thailand, china, india, including indonesia, the largest government revenue also comes from taxes. the government of indonesia’s (goi) revenue is dominated by tax for years. figure 1 shows that the high contribution of the tax compare to the non-tax revenue throughout the past eight years. in 2007, the tax is accounted about 70 percent of domestic revenues. the role of tax as a source of domestic revenue increased annually and reach 76 percent of the total revenue in 2014. * corresponding author. email address: amalwijayanti@gmail.com mailto:amalwijayanti@gmail.com analysis of indonesian tax revenue 72 tax as the largest source of state revenues are shown in figure 2. during the past seven years, the trend of the average proportion of tax revenues continued to rise and reached 65 percent in financing state expenditure, while the rest is funded from non-tax revenues, grants, and loans. related to its role as a major source of the goi’s revenue and expenditure, tax revenues also have risks associated with tax target that has been set by the goi. over the last five years, the tax revenue shows shortfall condition. in 2009, the difference between actual and targeted tax of rp 32,032.60 billion and that number has increased up to 2013 to rp 76,246 billion. those problems have implications for the importance of the preparation of tax revenue policy model. note: *apbn-p (goi budget correction) source: ministry of finance, 2014 (processed) figure 1 the development of tax and non-tax revenue of indonesia 2007-2014 source: ministry of finance, 2014 (processed) figure 2 the development of funding sources and expenditures of government of indonesia 2008-2014 to optimize the tax revenue, the tax model is developed by involving factors that expected to affect the tax revenue. these factors may include the traditional 0.00 500.00 1,000.00 1,500.00 2007 2008 2009 2010 2011 2012 2013 2014* t r il li o n r u p ia h year pnbp 0.00 500.00 1,000.00 1,500.00 2,000.00 2008 2009 2010 2011 2012 2013 2014* t r il li o n r u p ia h year perpajakan pnbp hibah pembiayaan belanja analysis of indonesian tax revenue 73 elements of the tax base or commonly called tax handles, such as the model developed by ahmed (1994) and ghura (1998). in addition, the tax model also consider macro-economic factors, such as; economic growth, inflation, exchange rates and government spending. the focus of this study is to analyze the influence of macroeconomic indicators against the tax revenues, and by employing cointegration approach and error correction model (ecm) it is observed how the dynamics of the effect of macroeconomic variables to tax revenues. macroeconomic variables that are expected to affect taxes include gross domestic product (gdp), inflation rate, exchange rate against the usd, and the state budget. 2. theoritical framework and hypothesis the public economic theory explains that the role of government is essential in the economy. according to musgrave and musgrave (1989), the government has three main functions in the economy of a country, i.e. the function of the allocation, distribution, and stability. due (1963) adds one more function of government, namely the commercial function which explains that the goods or services would be more efficient if it is produced or provided by the government. as the operator of the state, the government works to create public welfare through development. the government is also in charge for providing goods and services that can not be provided by the market. the role of government in the economy can be explained by the circular flow of income and expenditure as shown in figure 3 (musgrave and musgrave, 1989). supposed that the economy consists of two sectors, namely the private sector (companies) and households, the flow of funds in the economy can be described as follows: the household sector will earn revenue through the sale of production factors in the factor markets (line 1). revenues earned are then used for consumption (line 4) and/or saved (line 5). if there is a portion of income that is saved, the saving then finances capital expenditures (line 6). line 4 and line 6 is a combination of the purchase of products in the market a product that will boost its revenue will be used to buy the factors of production. since in the economy is added the role of the public sector (government), the factors of production are not only purchased by the private sector, but also by the government sector (line 2). the government is also purchased the output generated by the private sector (line 7). in addition to purchasing the factors of production and output, the government also pays allowances (line 8). furthermore, for the purchase and payment of allowances, the government needs the revenue from taxes (line 9) and loans (line 10). analysis of indonesian tax revenue 74 : the flow of income and expenditure in the private sector : the current income and expenditure in the government sector figure 3 flow of funds of the public sector in economy source: adapted from musgrave and musgrave (1989) in providing these goods and services, the government requires a source of funding, which comes from tax and non-tax revenue. tax revenues are the largest and potential source of state revenues, and to increase the revenue, the government needs to develop appropriate policies for tax in accordance with economic conditions. macroeconomic factors affect positively or negatively to the tax revenue. an increase in the rate of economic growth, the country's spending, and overvaluation of the domestic exchange rate against usd (assuming that the balance of payment is surplus) will increase the real value of the tax objects. the increase in the real value of the tax basis implies an increase in the tax levied, and vice versa. in contrast to these three factors, the increase in inflation can increase or decrease the tax revenue. the increase in inflation could increase tax revenue if the tax is charged in the form of ad valorem. the increase in inflation can also reduce tax revenue if the tax is charged in the specific form (tanzi, 1989). several empirical studies that investigate the relation of macroeconomic factors and tax revenues have been conducted by researchers in various countries. one of these studies was conducted by muibi and sinbo (2013). they observed the influence of macroeconomic factors to tax revenues in nigeria. by using error correction model (ecm), they found that the economic growth positively affects the nigeria tax revenue while the exchange rate depreciation and inflation rates negatively affect the tax revenue. in the short-term, the variables such as gdp, product market 6 2 3 5 4 a 10 7 7 11 9 8 1 9 2 1 b production factors market households firms government budget capital market 8 analysis of indonesian tax revenue 75 exchange rate, inflation rate statistically affects the tax revenues, while the openness of trade and foreign debt are statistically not significant affect the tax revenues. an empirical research using indonesia as the study case was conducted by sinaga (2010). sinaga estimated the effect of macroeconomic variables towards tax revenue, and revenue from the other forms of tax, i.e. income tax, value added tax, land tax and building tax. the ols analysis shows that total tax revenue and revenue of value added tax are affected by gdp, indonesian rupiah (idr) exchange rate to united state of america’s dollar (usd), import value, and inflation. revenue of income tax is caused by gdp, idr exchange rate to usd, indonesia’s central bank certificate (sbi) rate; meanwhile land tax and building tax, and land and building transfer tax is caused by gdp, idr exchange rate to usd, and crude oil price. according to the theory base and literatures review, hypothesis are listed as follow: 1. real gdp might positively affects tax revenue 2. inflation negatively might affects tax revenue 3. overvaluation of idr exchange rate to usd might cause the decreasing of tax revenue; in the other hand, idr exchange rate to usd positively affect tax revenue (assumption: if balance of payment is in surplus condition); 4. government expenditure might positively affect tax revenue. 3. research method this research is estimated by error correction model (ecm) to assess the effect of independent variable towards tax revenue in indonesia within long-term and short-term. ecm is a method employed to estimate the effect of independent variable towards dependent variable by accommodating lagged in the model. ecm is also used to designate imbalance relationship or short-term relationship of one model (thomas, 1997). estimation of ecm is run by employing engle-granger two-stage procedure. firstly, estimation of long-run parameter and cointegration test is executed. afterwards, estimation of short-run parameter is performed. estimation of long-run model can be defined as follow: 𝐿𝑁𝑇𝑅𝑡 = 𝛼0 + 𝛽0𝐿𝑁𝐺𝐷𝑃𝑡 + 𝛽1𝐼𝑛𝑓𝑡 + 𝛽2𝐿𝑁𝑆𝑝𝑡 + 𝛽3𝐿𝑁𝐸𝑅𝑡 + 𝑢𝑡 (1) where, 𝐿𝑁𝑇𝑅 is tax revenue, 𝐿𝑁𝐺𝐷𝑃 is real gdp, 𝐼𝑛𝑓 was inflation, 𝐿𝑁𝑆𝑝 is expenditure, and 𝐿𝑁𝐸𝑅 is idr exchange rate to usd. according to the long-run model, the short-run model can be derived as follow: ∆𝑇𝑅𝑡 = 𝑏0 + 𝑏1 ∆𝐺𝐷𝑃𝑡 + 𝑏3∆𝐼𝑛𝑓𝑡 + 𝑏5∆𝑆𝑝𝑡 + 𝑏7∆𝐸𝑅𝑡 − 𝜆(𝑇𝑅𝑡−1 − 𝛼0 − 𝛽1𝐺𝐷𝑃𝑡−1 − 𝛽2𝐼𝑛𝑓𝑡−1 − 𝛽3𝑆𝑝𝑡−1 − 𝛽4𝐸𝑅𝑡−1) + 𝜀𝑡 (2) where (𝑇𝑅𝑡−1 − 𝛼0 − 𝛽1𝐺𝐷𝑃𝑡−1 − 𝛽2𝐼𝑛𝑓𝑡−1 − 𝛽3𝑆𝑝𝑡−1 − 𝛽4𝐸𝑅𝑡−1) is error correction term (ect). tax revenue represents government revenue gathered from a compulsory contribution of citizen to government according to acts. data of tax revenue is cumulative accumulated tax of central government during one fiscal year, constituting income tax, value added tax, land tax and building tax, luxury sales tax, international trade tax, and so forth—counted in billion rupiah. gdp reflects indonesia’s national income. this variable also depicts total value added of each unit of business in a country—meaning a summation of the whole final value of analysis of indonesian tax revenue 76 goods and services produced in one unit of economy. to expanse of this study, real gdp is used (base year=2005) in trillion rupiah. inflation can be defined as a general increase in price of goods and services; that is staple needs of its citizen. data of inflation is calculated based on consumer price index (base year=2000). exchange rate represents the price of foreign currency quoted by domestic currency which is determined by bank of indonesia as indonesia monetary authority. this research used rupiah as domestic currency and us dollar as foreign currency. government expenditure denotes total expenditure of one country in one fiscal year which divert current equity and is a compulsory expenditure of government. total expenditure is a summation of expenditure of central government and transfer payment (in billion rupiah). data used in this research is secondary data gathered from related institutions. the data is stockpiled in yearly time-series—embraces 1976 until 2013. data of total tax revenue and government expenditure is collected from the indonesian budget issued by ministry of finance of indonesia. data of real gdp and inflation is gathered from statistics indonesia; whereas idr exchange rate to usd is gathered from bank indonesia. 4. discussion 4.1 recent development of variables during the research period, tax revenue tend to have a concurrent trend with macroeconomic variables i.e real gdp, idr exchange rate to usd, and government spending. exhibit 3 shows that when the real gdp rises and so does idr exchange rate to usd, concurrently tax revenue experiences an increment. figure 4 trend of tax revenue, government expenditure, idr exchange rate to usd, and real gdp of indonesia (1976-2013) source: ministry of finance (2014); bps (2014); and bi (2014), processed according to figure in 1998, the decline in real gdp is not followed by the decline of tax revenue. in the purported year, real gdp declined due to monetary crisis. tax levied attains a remarkable increment counted for 43.7 percent. the asynchronous alteration between real gdp and tax revenue was due to following repercussion of tax reformation in the prior year. reformation enactment came in the form of four-tax acts constituting board of tax-dispute. 2,000.0 4,000.0 6,000.0 8,000.0 10,000.0 12,000.0 0 500000 1000000 1500000 2000000 2500000 3000000 1 9 7 6 1 9 7 9 1 9 8 2 1 9 8 5 1 9 8 8 1 9 9 1 1 9 9 4 1 9 9 7 2 0 0 0 2 0 0 3 2 0 0 6 2 0 0 9 2 0 1 2 r p / 1 u s d b il li o n r u p ia h penerimaan perpajakan pdb riil belanja negara nilai tukar analysis of indonesian tax revenue 77 0 50 100 150 0 500000 1000000 1500000 1 9 7 6 1 9 7 8 1 9 8 0 1 9 8 2 1 9 8 4 1 9 8 6 1 9 8 8 1 9 9 0 1 9 9 2 1 9 9 4 1 9 9 6 1 9 9 8 2 0 0 0 2 0 0 2 2 0 0 4 2 0 0 6 2 0 0 8 2 0 1 0 2 0 1 2 m il ia r r u p ia h penerimaan perpajakan ihk another pertinent aspect of trend of tax revenue in indonesia could be observed in 2010. in the prevailing year, the strengthening rupiah is not followed by the decline of tax revenue. in 2010, tax revenue raises 16.67 percent over prior year. the increment was a repercussion of skyrocketing taxpayer number as extensification and intensification of tax was enacted in 2010. aside from the three macroeconomic variables, the trend of tax revenue also tends to be concurrent with consumer price index (cpi)—which depicts inflation. the increment could be seen in figure 4. the increment of cpi causes the proportion of levied tax; accordingly, the tax revenue raises. in the other hand, exorbitant cpi indicates high inflation rate; accordingly, revenue might decline due to plummeting value of tax object. figure 5 trend of tax revenue and consumer price index (1976-2013) source: ministry of finance (2014), and world bank (2014), processed 4.2 estimation result and analysis table 1 shows a summary of the estimation result of the model of long-term tax revenue. in accordance with the hypothesis, the variable of the real gdp, idr exchange rate to the usd, and the government expenditure have a positive influence on indonesia's tax revenue. it designates that the increase of the real gdp, state spending and the depreciation of the exchange rate will lead to the increase of the indonesia's tax revenue. in contrast to these three variables, the variable of inflation has a negative effect on the tax revenue. as inflation increases, indonesia's tax revenue decrease. this inverse correlation is due to the high inflation rate which indicates the vulnerability of a country's economy that might lead to economic activities to fall off, hence tax levies will be automatically reduced and tax revenue will also be decreased. as can be seen from table 1, the variables of the real gdp, idr exchange rate to the usd, and the partial government expenditure significantly affect indonesia's tax revenue while the variable of inflation does not significantly affect the tax revenue. the insignificant effects of inflation towards the tax revenue happened because during the study period, the change of the inflation rate is not always accompanied by the change of the tax revenue. the increase of the indonesia's inflation is not always accompanied by the decrease in the indonesia's tax revenue, as occurred in 1983, 1985, 1997, and 1998. during that period, the inflation rate and tax revenue had increased. this increment is due to government reforms of taxation in 1983, 1985, 1997, and 1998—resulting the increment of analysis of indonesian tax revenue 78 indonesia's tax revenue, although the economic conditions fall off due to the high inflation rate. table 1 estimation result of the long-term tax revenue variable coefficient (t-stat) constant -19,220 (-7,302)*** gdp 1,529 (7,003)*** inf -0,0006 (-0,575) er 0,329 (3,805)*** sp 0,525 (5,995)*** r-squared 0,9962 adj. r-squared 0,9957 f-stat 2.153,715 durbin watson 0,688 *** significant at alpha 1 percent ** significant at alpha 5 percent * significant at alpha 10 percent source: results of the data processed by eviews 8.0 in the long term, the variable of gdp, idr exchange rate to the usd, and the government expenditure affect tax revenue through the tax basis. the increment of the gdp value also shows the improvement of economic sectors. several economic sectors are also utilized as an object of taxation, hence, in the case gdp increases, the condition of the economic sectors will also increase as well as the real value of the tax object. the increase of the tax object value will raise the amount of taxes levied so that tax revenue will also be raised. in addition, the influence of the gdp to tax revenue can also happen through the changes in income and consumption pattern of the individual. the increase of gdp will tend to raise the income of the individual and encourage consumers to consume more goods and services. it can raise the amount of income tax and value added tax, and vice versa if the value of real gdp decrease. the changes of the idr exchange rate variable to the usd will affect tax revenue through the changes in the volume and value of exports and imports of the products. the strengthening of the idr to the usd can prompt the price of exports to appear higher in the foreign market. it has implication to the decline in demand for domestic goods in the international market so that the export volume will decrease. the decline in export volume will have implication for the reduction in export taxes to be drawn hence tax revenue will also decrease. in addition, the strengthening of the rupiah to the usd can prompt the prices of imports appears to analysis of indonesian tax revenue 79 be lower in the domestic market. such low prices will lead to the demand for the imported products. the increase of demand for imported product induces the increase of the imported volume, so the tax on imports will raise as well. based on the explanation, with a balance of payment surplus (exports is greater than imports) indonesia, the strengthening of the idr exchange rate to the usd has implications for the decrease of indonesia's tax revenue, and vice versa. as the influence of the gdp and the idr exchange rate to the usd is positive, the variable of government expenditure also holds a positive effect on the long-term tax revenue. the positive effects of the government expenditure towards the indonesia's tax revenues occur because a number of government expenditure are also an object of taxation, such as personnel expenditure. if the personnel expenditure is increased, the income of civil servants will be increased as well. the increased income will have an implication in the increase of the object of the tax income so that the tax revenue which comes from the tax income will also increase. after a long-term model of the estimation, cointegration test is performed to ensure the long-term balance in the tax revenue model that had been developed. in this study, cointegration test is performed by employing engle-granger test. in the engle-granger test, the result shows the value of t count of -3.650 which is greater than the value of t-critic of (-2.943). it shows that all variables are mutually cointegrated. furthermore, the estimation model of short-term indonesia's tax revenue is tested. table 2 shows the summary of the estimation results of the model of shortterm indonesia's tax revenue. in table 2, it is shown that it is partially only the variable of government expenditure that significantly affects tax revenue, while the three other variables did not significantly affect indonesia's tax revenue. the insignificant influences of these three variables occur because the tax revenue in the short term is more likely to be affected by rates and tax base as set out in the constitution. this is because the model of macroeconomic variables and the tax receipts is a long-term model that tax revenues cannot directly adjust to the changes of the gdp, inflation, and the idr exchange rate to the usd. tax revenue needs time to adjust to the changes in economic conditions. unlike the three other variables, the short-term government expenditure has a positive and significant impact on tax revenue. the positive and significant impact on the state budget towards tax revenues happen because as described previously, the changes in the government expenditure will cause a change in real value over the tax basis and will also affect tax revenue. the changes in government expenditure will automatically change the value of the tax base without requiring the lag. for example, the changes in personnel expenditure causing the value of tax base are changed so the tax revenue will also change automatically. table 2 estimation result of the short-term tax revenue variable coefficient (t-stat) constants 0,121 (3,908)*** gdp 0,164 (0,580) analysis of indonesian tax revenue 80 variable coefficient inf 0,001 (1,446) er 0,029 (0,353) sp 0,327 (3,481)*** u(-1) -0,206 (-1.983)* r-squared 0,482 adj. r-squared 0,398 f-stat 5,765 *** significant at alpha 1 percent ** significant at alpha 5 percent * significant at alpha 10 percent source: results of the data processed by eviews 8.0 short-term estimation result indicates that all independent variables have a positive effect on the short-term tax revenue. in this short-term model, the estimation result shows that the error correction term (ect) has a negative and significant sign. the coefficient of ect of 0.206 indicates that the incompatibility of the indonesia's tax revenue that occurs in the long-term and short-term period will be corrected by 20.6 percent. 5. summary 5.1 conclusion the estimation results of the long-term are consistent with the hypothesis, showing that the variables of the gdp, the exchange rate of rupiah against the usd, and the state expenditure, have positive significant effects on the tax revenue. gdp, the exchange rate of rupiah against the usd, as well as the expenditure does not affect the tax revenue, but through the tax base. the changes of the value of gdp, the exchange rate, and the state expenditure, lead to the changes in volume and or the real value of the tax base. different from the three other variables, the inflation rate is not significant statistically on tax revenue in the long-term. in the short-term, the government spending positively significant affect the tax revenue, but the state expenditure, gdp, inflation, and the exchange rate of rupiah against the usd statistically have no significant effect on the tax revenue. the tax revenues can not directly and need the longer time to adjust the changes of the magnitude of the three variables. 5.2 implication the study results strengthen empirically that in the implementation of fiscal policy, especially in terms of tax revenue, the government also always maintain the macroeconomic conditions, specifically in the stabilization of economic growth. from the estimation of elasticity, note that the value of gdp has the most impact analysis of indonesian tax revenue 81 on tax revenue compared to other variables. such policies, especially policies to stimulate savings to strengthen capital accumulation determiner of economic growth. formulation of fiscal policy from the expenditure side should be appropriately done as it implications for the economy in the short term and long term. by allocating qualified expenditures such as infrastructure development that can have an impact in the long term, and the spending on government employees which can have an impact in the short term on the demand side and the impulse of the tax revenue. references ahmed, q. m. 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[diakses pada 1 april 2015]. http://www.jstor.org/stable/3867050 http://www.aporc.org/lnor/8/isora2008f31.pdf impact of economic growth, energy consumption and urban population to climate change in indonesia period 1985-2019 afebi 94 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) impact of economic growth, energy consumption and urban population to climate change in indonesia period 1985-2019 annisa, robi'atul adawiyah*, dri heppi , abdul bashir economic department, faculty of economic, universitas sriwijaya, indonesia abstract economic growth, energy consumption and urban population have positive and significant impact to climate change. the condition of economic growth, energy consumption and urban population in indonesia during the period 1985-2019 continued to increase and that also will increase the co2 emission and will make the heat trapped on earth and increasing earth temperature and it made the climate change. in addition, energy consumption is one indicator by which the level of technology can be measured, in which the widespread use of environmentally friendly technology can reduce energy consumption of fossil fuels. however, it can also lead to an increase in energy consumption through increased levels of efficiency, increased income and human nature which tends to be wasteful and ineffective. keyword: economic growth, energy consumption, urban population, co2 emission and climate change 1. introduction climate change is a serious problem for the world today, including indonesia. this climate change can increase the volume of sea level, trigger changes in seasonal patterns which will certainly disrupt farmers' harvests, and can even eliminate biodiversity because they are unable to adapt to temperature changes. in indonesia itself, there are several impacts of climate change, for example tropical cyclone seroja in april 2021 which occurred due to an increase in temperature in indonesian waters by 4 degrees celsius. this tropical cyclone caused environmental damage such as landslides and floods that occurred in ntt and it became the largest cyclone after 2008. in addition, the heat wave that occurred in russia killed 55,000 people, destroyed 9 million hectares of crops, and caused forest fires (kompas, 2021). because of the many negative impacts, countries in the world have made efforts to reduce the impact of climate change, one of which was the holding of the paris cop21 conference in paris on december 12, 2015 which resulted in an agreement that all countries would limit the increase in global temperature below 2 degrees celsius due to a 50% increase in carbon dioxide (co2) emissions from 1990 to the present (sdg, 2018). the release of co2 emissions into the air causes a greenhouse effect so that it will increase the earth's temperature or global warming which of course leads to climate change. in indonesia itself co2 emissions have increased dramatically from 1985, this can be seen in graph 1.2 below. in 1985, co2 emissions in indonesia were still low at 84,706 metric tons, increasing from year to year, until in 2019 co2 emissions reached 632,085 metric tons. the increase in co2 emissions is inseparable from human activities, especially in urban areas related to development and economic growth which generally consumes petroleum as an energy source. economic growth is closely related to energy consumption, because higher energy consumption causes an increase in economic growth (omri, 2014). industrialization coupled with energy consumption that is not environmentally friendly, especially in developing countries, increases greenhouse gas emissions, especially co2. moreover, with the increasing human population, the more demand for energy such as oil, coal, natural gas and other energy *coressponding author. email address: robiatul.adawiyah2098@gmail.com https://creativecommons.org/licenses/by/4.0/ mailto:robiatul.adawiyah2098@gmail.com economic and finance review (aefr) volume 7, no 2 (2022) 95 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) will certainly release a lot of co2. this co2 gas contributes to global warming by 56%, which of course changes the temperature on the earth's surface and the climate changes too (ridwan, 2017). source: world bank, 2020 figure 1 indonesia's co2 emission in metric tons there have been many studies and research conducted regarding the relationship between economic growth, population, energy consumption and increased co2 emissions that cause the earth's surface temperature to rise and cause climate change. according to kurnia (2018) in his research, economic growth has no effect because in developed countries, people will use environmentally friendly technologies, while energy consumption has a positive effect on co2 emissions because accelerating the industrialization process requires the use of a lot of energy. in addition, according to zarzoso et al (2006) economic growth and energy use in european union countries have a positive effect on co2 emissions, although germany and the uk have a negative correlation between economic growth and emission levels. however, according to ridwan (2017), economic growth and energy consumption will increase co2 emissions, because using technology that reduces co2 emissions will reduce the rate of economic growth. then according to ibrahim et al (2019), the human population has a positive effect on co2 emissions due to the large use of energy and transportation, this is in line with anqing shi's research (2001) that population is one of the main factors in increasing carbon dioxide emissions, especially in developing countries. from the description above, economic growth, energy consumption and human population have a positive impact on carbon dioxide emissions, although there are certain conditions that make the results contradictory. with the increase in co2 emissions, there will be a greenhouse effect which will increase the earth's temperature and make changes to the climate. based on the description above, researchers are interested in researching "the effect of economic growth, city population and energy consumption on climate change in indonesia in 1985-2019. 2. literature study economic growth economic growth is a process of changing economic condition in a country on an ongoing basis to get to a situation that is considered better for a certain period of time. economic growth can be seen from their gross domestic produk (gdp). the higher the gdp of a region indicates the development of economic activities, both production, consumption, 0 100 200 300 400 500 600 700 emisi co2 https://creativecommons.org/licenses/by/4.0/ impact of economic growth, energy consumption and urban population to climate change in indonesia period 1985-2019 afebi 96 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) investment and trade activities in the area, which then has an impact on labor absorption. 1. classical growth theory this theory was pioneered by adam smith, david ricardo, malthus, and john stuart mill. according to this theory, economic growth is influenced by four factors, namely the population, the amount of capital goods, land area and natural resources and the technology used. this theory pays attention to the effect of population growth on economic growth. this theory assumes that land area and natural resources and technology have not changed. the relationship between per capita income and population is called the optimal population theory. according to this theory, initially population growth will lead to an increase in per capita income. however, if the population continues to increase, the law of diminishing returns will affect the production function, namely marginal production will decrease, and will lead to a state of per capita income equal to marginal production. 2. neo classical growth theory developed by robert solow, edmund phelps, harry johnson and j.e. meade. in neo classical analysis economic growth depends on the increase and supply of factors of production and the rate of technological progress because the economy will continue to experience a level of full employment and the capacity of capital equipment will be fully utilized from time to time. 3. harrod-domar growth theory harrod-domar's growth theory is a direct development of john maynard keynes' macro growth theory. according to harrod domar, every economy basically has to reserve or save part of its national income to add or replace capital goods. to spur the process of economic growth, new investment is needed which is a net addition to the reserves or capital stock. 4. schumpeter theory this theory emphasizes innovation made by entrepreneurs and says that technological progress is largely determined by the entrepreneurial spirit in the community who is able to see opportunities and dare to take risks to open new businesses, as well as expand existing businesses. urban population urban population refers to people living in the cities or the population inhabiting ares that have a greater population and more compact than rural areas. people want to live in the cities because they want to get the better education and have higher-income jobs. the united nations predict that people living in urban centers will steadily increase as people migrate from rural areas to cities. the area or urban area fulfills 3 requirements, namely: 1. population density of 500 people or more per square kilometer 2. the number of households working in the agricultural sector is 25 percent or less, and 3. has eight or more types of urban facilities (schools, hospitals, markets, banks, electricity, telephones, maternity homes, cinemas, restaurants, factories, etc.). energy consumption energy consumption refers to all the energy that used to perform an action, manufacture something or simply inhabit a building. energy consumption doesn’t necessarily come from a single energy source. some of energy itself uses fossil energy such as oil and coal, and some uses environmentally friendly energy. https://creativecommons.org/licenses/by/4.0/ economic and finance review (aefr) volume 7, no 2 (2022) 97 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) furthermore, energy itself consists of two components, namely exergy (exergy) which is a useful component that can be converted to do various useful jobs while the useless one is called anergy. examples for exergy are solar radiation energy, chemical energy stored in coal, oil, and gas, nuclear energy, potential and kinetic energy, and electrical energy. so the term "energy" which is generally used when talking about this energy carrier is the same as saying "exergy". when combustion or friction processes convert exergy into heat, energy is produced. so according to kummel energy consumption is defined as the process of losing all or part of the exergy to do work, giving rise to a lot of energy, namely when energy is used to heat or move something. climate change climate is a measure of the mean and variability of the relevant quantities of certain variables, such as temperature, precipitation or wind. ministry of environment define climate change is a change in the physical conditions of the earth's atmosphere, including temperature and distribution of rainfall which has a wide impact on various sectors of human life. according to the united nations (un) climate change is climate change caused either directly or indirectly by human activities that alter the composition of the global atmosphere and natural climate variability in the time period that has been compared. climate change occurs due to increasing concentrations of carbon dioxide gas and other gases that cause greenhouse gas effects and raise the earth's surface temperature and lead to climate change. basically, greenhouse gases are needed to keep the earth's temperature stable. however, the increasing concentration of greenhouse gases makes the atmosphere layer thicker. the thickening of the atmospheric layer causes the amount of geothermal heat trapped in the earth's atmosphere to increase, resulting in an increase in the earth's temperature, which is called global warming. intergovernmental panel on climatte change (ippc) states that global warming can cause significant changes in physical and biological systems such as increased intensity of tropical storms, changes in precipitation patterns, seawater salinity, changes in wind patterns, affects the reproductive period of animals and plants, species distribution and population size, frequency of pest attacks. and disease outbreaks, and affects a variety of ecosystems found in high latitudes, high altitudes, and coastal ecosystems. therefore, adaptation must be balanced with mitigation, namely efforts to reduce sources and increase sinks (absorbers) of greenhouse gases, so that the development process is not hampered and sustainable development goals can be achieved. previous research in the research of usenobong and godwin (2012), energy consumption has an effect on climate change. according to oluyomi et al, (2020) energy consumption affects co2 emissions. according to kurnia (2018) in his research, economic growth has no effect, while energy consumption has an effect on co2 emissions. according to zarzoso et al (2006) economic growth and energy use affect co2 emissions, and two countries have a negative correlation between economic growth and emission levels, while the impact of population on emissions has different impacts for low, middle and upper countries (2008). according to ridwan (2017), economic growth and energy consumption affect co2 emissions. then according to ibrahim et al. (2019) and anqing (2001), the human population has a positive effect on co2 emissions which of course will affect the increase in earth's temperature and make the climate change. https://creativecommons.org/licenses/by/4.0/ impact of economic growth, energy consumption and urban population to climate change in indonesia period 1985-2019 afebi 98 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) 3. reseacrh methods data this study used secondary data in the form of time series data. the data used includes data on co2 emissions (metric tonnes), energy consumption data (per capita), and real gdp per capita. the data is sourced from the world bank and indonesian meteorology and geophysics agency. this research also uses other sources such as journals, articles and other literatures. model spesification the analytical tool in this study uses multiple linear regression analysis based on ordinary least square (ols), time series data along with statistical tests and classical assumption tests. the data processing tool used is the e-views 9.0 program. the following regression equation model is used: clmtt = β0 + β1gdpt + β2econt + β3urpopt + et keterangan : clmt = climate change β0 = intercept/regression constant β1, β2, β3 = coefficient estimate gdp = gross domestic product (gdp) eco = energy consumption urpop = urban pupulation e = error 4. result and discussion multiple regression table 1. multiple regression output source : processed data, e-views 9.0 https://creativecommons.org/licenses/by/4.0/ economic and finance review (aefr) volume 7, no 2 (2022) 99 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) based on the results of the statistical regression in table 1, we conclude the results of multiple linear regression for the co2 emission variable are as follows: clmt = 5,98 0,074699gdp 226572,3econ 0,095781urpop + ei the coefficient results show that the coefficient value for the gross domestic product (gdp) variable is 0.074 and has a negatif relationship, which means that when the gdp variable increases, it will increase climate change by 0.027 with a probability value of 0.000 <0.05 degree of error of 5% so that it is statistically significant to climate change. the coefficient results for the variable energy consumption (econ) 11.9996 which have a positive relationship, if the variable energy consumption increases, it will increase energy consumption by 11.9996, and if people's energy consumption decreases, the use of co2 emissions will also decrease. the probability value of this variable is 0.0000 (eco) with a degree of error of 5% (0.05), so that the energy consumption variable is statistically significant to climate change. and for the coefficient result for the urban population (urpop) is 1 billion and has a positive relationship, so that’s means that when urban population increase, it will increase climate change by 1 billion with probability value 0.0047 < 0.05 degree of error 5% and urban population is statistically significant to climate change. normality test table 2. normality test 0 1 2 3 4 5 6 7 8 9 -25 -20 -15 -10 -5 0 5 10 15 20 25 30 35 series: residuals sample 1985 2019 observations 35 mean -1.37e-13 median 0.735676 maximum 32.84429 minimum -22.82244 std. dev. 10.96792 skewness 0.433588 kurtosis 3.927788 jarque-bera 2.351979 probability 0.308514 source : processed data, e-views 9.0 the normality test used in this study was the jarque bera test. the results of the residual normality test in the attachment show that the jarque fallow value is 2.352 > 0.05 with a p value of 0.309 > 0.05. so that h0 is accepted, which means that the data distribution residuals are normal https://creativecommons.org/licenses/by/4.0/ impact of economic growth, energy consumption and urban population to climate change in indonesia period 1985-2019 afebi 100 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) multicollinearity test table 3. multicollinearity test source : processed data, e-views 9.0 the data above shows that the value of centered vif for both variable gross domestic product (gdp) is lee than 10, while energy consumption and urban population is above than 10, so it can be stated that there is multicollinearity problem in the model. heterokedacity test table 4. heterokedacity test heteroskedasticity test: harvey f-statistic 2.537195 prob. f(3,31) 0.0747 obs*r-squared 6.899626 prob. chi-square(3) 0.0752 scaled explained ss 7.005382 prob. chi-square(3) 0.0717 source : processed data, e-views 9.0 the heteroscedasticity test in this research model uses harvey test. in this test, it can be indicated by the prob value. chi square (3) at obs * r-squared which is equal to 0.0752 > 0.05 then h0 is accepted and there is no problem with the assumption of non-heterocedasticity.. r2 test from the results of the calculation of multiple linear regression analysis, it can be seen that the value of the r2 coefficient is 0.99 which is almost close to 1. thus, it means that climate changein indonesia during the period 1985-2019 can be explained around 99% by the gross domestic product variable, energy consumption and urban population. while the remaining 1% is explained by other variables not included in this research model. f statistic test f statistic in this result is 2158.504 with probability 0.000 < 0.05 so that h1 is accepted that economic growth, energy consumption and urban population variable is simultaneously affect the climate change. economic growth (gdp) https://creativecommons.org/licenses/by/4.0/ economic and finance review (aefr) volume 7, no 2 (2022) 101 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) in the table 1, gdp variable coefficient is 0.026 with a positive sign, the interpretation is when gdp changes by 1%, it will cause an increase in the emission level of 0.026%. this result are consistent with the research zarzoso dkk (2006) and ridwan (2017) that in their research that economic growth have a significant and positive effect on volume of co2 emissions. if volume of co2 emission increase it will increase temperature and will change the climate. in indonesia, because the community has not felt the impact directly, the environmental sustainability is not yet a very important issue. this can be exacerbated by the environmental damage that occurred during the pre-industrial period to industry, where most of it was caused by efforts to increase production which incidentally was foreign production, and the country had little or no profit at all. energy consumption the increasing energy consumption encourages the industrialization process like fossil fuel and electricity system. the more they use energy the more co2 emission let out and the heat trapped on earth. we can see in the table 1, energy consumption variable coefficient is 11.99955 with a positive sign, the interpretation is when energy changes by 1%, it will cause an increase climate change 11.99%. the same result was stated by kurnia (2018), zarzoso dkk (2006) and ridwan (2017) that energy consumption had a significant and positive impact on co2 emission and of course it will increase temperature and make the climate change. urban population in this study we found that urban population had a significant and positive impact to climate change that can be seen on the table 1 with coefficient 1.29e-06 with positive sign and probability 0.0047. we have the same result with ibrahim dkk (2019) and anqing shi (2001), population have positive impact to co2 emission because citizens will consume more energy and use transportation. 5. conclusion based on the result, economic growth, energy consumption and urban population have positive and significant impact to climate change. the condition of economic growth, energy consumption and urban population in indonesia during the period 1985-2019 continued to increase and that also will increase the co2 emission and will make the heat trapped on earth and increasing earth temperature and it made the climate change. in addition, energy consumption is one indicator by which the level of technology can be measured, in which the widespread use of environmentally friendly technology can reduce energy consumption of fossil fuels. however, it can also lead to an increase in energy consumption through increased levels of efficiency, increased income and human nature which tends to be wasteful and ineffective. https://creativecommons.org/licenses/by/4.0/ impact of economic growth, energy consumption and urban population to climate change in indonesia period 1985-2019 afebi 102 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) reference a.oluyomi osobajo, afolabi otitoju, martha ajibola otitoju dan adekunle oke, (2020) the impact of energy consumption and economic growth on carbon dioxide emissions, mdpi, united kingdom adi kurnia chandra, (2018) analisis pengaruh pertumbuhan ekonomi dan penanaman modla asing terhadap emisi karbon dioksida di delapan negara asean periode 2004-2013, jurnal ilmiah mahasiswa universitas surabaya vol.7 no.1 2018, surabaya. aqualdo nobel, eriyati dan toti indrawati, (2012) penyeimbang lingkungan akibat pencemaran karbon yang ditimbulkan industri warung internet di kota pekanbaru, jurnal ekonomi vol. 20 no.3 september 2012, riau f. usenobong akpan, (2012) the contribution of energy consumption to climate change : a feasible policy direction, international journal of energy economics and policy vol.2 no.1 2012, pp.21-33, nigeria. fariz mohammad and sri muljaningsih (2015) pengaruh konsumsi energy terhadap pertumbuhan ekonomi di indonesia periode 1980-2012, jurnal ilmiah vo.3 no.2, malang. fauzi ridwan, (2017) pengaruh konsumsi energi, luas kawasan hutan dan pertumbuhan ekonomi terhadap emisi co2 di 6 (enam) negara anggota asean : pendekatan analisis data panel, ecolab vol.11 no.1 januari 2017 : 1-52. julismin, (2013) dampak dan perubahan iklim di indonesia, jurnal geografi vol.5 no.1 2013, medan. kartiasih fitri dan adi setiawan, (2019) aplikasi error correction mechanism dalam analisa dampak petumbuhan ekonomi dan konsumsi energi dan perdagangan internasional terhadap emisi co2 di indonesia, media statistika 13(1) 2020 : 104-115, jakarta. kummel, reiner, (2011) the second law of economics, new york : springer. ma’ruf ahmad and latri wihastuti, (2008), pertumbuhan ekonomi indonesia : determinan dan prospeknya, jurnal ekonomi dan studi pembangunan vol.9 no.1 april 2008 : 44 -55, yogyakarta. martínez-zarzoso, i., bengochea-morancho, a., & morales-lage, r., (2006) the impact of population on co2 emissions: evidence from european countries. social science research network electronic paper collection. mohammed ibrahim lawal and mukhtar abubakar, (2019) impact of population growth on carbon dioxide (co2) emission : empirical evidence from nigaria, jurnal perspeektif pembiayaan dan pembangunan daerah vo. 6 no.6 may-june 2019, borno state. nurbandi wahyu dan indinna sofia astuti, (2018) kajian perubahan iklim ditinjau dari pengaruh tingkat gdp per kapita terhadap emisi co2 di asia tenggara tahun 19802014, jurnal meteorologi klimatologi dan geofisika vol.5 no. 3 november 2018, yogyakarta. phimphantanvong hatthachan, (2013) the impact of economic growth on evironmental condition in laos, vol 4 (5) 2013, italy. shi anqing, (2001) population growth and global carbon dioxide emissions, development research group the world bank june 2001 version. tjiptoherijanto prijono, (1999) urbanisasi dan pengembangan kota di indonesia, jurnal kependudukan dan kebijakan vo.10 no.2 1999, yogyakarta. https://creativecommons.org/licenses/by/4.0/ the influence of locally generated revenue, public allocation funds and specific to financial performance of the region in the city/regency government in aceh province 43 the influence of locally generated revenue, public allocation funds and specific to financial performance of the region in the city/regency government in aceh province zainal putra1 1 teuku umar university, meulaboh, indonesia abstract the purpose of this research are: (1). to know how the condition of region own source revenue, the general allocation fund, special allocation fund and regional financial performance , (2). to find out the influence of region own source revenue, the general allocation fund, special allocation fund to the region financial performance, (3). to know the influence of region own source revenue to the region financial performance, (4). to find out the influence of the general allocation fund to the region financial performance, (5). to know the effect of the special allocation fund toward region financial performance. the data used in this research is a secondary data obtained from the office of bpk ri aceh province representative. the data collected in the form of pooling data in period of 20082012. the entire population in this research are sampled as many as 23 regencies / cities in aceh province. in analyzing the data using multiple linear regression models. the results showed that: (1). regencies / cities in aceh province the category of of region finance ability is “very less" and the category of region finance independence is "very low" with a pattern of "instructive" relationship, (2). the financial performance of the region show a decreasing trend in the span of 2008-2012 , (3). the variable of region own source revenue, general allocation fund, special allocation fund simultaneously influential and significant to the variable of regional financial performance , (4). partially only variable of general allocation fund and variable of special allocation fund that influence and significant toward the variable of regional financial performance, whereas the variable of region own source revenue does not influence significantly to the variable of regional financial performance. jel classification: h20, h50, p50 key words: the general allocation fund, the region own source revenue, the regional financial performance, the special allocation fund 1. introduction based on law no 11/2006 about the government of aceh or what is known as the government of aceh law there are several important points that are mandated regarding on the management of regional finance which are: a. the government of aceh and the government of regencies/cities manage the aceh spending budget income/regency spending budget income orderly, following rules of laws, efficient, economical, effective and responsible by showing a sense of justice, order and benefit for the people (article 190 clause the influence of locally generated revenue, public allocation funds and specific to financial performance of the region in the city/regency government in aceh province 44 (1) law no 11/2006). b. the allocation of spending budgets for public service in the aceh spending budget income/regency spending budget income is larger than the allocation of spending budgets for the agovernmentregulationaratus. (article 190 clause (3) law no 11/2006). in the national context, related with the management of national finance, in law no. 17/2003 about national finance, article 3 clause (1) it is stated that national finance is managed orderly, follows rules of laws, efficient, economic, effective, transparent, and responsible by showing a sense of justice and order. then in the explanation of the mentioned law, it is stated that the agovernmentregulationlied budgeting in the public sector are budgets based on work achievement. what is meant by budgeting based on work achievement is budgeting that is implemented by paying attention to the relation between funding with spending that is expected from lawivities and results and benefits that are expected including efficiency in reaching the mentioned results and output. this implementation of performance based funding has a purpose for forming a government that is good and clean. and the performance of the regional governmentwill increase if the financial management is implemented well in accordance with the rules that are assigned. realistically, the management of regional finance in aceh province is not yet optimal as what has already been mandated by laws. there are many bad news released in the mass media about the mismanagement of finance in aceh, beginning from corruption, misuse of budgets, up to bad financial performance. according to abdullah (2011), that the quality of regional finance management indirectly is able to be seen from opinions from the financial examining body of the republic of indonesia. so the better the opinion of the financial report given by the financial examining body of the republic of indonesia, it indirectly reflects a good financial performance. in aceh province that has 23 regency/city governments, in 2011 the ones that obtained a proper without exception opinion from the financial examining body of the republic of indonesia is only 2 regencies/cities (9%), which are nagan raya regency and banda aceh city. while in 2012 it increased to become 7 regencies/cities that obtained a proper without exception opinion (30%), which are, banda aceh city, sabang city, subulussalam city, aceh besar regency, aceh jaya regency, nagan raya regency and central aceh regency. in article 1 clause (5) law no.32/2004 about regional governments, it is explained that regional autonomy is a right, authority and obligation of the autonomic region to manage and handle governmental affairs and people interests itself in accordance with the rules of laws. so in order to undergo the mentioned autonomy the regional government needs sources of income. the regional government’s sources of income consists of locally generated revenue, equalization funds, and other regional incomes that are valid (article 57 law no.32/2004). the regional government is stated to succeed in autonomy if the mentioned regional government is able to be more independent in financing government lawivities and development in their region, which is by digging the economic potential in their region through locally generated revenue. then in article 2 clause (4 and 5) law no.32/2004 about regional governments, it is stated that regional governments in organizing governmental affairs have a relation with the influence of locally generated revenue, public allocation funds and specific to financial performance of the region in the city/regency government in aceh province 45 the central government. one of the relations is the financial relation. where the mentioned financial relation is proven by the presence of transferring equalization funds from the central government to regional governments, as what is mandated in law no.33/2004 about financial equalization between the central government and regional governments. based on the 2008 financial report released by the financial examining body of the republic of indonesia, it was known that regional governments in aceh province are still dependent on extern funds (central government). this is able to be seen from the contribution of equalization funds and locally generated revenue to local revenue where equalization funds have a very large contribution to local revenue. as an example in 2011 the total local revenue of the aceh provincial government was as large as rp.7,610,320,147,037.19 from the mentioned number the locally generated revenue is only as large as rp.802,840,173,817.19 (10.55%). the equalization fund is as large as rp. 2,262,044,905,720.00 (29.72%) and the specific autonomy fund is as large as 4,510,656,496,500.00 (59.27%). in 2012 from the total local revenue of the aceh provincial government was as large as rp.9,180,143,048,437.63. from the mentioned number locally generated revenue is only as large as rp.901,720,376,620.63 (9.82%) while the equalization fund is as large as rp.2,359,784,326,817.00 (25.71%). then the specific autonomy fund is as large as rp.5,476,288,764,000.00 (59.65%) for the west aceh regency government in 2011 the total local revenue is as large as rp. 516,630,593,402.40. from the mentioned number the locally generated revenue is as large as rp.21,042,866,954.40 (4.07%) and equalization funds as large as rp.437,438,662,825.00 (84.67%). in 2012 the total local revenue from west aceh regency was as large as rp.588,981,727,693.27. from the mentioned number local revenue was only as large as rp.24,727,256,869.07 (4.20%) while the equalization fund was as large as rp.514,476,288,760.00 (87.43%). from the flaws submitted above, it is able to be known that lawually the financial performance of the regency/city government in aceh province is not yet optimal. 2. literature review definition of regional financial performance in article 1 clause (2) government regulation no8/2006 about financial reporting and government agency performance, defines performance as an output/result from lawivities/programs that are going to be or have already been achieved in relation with the use of budgets with a measured quantity and quality. financial performance is a measure of performance that uses financial indicators. financial performance analysis is basically implemented for rating performance in the past by implementing several analyses so a financial position that represents reality, entity and performance potential that will continue is obtained. (batafor, 2011). agustina (2013) states that the financial performance of regional governments is a level of achievement from a result of work in the regional finance field neither from the income side nor regional spending by using financial indicators. nevertheless, the writer summarizes that what is meant by regional financial performance is the level of achievement from a work result in the influence of locally generated revenue, public allocation funds and specific to financial performance of the region in the city/regency government in aceh province 46 the regional finance field by using financial indicators that are already assigned and based on financial reports published by regional governments. locally generated revenue in article 1 clause (18) law no.33/2004 about financial equalization between the central government and regional governments, explains about locally generated revenue as revenue that is obtained by regions that are levied based on regional regulations according to the rules of laws. then in article 3 clause (1) of the same law, it is explained that locally generated revenue has a purpose to provide authority to regional governments for funding the implementation of regional autonomy in accordance with the regional potential as an embodimentof decentralization. based on article 26 clause (1) interior minister regulation no.13/2006 about the guide to managing regional finance, it is stated that groups of locally generated revenue are divided according to the types of revenue that consists of a). regional tax, b). regional retribution, c). results of processing regional resources that are separated and d). other locally generated revenue that is valid. public allocation funds according to article 1 clause (23) government regulation no.55/2005 about equalization funds, what is meant by public allocation funds is: “ funds that are sourced from the income of the national income spending budget that are allocated with the purpose of equalizing interregional financial abilities for funding regional needs in the event of decentralization implementation”. the whole number of public allocation funds is assigned to at least 26% of the net domestic product that is assigned in the national income spending budget. the net domestic product is the national income that originates from tax and nontax after being subtrlawed from the national income which the results are divided to regions (yani, 2002 : 143). the proportion of public allocation funds between provinces and regencies/cities is counted from a comparison between the burden of government affairs that becomes the authority of provinces and regencies/cities. in the determination of proportions it is not yet able to be counted quantitatively, the proportion of public allocation funds between provinces and regencies/cities is assigned with a balance of 10% and 90%. specific allocation funds based on article 1 clause 24 government regulation no.55/2005 about equalization funds, what is meant by specific allocation funds is: ”funds that are sourced from the income of the national income spending budget that are allocated to certain regions with the purpose of helping to fund specific lawivities that are the affairs of regions and in accordance with national priority”. specific allocation funds are allocated to certain regions for funding specific lawivities that are parts of programs that become national priorities becoming regional affairs. certain regions are regions that are able to obtain specific allocation funds based on public criteria, specific criteria and technical criteria. public criteria is processed based on regional financial abilities that are reflected from public regional income spending budget after being subtrlawed from the spending of public civil servants. according to yani (2002: 166) specific lawivities that are assigned by the government prioritizes development lawivities and/or providing and/or increasing and/or improving physical infrastructure of basic the influence of locally generated revenue, public allocation funds and specific to financial performance of the region in the city/regency government in aceh province 47 people service with a long economical age, including providing physical infrastructure. 3. research method location and research object for obtaining data that is needed in this research, the writer holds research for 23 regency/city governments in aceh province through the financial examining body of the republic of indonesia aceh province representative. as for the research objects are locally generated revenue, public allocation funds, specific allocation funds and regional finance performance. hypothesis based on theoretical study and empirical proof that was already explained above, the hypothesis of this research is as the following:  the regional financial situation in 23 regencies/cities in aceh province is not yet optimal.  ha1: locally generated revenue, public allocated funds, and specific allocated funds simultaneously influence the regional financial performance.  ha2: locally generated revenue has an influence to regional financial performance.  ha3: public allocation funds have an influence to regional financial performance.  ha4: specific allocation funds have an influence to regional financial performance. population and sample in this research the writer uses the whole population as a sample which are the whole regencies/cities in aceh province that consists of 18 regencies and 5 cities. this research takes a time duration from the years 2008-2012 (as long as 5 years). so the total population (n) that is studied total at 115 populations (23 regencies/cities x 5 years). data analysis method for answering problems in this research the analysis uses a double linear regression model analysis with an equation as the following: y = β1x1 + β2x2 + β3x3 + e (1) where : y = regional financial performance β = slope or regression coefficient x1 = locally generated revenue x2 = public allocation funds x3 = specific allocation funds e = error term the influence of locally generated revenue, public allocation funds and specific to financial performance of the region in the city/regency government in aceh province 48 4. result and discussion the situation of locally generated revenue in 23 regencies/cities in aceh province the average locally generated revenue in in 23 regencies/cities in aceh province that was counted in the time period of 2008-2012 is as large as rp.19,980,919,435.52. there are as many as 9 regencies/cities whose locally generated revenue is above average which are west aceh, aceh besar, south aceh, central aceh, north aceh, bireun, pidie, banda aceh, and lhokseumawe. while the rest as many as 13 regencies/cities the locally generated revenue is below average which are southwest aceh, aceh jaya, aceh singkil, aceh tamiang, southeast aceh, east aceh, benermeriah, gayolues, nagan raya, pidie jaya, simeulue, langsa, sabang and subulussalam. the ability of regional finance that is seen from the percentage of locally generated revenue to the total local revenue, it was known that from 23 regencies/cities in aceh province only banda aceh city that has a financial ability category of “deficient” because the percentage of locally generated revenue to the total local revenue is as large as 11.06% in the interval of 10.01%-20.00%. while the other 22 regencies/cities’ regional financial abilities are categorized as “very deficient” because the percentage of locally generated revenue to the total local revenue is in the interval of 0.00%-10.00%. other than that to know the level of regional financial independence, it is able to be seen in the locally generated revenue percentage number to the transfer funds from the central, province, and loans. the average locally generated revenue percentage to transfer funds from the central, province and loans for 23 regencies/cities in aceh province is as large as 4.25% in the interval of 0.00%-25.00% category “very low” with an “instructive” relation pattern. the situation of public allocation funds in 23 regencies/cities in aceh province the average public allocation funds in 23 regencies/cities in aceh province that are counted in the time period of 2008-2012 is as large as rp.310,543,570,046.26. there are 11 regencies/cities which the public allocation funds are above average which are west aceh, aceh besar, south aceh, central aceh, southeast aceh, east aceh, north aceh, bireun, nagan raya, pidie, and banda aceh. while the rest as many as 12 regencies/cities the public allocation funds are below average which are southwest aceh, aceh jaya, aceh singkil, aceh tamiang, benermeriah, gayolues, pidie jaya, simeulue, langsa, lhokseumawe, sabang and subulussalam. the situation of specific allocation funds in 23 regencies/cities in aceh province the average specific allocation funds in 23 regencies/cities in aceh province that are counted in the time period of 2008-2012 is as large as rp.38,852,129,946.23. there are 12 regencies/cities which the specific allocation funds are above average which are west aceh, southwest aceh, aceh besar, south aceh, aceh singkil, aceh tamiang, central aceh, east aceh, north aceh, bireun, pidie, and simeulue. while the rest as many as 11 regencies/cities the specific allocation funds are below average which are aceh jaya, southeast aceh, benermeriah, gayolues, nagan raya, pidie jaya, banda aceh, langsa, lhokseumawe, sabang, and subulussalam. the influence of locally generated revenue, public allocation funds and specific to financial performance of the region in the city/regency government in aceh province 49 the situation of regional financial performance in 23 regencies/cities in aceh province the average regional financial performance that was seen from the percentage aspect of capital spending allocation for 23 regencies/cities in aceh province that was counted in the time period of 2008-2012 is as large as 19.85%. there are as many as 12 regencies/cities which their regional financial performance is above average which are southwest aceh, aceh jaya, aceh singkil, central aceh, north aceh, benermeriah, gayolues, nagan raya, pidie jaya, simeulue, sabang, and subulussalam. while the rest as many as 11 regencies/cities their financial performance is below average which are aceh besar, west aceh, south aceh, aceh tamiang, southeast aceh, east aceh, bireun, pidie, banda aceh, langsa, and lhokseumawe. the average regional financial performance seen from the percentage of capital spending allocation in 23 regencies/cities in aceh province per year from 2008-2012 is able to be seen in the table below: table 1 average regional financial performance in 23 regencies/cities in aceh province per year year capital spending allocation (%) 2008 23.28 2009 19.87 2010 19.93 2011 20.53 2012 15.62 if compared with government regulations, the average percentage of capital spending allocation for regencies/cities in aceh province per year such as seen in the table above that from the years 2008-2012 has not yet fulfilled the minimal requirements of capital spending allocation required by the government at all. the government requires so that the capital spending allocation increases continuously every year. in 2008 the minimal allocation was 24% for capital spending, while what occurred was only as large as 23.28. in 2009 the minimal was 25% allocation for capital spending, while what occurred was only as large as 19.87%. in 2010 the minimal was 26% allocation for capital spending, while what occurred was only as large as 19.93%. in 2011 the minimal was 27% allocation for capital spending, while what occurred was only as large as 20.53%. and in 2012 the minimal was 28% allocation for capital spending, while what occurred was only as large as 15.62%. results of statistical test from research results a coefficient correlation (r) as large as 0.0620 shows that the degree of relation (correlation) between independent variables with dependent variables as large as 62%. which means that locally generated revenue, public allocation funds, and specific allocation funds have a strong relation to regional financial performance. other than that it is also known that the determination coefficient (adjusted r square r2) is as large as 0.367. which means that regional financial performance as large as 36.7% is influenced by locally generated revenue, public allocation funds, and specific allocation funds. as for the regression equation is: y = -0,047x1 0,635x2 + 0,168x3 + e (2) the influence of locally generated revenue, public allocation funds and specific to financial performance of the region in the city/regency government in aceh province 50 the mentioned equation is able to be interpreted that: the regression coefficient (β1) as large as -0.047% shows that every increase in locally generated revenue as large as 1%, the regional financial performance decreases as large as 0.047%. the regression coefficient (β2) as large as -0.635 shows that every increase in the acquisition of public allocation funds as large as 1%, the regional financial performance decreases as large as 0.0635%. the regression coefficient (β3) as large as 0.168 shows that every increase in the acquisition of specific allocation funds as large as 1%, the regional financial performance increases as large as 0.168%. results of f test a simultaneous test is implemented for knowing if the independent variables that consists of locally generated revenue, public allocation funds, and specific allocation funds simultaneously influence the dependent variable which is regional finance performance. the simultaneous statistical test shows that value fcount> value ftable (23.054 > 2.686), so ha1 is accepted (h01 rejected). which means that the variables of locally generated revenue, public allocation funds, and specific allocation funds influence simultaneously and significantly to the variable regional finance performance. this significant influence is able to be seen from the larger probability than or the same with the sig probability value. (0.05> 0.000), t-test a partial test is implemented for knowing if each independent variable (locally generated revenue, public allocation funds, and specific allocation funds) influences the dependent variable (regional financial performance). the influence of locally generated revenue to regional financial performance. from research results a tcount value for locally generated revenue is smaller than the ttable (-0.560 < -1.658), so h02 is accepted. it means that there are no significant influences between the locally generated revenue variable and the regional financial performance variable. even if the scale of the influence that is shown by the regression coefficient (β1) as large as -0.047 or -4.7% is not significant, because the probability value is less than or the same with the sig probability value. (0.05 <0.577). the influence of public allocation funds to regional financial performance. from research results a tcount value for locally generated revenue is larger than the ttable (-6.987 :-1.658), so ha3is accepted. it means that there are significant influences between the locally generated revenue variable and the regional financial performance variable. the scale of the influence that is shown by the regression coefficient (β2) is as large as -0.635 or -63.5% and this is a significant influence, because the probability value is greater than or the same with the sig probability value. (0.05 <0.000). the influence of specific allocation funds to regional financial performance. from research results a tcount value for locally generated revenue is larger than the ttable (2.076 >1.658), so ha4is accepted. it means that there are significant influences between the locally generated revenue variable and the regional financial performance variable. the scale of the influence that is shown by the regression coefficient (β3) is as large as 0.168 or 16.8% and this is a significant influence, because the probability value is greater than or the same with the sig probability value. (0.05 <0.040). the influence of locally generated revenue, public allocation funds and specific to financial performance of the region in the city/regency government in aceh province 51 5. summary and suggestions summary from research results it is able to be summarized that: 1. the regional financial ability in 23 regencies/cities in aceh province that was counted in the 2008-2012 time period are “very deficient” and the financial independence level is in the “very low” category with an “instructive” relation pattern that has a meaning that the role of the central government is more dominant than the independence of regional governments (regions are unable to implement regional autonomy financially). 2. regional financial performance that is reviewed from the capital spending allocation shows a trend that decreases in the 2008-2012 time period. and regional governments are not yet able to fulfill the percentage of capital spending allocation that in every year is required to increase by the regulations of laws. 3. the locally generated revenue, public allocation funds, and specific allocation funds variables simultaneously take effect and significantly to the regional financial performance variable. partially only the public allocation funds, and specific allocation funds variables that take effect and significantly to the regional financial performance variable. while the locally generated revenue variable partially does not take effect significantly to the regional financial performance variable. suggestions based on research that was already implemented, suggestions are proposed to the regency/city governments in aceh province as the following: 1. to continue to increase regional financial abilities and regional financial independence by increasing locally generated revenue. this is able to be implemented among others by optimization of regional tax revenue, with concrete efforts that are able to be reached in the form of: a. implementing magovernmentregulationing of the whole potential of regional tax including land and building tax and readjusting values of tax objects with the current situation. b. identify the regional tax-dodgers and to those that dodge regional tax are to be faced with the law. 2. implement an agovernmentregulationroach effort (lobby) intensively to the technical ministry so the specific allocation funds are able to be prioritized in accordance with proposed programs from regency/city governments in aceh province. 3. to continue to increase the capital spending allocation every year in the regional income spending budget minimal in accordance with what are required by laws. and every output from the realization of the mentioned capital spending have to be able to be functioned in accordance with what is planned. references abdullah, s. (2011). penilaian kinerja keuangan daerah. available at http://syukriy. wordpress.com, 29 november 2011, [diakses rabu tanggal 10 juli 2013]. the influence of locally generated revenue, public allocation funds and specific to financial performance of the region in the city/regency government in aceh province 52 agustina, o. (2013). analisis kinerja pengelolaan keuangan daerah dan tingkat kemandirian daerah di era otonomi daerah: studi kasus kota malang (tahun anggaran 2007-2011). jurnal jurusan ilmu ekonomi fakultas ekonomi dan bisnis universitas brawijaya malang. batafor, g.g. (2011). evaluasi kinerja keuangan dan tingkat kesejahteraan masyarakat kabupaten lembata provinsi ntt. [thesis program pascasarjana]. denpasar: universitas udayana. republik indonesia, uu no.17/2003 tentang keuangan negara. republik indonesia, uu no.32/2004 tentang pemerintah daerah. republik indonesia, uu no.33/2004 tentang perimbangan keuangan antara pemerintah pusat dan pemerintah daerah. republik indonesia, uu no.11/2006 tentang pemerintahan aceh. republik indonesia, pp no.55/2005 tentang dana perimbangan. republik indonesia, pp no.58/2005 tentang pengelolaan keuangan daerah. republik indonesia, pp no.8/2006 tentang pelaporan keuangan dan kinerja instansi pemerintah. yani, a. (2002). hubungan keuangan antara pemerintah pusat dan daerah di indonesia. jakarta: rajawali press. development inequality of new autonomous economic regions in lampung province, 2005-2013 30 development inequality of new autonomous economic regions in lampung province, 2005-2013 ambya31*1 1 universitas lampung, lampung, indonesia abstract euphoria to decentralization and regional autonomy in 2000 seemingly causes the decision makers to provide more priority to allocation and transfer, such as public allocation funds and revenue sharing which provides broad discretion for regional governments to manage the use. the role of specific allocation funds which are able to be a trusted stimulus for reaching the national development target and prioritize externalization from regional public service which is ignored. the allocation of balancing funds has a strategic and primary purpose which is the encouragement of a relatively high economic growth and does not cause inequality. the source of funds of the new autonomous regions other than from locally generated revenue are also from transferred funds from the central government in the form of public allocation funds, specific allocation funds and revenue sharing. those sources of funding contribute to the creation of regional economy development inequality. research results show that in the last three years the inequality of economic development in new autonomous regions has narrowed. that condition is sustained by the willingness of public allocation funds, specific allocation funds, and while revenue sharing does not significantly influence economic development inequality in the regions. jel classification: h70, h77, o10 keywords: economic growth, inequality, transfer funds 1. introduction regional autonomy and fiscal decentralization are effectively implemented in 2001 and in the development it was met with several improvements to acts which manage it. in 2004 the autonomous region act number 32 year 2004 about regional government was published and act number 33 year 2004 about financial balance of the central government and regional governments. with the birth of those two acts the relation system of government institutions in indonesia experienced change. the relation is said to be vertical which is between the central government, provincial government, and regency/city governmenit, and also horizontal between the executive, legislative, and judicative, in several levels which are the central government, province, and regency/city. the study about regional autonomy development and its success levels is a topic which is interesting to study. some studies produce different conclusions between the researchers with several logical argumentations and empirical proof. generally the research uses a fiscal decentralization frame and economic growth. research results shows a fluctuating condition and tend to be different such as the study of ilmi (2005) explains that fiscal decentralization has a * corresponding author. email address: ambya.mahmud@gmail.com afebi economic and finance review (aefr) vol.03 no.01, june 2018 31 positive influence to economic growth. while the studies of davoodi and zou (1998) and woller and phillips (1998) shoes that fiscal decentralization does not have a significant impact to economic growth in developing countries. it differs from the research results of zhang and zhou (1998) and xie, et al (1999) which explains that fiscal decentralization implementation is less advantageous for development and has a negative influence to economic growth. fiscal decentralization is one of the government instruments in managing development for motivating a regional or national economic increase. a good finance relation mechanism is expected to accelerate the implementation of economic development in regions so it can impact the economic condition which is more developed. the final purpose of a development process is the increase of welfare of society. as of now the fiscal decentralization policy rests on allocation and central to regions which is known as fund transfer. until now, there has been significant allocation of balancing funds to regions, in the form of public allocation funds, specific allocation funds, and revenue sharing, which are from tax and natural resources, the allocation of public allocation funds are used for closing fiscal gap. because it considers two aspects at once, which are needs and fiscal ability of regional governments. the formula of public allocation funds in indonesia is different from the internal revenue allotment model which is a form of fund transfer in the philippines, where transfer allocations are only based on fiscal needs; which uses the land area and total population variables. the public allocation fund formula is also different from transfer allocation in canada which the transfer allocation is only based on regional tax collection ability (capacity side of regional fiscal). until today the measure of fiscal needs has not yet used the real expense needs approach, yet still uses approach variables (proxy variables) among others are; regional gross domestic product, human development index, total population and land area. in the future the distribution of public allocation funds is expected to solve horizontal inequality, as a cause of the presence which of course distorts the allocation of public allocation funds to reach the purpose, such as hold harmless policy and the use of employee expense as a variable. the measure of fiscal needs (public allocation fund formulation) does not use a proxy, but uses a formulation which reflects more of real regional needs. the count of public allocation funds should be done by an independent institution from several political interests. specific allocation funds, are a form of transfer funds from the central to regions for funding authority which has been centralized, and carry on tasks for supporting national priority programs. as in many other nations, the form of transfer which are specific grant will have a very important role in keeping the conformity of the direction of national development. specific allocation funds in indonesia have functions for bridging standard reach of minimum treatment nationally, which means that specific allocation funds should be allocated to certain regions which has not yet reached the national standard qualityof public service such as expected. specific allocation funds are not allocated to all regions, but only to certain regions with specific conditions. development inequality of new autonomous economic regions in lampung province, 2005-2013 32 revenue sharing, is also a strategic balancing fund for regions which have sources of central revenue in their regions, covering central tax revenue which is personal income tax, land and building tax, duties on acquisition of land and building rights, and revenue from natural resources (crude oil, natural gas, general mining, forestry, and fishery). based on act no.33/2004, the regional parts from tax and natural resources are already determined for the amount based on a certain percentage. the allocation of balancing funds has a strategic and primary purpose which is to motivate a relatively high economic growth and does not cause inequality. the effort for motivating growth can be focused in the effort of pushing mainstay sectors and subsectors. according to kuncoro (2004), the development of regional economy should be more prioritized in mainstay subsectors which are owned by each regency/city, by still paying attention proportionally of other subsectors corresponding with the potential and chance of development. the development of mainstay subsectors should be directed in efforts for creating interregional linkage, one of the efforts is to create specialization. this is supported by rustiadi (2009),that regional development strategy is a combined sectoral and spatial approach in the frame of realizing balanced regional development. regional growth occurs as a cause of several influencing factors. areas develop because of interactions between the center (core region) and fringe (periphery/hinterland) as stated by john fiedmann in the center and fringe relation model (meier, et.al.,2006). according to bokemann (1999), empirically regional growth is related with the specialization, interaction, centrality, rank size rule, and housing dynamics process so regional growth occurs as a cause of a strong relation between regions, where one of the regions function as a center and supported by other regions as interland. the motivation for the establishment of new autonomous regions is for the welfare of society. but in reality it does not match what happened. local governments are still unable to prosper the community, so local governments still depend on transfer funds provided by the central government. the ability of new autonomous regional governments to use transfer funds obtained from the central government will affect the development of the region. but there are still many governments who have not been able to utilize the transfer funds in the can with maximum. so there are some autonomous regions left behind in terms of regional development. this can lead to imbalances in the autonomous regions of the province in indonesia. the development of balancing funds calculated by regency / city in lampung province currently has a significant increase. fund transfers in the province of lampung have not resulted in more capacity building, only to be done in new autonomous regions. the allocation of transfer funds consisting of dau, dak and dbh is already running and fluctuating, but many more have not yet reached or occurred in any of the districts / cities in lampung province. in this research there are several economic growth theories which are used, the first which is the solow economic growth theory which contends that economic growth is caused by the change of factors which influence the afebi economic and finance review (aefr) vol.03 no.01, june 2018 33 aggregate supply. the primary factor which motivates economic growth is the availability of production input and technological progress. nevertheless the solow-swan framework is still considered as the most dominant theoretical base (romer, 1996). the neo classical theory is developed with the basic premises (a) perfect competition, (b) rational economic behavior, and (c) no externality in economics. based on those premises the neo classical determines the primary assumptions in their theory construction. first, production determines the per capita income of a society in a state. second, population growth is exogenous, constant, and not influenced by other factors. third, the savings level is a determined fraction (part) from national income. other than that the presence of a governmental role is also an important factor for decreasing inequality in new autonomous regions of lampung province. the government is an institution which is able to implement several matters better than the private or individuals. three relevant matters of national finance are income redistribution, public goods provision, and social protection (gramlich 1990). market strength and mechanism is believed to never produce an equal income distribution. this research has several objectives. the research objectives to be achieved in this research are to analyze the pattern of equity of district /city financial capability in lampung province and to analyze the influence of transfer fund allocation to economic disparity among regencies / cities in lampung province 2. literature review growth theory solow's economic growth theory argues that economic growth is due to changes in factors affecting aggregate supply. the main factors driving economic growth are the availability of production inputs and technological advances. the production function of solver model aggregates (romer, 1996) is; y = f (kt, at, lt) where y is output, k is capital, l is labor, a shows knowledge, and t is time. there are three assumptions on the solow model, the first one being used is; constant return to scale, then the output production function yt = f (kt) where yt is the output per unit of effective labor and kt is the capital per unit effective labor. the second assumption of f (k) is assumed to satisfy f (0); f '(k)> 0 and f' '(k) <0. this condition shows the marginal product of capital is positive (mpk> 0). the third assumption in which f (.) is assumed satisfies the conditions so that the production function f '(0)>; and f '' (.) <0. neo classic economic growth theory is a theory of economic growth that is often associated with the neo-classical mashab given its enormous contribution. classical neo theory developed on the basic premise (a) perfect competition, (b) rational economic behavior, and (c) no externalities in the economy. on the basis of the premise the neo classical sets the basic assumptions in the construction of his theory. first, production determines the per capita income of a country's people. second, population growth is exogenous, constant and not influenced by other factors. third, the saving rate is a fraction (part) of the national income. development inequality of new autonomous economic regions in lampung province, 2005-2013 34 the role of regional government and economic inequality between regions government is an institution that can do some things better than private or individual. three things that are relevant to state finances are income redistribution, public goods provision, and social protection (gramlich 1990). market forces and mechanisms are believed to never produce an even distribution of income. in fact, the (relatively) equitable distribution of income is a phenomenon desired by society in general. therefore, the task of the government is to ensure that there is a more equitable distribution of income among community groups. thee kian wie, (1981) states that inequality income distribution from an economic point of view is divided into: 1. inequality of income distribution among income recipients (size distribution income); 2. inequality of revenue sharing between urban and rural areas (urban-rural income disparities); 3. inequality of regional income sharing (regional income disparities); the inequality of inter-regional development with central and interregional with other regions is a natural one, due to differences in resources and the beginning of interregional development (williamson, 1965). the analysis that links the stages of economic development and income distribution and the expression of growth versus equity is actually triggered by an invention initiated by simon kuznet (1955). simon kuznet links the growth rates of developed and developing countries by observing time series data for the united states, britain and germany as well as cross-sectional data covering the three countries plus india, sri lanka and puerto rico, and based on those observations kuznet discovered a pattern that u inverted. the pattern requires that in the early stages of development (represented by low gdp per capita), the growth process is followed by the worsening distribution of income and after reaching a certain point, development will be followed by improved equity. development with results as illustrated by the inverted u hypothesis, largely based on the dualistic development model. public allocation fund public allocation fund is a fund allocated for the purpose of equitable distribution of finance between regions to finance expenditure needs in the context of decentralization. law no. 33/2004 on financial balances between the central government and regional governments explains that the public allocation fund aims at the equitable distribution of inter-regional financial capacity aimed at reducing the inequality of interregional financial capacity through the application of a formula that takes into consideration local needs and potentials. public allocation fund of a region is determined by the size of the fiscal gap of an area, which is the difference between the fiscal need and the fiscal capacity. provision of public allocation funds to local governments is a consequence of the transfer of authority of the central government to local governments. thus, there is a significant transfer in the apbn from the central government to local governments, and local governments can freely use the public allocation fund to provide better service to the community so as to afebi economic and finance review (aefr) vol.03 no.01, june 2018 35 create a healthy life and a longer life expectancy, improve the quality education and living standards of society. spesific allocation fund law no. 33/2004 on financial balances between the central government and regional governments explains that spesific allocation fund is a transfer fund from the central government to local governments that are used to carry out infrastructure development and public facilities in districts. spesific allocation fund is intended to assist in financing specific activities in certain areas which are regional affairs and in accordance with national priorities, in particular to finance the needs of basic public service facilities and infrastructure that have not reached certain standards or to encourage the acceleration of regional development. spesific allocation fund is fully utilized for capital expenditures for the improvement of public facilities in other words no part of spesific allocation fund is used for development operational costs such as official travel expenses and so on. revenue sharing fund revenue sharing fund is a fund sourced from apbn revenues allocated to the region taking into account the potential of producing regions based on certain percentage figures to fund regional needs in the context of decentralization implementation. revenue sharing fund consists of revenue sharing fund of tax and revenue sharing fund of natural resources. according to law no. 33 of 2004 article 1, revenue-sharing funds are funds sourced from apbn revenues allocated to regions based on peresentase figures to fund regional needs in the context of decentralization implementation. revenue sharing comes from taxes and natural resources. revenue sharing fund is a component of balancing fund that has an important role in carrying out regional autonomy as its acceptance is based on the potential of region generating potential source of local revenue and is one of the basic capital of local government in obtaining development fund and fulfilling regional expenditure which is not derived from original income areas other than general allocation funds and special allocation funds. therefore, if local governments want high-yield transfers then local governments should be able to optimize the potential of taxes and natural resources owned by each region, so that the contribution of revenue-sharing funds to regional revenues can increase. hypothesis the hypothesis in this research is defined as the following: hypothesis 1: new autonomous region public allocation funds per capita have an effect on domestic gdp per capita of new autonomous regions hypothesis 2: new autonomous region specific allocation funds per capita have an effect on domestic gdp per capita of new autonomous regions hypothesis 3: new autonomous region revenue sharing funds per capita have an effect on domestic gdp per capita of new autonomous development inequality of new autonomous economic regions in lampung province, 2005-2013 36 regions 3. research methodology research subject: this research is implemented in all new autonomous regions in lampung province which has more than five years or one governmental period. the data used is secondary data in the form of time series years 20052013 which is regional gross domestic product in lampung province, public allocation funds, specific allocation funds, and revenue sharing from the central government which is obtained by the regencies/cities in lampung province. data sources cover the central body of statistics lampung province, the directorate general of financial balance, indonesian ministry of finance, regional development planning board lampung province and other bodies/institutions related with this research. research method: the williamson index will be used for showing inequality of regional financial ability of regencies/cities in lampung province. if the financial williamson index of a region approaches 0, it means that the financial ability is more and more small and conversely approaches 1, it means the financial inequality is more and more large. the williamson index is able to be defined as the following: where: vw =williamson index fi = total population area i n = total population of all areas yi = equality variable value which will be measured for area i ȳ = average equality variable which will be measured by using the williamson index it is able to be proven if public allocation funds, revenue sharing from the central government have deep roles in the equality of the financial ability of new autonomous regions in lampung province. the regression analysis is implemented for knowing the inequality influence of allocation funds transfer (public allocation funds, specific allocation funds and revenue sharing) to economic inequality between regions which uses a non linear regression model which is stated by sjafrizal (2012) which is as the following: vm=β0x1 β1x2 β2x3 β3εt .........(1) for equation (1) above to be estimated it is changed to a double logarithm equation (gujarati, 1998), as the following: log vm = log β0 + β1 log x1 +β2 log x2 + β3 log x3 + εt ......... (2) where: vm = domestic gdp per capita of new autonomous regions x1 = new autonomous region public allocation funds per capita x2 = new autonomous region specific allocation funds per capita x3 = new autonomous region revenue sharing funds per capita β0 = constant afebi economic and finance review (aefr) vol.03 no.01, june 2018 37 β1, β2, β3 = coefficienteach from x1, x2and x3 t = year εt = disruption in the regression model statistical model tests will be implemented for choosing the right model which covers: 1. using a significance fixed effect test (chow test) which is for knowing if the data panel regression technique with a fixed effect is better than the data panel regression model without the dummy variable or ols. 2. language multiplier test (lm) which has a purpose for knowing if the random effect model is better than the ols model. it has a purpose for testing the random effect model based on the residual value from the ols method. 3. the hausman test which has a purpose for choosing if the fixed effect or random effect model is better to be used. this hausman test is based on the idea that lsdv in the fixed effect method and gls are efficient while the ols method is not efficient, in the other part the alternative ols method is efficient and gls is not efficient. 4. results research results: the equity pattern of finance ability of new autonomous regions in lampung province based on the williamson index by using the revenue sharing indicator variable for 2005 until 2013 which are: table 1 williamson indicator index of revenue sharing funds 2005-2013 year revenue sharing revenue sharing/regency 2005 0.449 0.405 2006 0.475 0.413 2007 0.470 0.503 2008 0.399 0.470 2009 0.474 0.486 2010 0.434 0.595 2011 0.379 0.524 2012 0.429 0.491 2013 0.357 0.434 source: processed data, 2015 based on table 1 it is able to be seen that in the last two years, revenue sharing as an indicator of economic development in the regions experienced a decrease of vw value which means that economic development between regions are more even. economic development between regions with the revenue sharing indicator is capita divided (revenue sharing/capita) also more even or decreasing vw value, yet the vw value between revenue sharing indicators with the revenue sharing/capita, the vw revenue sharing/capita is larger. this means that revenue sharing tends to be uneven after being counted with the total population in every new autonomous region in lampung province. development inequality of new autonomous economic regions in lampung province, 2005-2013 38 when the revenue sharing variable is added with the public allocation funds variable, it occurs a decrease of vw value significantly, which means it occurs a decrease of inequality levels or the economic development between regions is more even. this shows that public allocation funds transfer to new autonomous regions in lampung province which has a purpose for decreasing fiscal gap between regions, has succeeded in decreasing the disparity level of interregional economic development. yet when regional economic development with the revenue sharing and public allocation fund indicators is divided by the total population, the vw value will increase, which means it is less even. this means that revenue sharing and public allocation funds tend to be uneven after being counted with the total population in every new autonomous region in lampung province. the williamson index with the revenue sharing and public allocation fund indicators years 2005 until 2013 is presented in the following table 2. table 2 williamson index of revenue sharing and public allocation fund indicators years 2005-2013 year revenue sharing+public allocation funds (revenue sharing+public allocation funds) /capita 2005 0.236 0.282 2006 0.229 0.276 2007 0.210 0.282 2008 0.232 0.337 2009 0.224 0.312 2010 0.280 0.303 2011 0.254 0.289 2012 0.274 0.342 2013 0.251 0.277 source: processed data 2015 the influence of transfer fund allocation to economic inequality between new autonomous regions in lampung province. based on regression results by using the egls random effect and with the white cross section standard errors show that generally the estimation models used have consistent standard errors. evaluation or interpretation to test results of tstatisticand fstatistic becomes more valid and able to be taken responsible. the following is a heteroscedascity test which illustrates the condition where the (σ2) variant from the disruption factor or error term (disturbance term) is not the same for all observations of independent variables. for knowing the presence of a heteroscedascity problem in the model, the white test is implemented. based on residual analysis results using e-views 7.0 software a white value as large as 1.86 is obtained with a probability of 0.65. therefore the white avalue is less than the chi square table which is 5.991; and supported with a larger probability value than the alpha value of 0.05. so it is concluded that the model used does not contain a heteroscedascity problem. the multicolinearity test is implemented for the presence of linear relations between independent variables, and uses a correlation matrix approach between independent variables. all explained variables have coefficients afebi economic and finance review (aefr) vol.03 no.01, june 2018 39 smaller than and no greater than 0.8. so it is concluded that there is no linear relation between the independent variables and it does not have a multicolinearity problem (kuncoro, 2011). based on the test phase of the estimation model and paying attention to the classic assumption test it is determined that the fifth model which is the estimation using rem with the white cross section, standard errors. the regression results summary by using the random effect (egls) with the white cross section standard errors is presented in the following table 3 table 3 williamson index regression results summary of dependent variables (vw) variable random effect (egls) white cross-section se coefficient prob. c 9.250916 0.0000 public allocation funds? 0.166470 0.0309 specific allocation funds? -0.004317 0.3597 revenue sharing? 0.086115 0.0368 r-squared 0.313863 f-statistic 12.80819 prob(fstatistic) 0.000001 durbinwatson stat 1.155334 source: regression results the fstatistic test is used for knowing the simultaneous influence from independent variables to dependent variables. the f test results obtained an fstatisticas large as 12.80819 with a probability of 0.000001. when compared with α=5%, the probability obtained is less than the determined alpha (0.000001<0.05). therefore it is concluded that statistically all independent variables simultaneously or together have significant influences to economic development in new autonomous regions. the determination coefficient value or r2 as large as 0.31 which means that independent variables simultaneously provide contribution as large as 31 percent to the forming of economic development in new autonomous regions. in the partial test (t test) regression results generally provide an illustration that all independent variables are statistically proven to have significant influences to economic development in new autonomous regions. the tstatisticone way test proves that transfer funds in the form of public allocation funds, specific allocation funds, and revenue sharing have positive and significant influences to economic development except for specific allocation funds in α=5%. development inequality of new autonomous economic regions in lampung province, 2005-2013 40 5. conclusion based on data analysis results and the implemented discussion, the conclusion is as the following: 1. balancing fund allocation has a strategic and primary purpose which is motivating the creation of a relatively high economic growth and does not cause inequality. the inequality of economic development between new autonomous regions in lampung province using the williamson index in the 2005-2013 period shows the presence of inequality change levels between new autonomous regions. 2. the funding source of new autonomous regions other than locally generated revenue is also from the central government transfer in the form of public allocation funds, specific allocation funds and revenue sharing. that source of funding contributes to the creation of regional economic development inequality. 3. in the last three years research of economic development inequality in new autonomous regions is more narrowed. that condition is sustained by the availability of public allocation funds, specific allocation funds and while revenue sharing does not significantly influence economic development inequality in the regions. references act of the republic of indonesia number 32 year 2004 about regional government. act of the republic of indonesia number 33 year 2004 about financial balance between the central government and regional government. bökemann, d. 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(1998). fiscal decentralization and economic growth in the united states. journal of urban economics, 15(5), 22839. the labor absorbtion in food and beverages of small business enterprises in aceh province 1 1the labor absorbtion in food and beverages of small business enterprises in aceh province ishak hasan1*, yasrizal2 1 syiah kuala university, banda aceh, indonesia 2 teuku umar university, meulaboh, indonesia abstract the competition of labor market in asean economic society will be determined by the labor’s productivity. small businesses of foods and beverages is the highest sub sector which recruit the labor in aceh. in 2010 there were 929.910 small businesses which were able to recruit 2.152.981 labor or around 31,99%. there are three variables impact the absorbtion of labor, the wages, labor productivity and capital. this research uses multiple regression technique to analyse data. the technique analysis used to find the impact of wages, productivity and capital to the absorbtion of labor in small businesses and enterprises. based on research finding, the competitive advantage of indonesian labor is at the sixth rank of ten countries in asean. the research also found that productivity has significant impact to the absorbtion of labor while capital and wages have no significant impact to the absorbtion of labor in aceh province. jel classification: j01, j24, l66 keyword: aec, capital, labor competitiveness, productivity, wages 1. introduction the labor competition is tighter since the asean economic community (mea) was applied. the countries in the southeast asia will establish an integrated area, it would be affect to investment access, distribution of goods and services more easily, that competent labors have a great opportunity to enter another country. the labor are not ready to compete, they will lose in the asean economic community competition. this is a new challenge for indonesian economic development. labor productivity is the main factor of economic competitiveness, but infrastructure, education quality, investment climate, transportation conditions, logistics, a pro-business banking system and other supporting factors need to be improved to increase the competitiveness of the indonesian economy in the asean market. according to michael porter, competitiveness in international trade will be achieved through excellence comparative, such as the importance of technological elements and the relationship between governments and the business community should be synergize to improve competitiveness in international trade. the mastery * corresponding author. email address: ishakhasan20@yahoo.com mailto:ishakhasan20@yahoo.com the labor absorbtion in food and beverages of small business enterprises in aceh province 2 of technology has been proven by japanese corporations, they imitated goods which are already invented and made them better and cheaper. the high unemployment level has been the main problems of economic development and employment in indonesia. the number of new labors is increasing faster than the employment growth which can be provided annually (amir, 2004:2). in 2014, indonesia has the unemployed 7.56 million persons (central statistics body, 2015), while in the aceh province, there were 216.806 person are unemployed (aceh central statistics body, 2015). the process of economic development of a country is often associated with the process of industrialization. the development of industry is the one of the directions for the welfare of the society, namely improving the lives more advanced and qualified (sukirno, 2005). the industrial sector became the leader of the other sectors to advanced economy system, it’s caused by industrial products have a high trading power (term of track), more profitable, and is able to create a greater added value compared with products from other sectors. in addition, the industrial have variation production and capable of providing high marginal benefits to consumers (dumary, 2002). the small business enterprises (imk) has an important role in indonesian economics. imk is a major player in economic activity in several sectors, as the largest provider of jobs, as an important player in the development of local economic activities and society empowerment, as well as a creator of new markets and a source of innovation. imk is a labor intensive, which requires labor is more big industries that focused on capital (capital intensive). based on data from bps (2015), the growth of small business enterprises in indonesia increased by 5.65%, and based on data from bps aceh (2015) the number of small business enterprises in aceh province are 1,862 units or 2.09% of the total imk in indonesia. the food processing industry is as the biggest contributor in employment provider and equalizing the society’s income. in 2010, indonesia has 929 910 units of food processing industry, in every year these industries can provide employment by 2,152,981 people or 31.99% of the total labor imk in indonesia (small and micro industries, bps 2010). based on this background, the researcher is interested to analyze the factors affecting that influence recruitment of labors in food and beverages small business enterprises in aceh province. the factors become variable in this research are labor wages, labor productivity and capital. 2. research method 2.1 research scope this research was conducted to analyze labor absorbtion in food and beverages small business enterprises in aceh province. the variables will be researched are labor wages, labor productivity and capital. 2.2 data types and source these research using secondary primary data. secondary data obtained by the aceh central body of statistics (bps), the department of industry, cooperation the labor absorbtion in food and beverages of small business enterprises in aceh province 3 trade and aceh small businesses and equipped with literal studies. the primary data is the raw data obtained from small business enterprise in aceh province, based on a small business enterprise survey in 2014 by the aceh central body of statistics (bps aceh), specifically in the food and beverage industry (code 10 for food and code 11 for beverage industries). the number of labor absorptions in food and beverage small business enterprises in aceh province, labor wages, capital and labor productivity as the primary data. 2.3 analysis method the analysis used in this research was multiple linear regressions with a least square method or ordinary least square (ols). the model used in this research based on production theory. the general form of the production function is able to be written as the following: q = f (k, l) (1) explanation: q= output, k= capital, l= labor the production function model in equation (1) above is transformed into a lagrangian equation form for obtaining the labor demand function which is the following: q = f (k, l) (2) minimum c (w, r, q) = min w l + r k subject to q =f(k, l) the production function in equation (2) is transformed into another lagrangian function so the form of the equation becomes : i = w l + r k + λ [q – f(k, l) ] (3) the first derivatives (first-order conditions) from equation (3) above to k, l and λ are as the following: w – λfl =0 (4) r – λfl =0 (5) q-f(k, l) =0 (6) from equations (4) and (5) is obtained: 𝑤 𝑟 = 𝜆𝑓𝐿 𝜆𝑓𝐾 (7) k = 𝑤 𝑟 . l (8) equation (8) substituted to equation (6) q = f(k, l) q = ( 𝑤 𝑟 l). l q = 𝑤 𝑟 l2 the labor absorbtion in food and beverages of small business enterprises in aceh province 4 l2 = 𝑄 𝑤 𝑟⁄ l = √ 𝑟 𝑤 q (9) ld = f(r, w, q) (10) ld = f(r+, w-, q+) (11) where : c cost, r = price from capital (interest level), k = capital, w = price from labor (wage), l = number of labor, q = production ld = demand of labor, i = lagrange equation and λ = artificial variable. the equation (10) above is transformed into a linear regression form by using logarithm (ln), the form of the equation becomes as the following: ln ld = α + β1lnr + β2lnq + β3lnw (12) the equation above os able to be written in a linear regression form as the following : ln ld = β0 + β1lnr + β2lnq – β3lnw + ε (13) explanation: ld = the number of labor absorption in small business enterprises and the unit of measure in persons r = capital in small business enterprises and the unit of measure is in rupiah q = the number of labor productivity in small business enterprises and the unit of measure is in rupiah w = wage of labor in small business enterprises and the unit of measure is in rupiah a = constant b = coefficient 3. results and discussion 3.1 aec competitiveness publications by the international labor organization (ilo) mentions that the productivity of brunei darussalam has the highest labor productivity value with a value of $100,015 then followed by $ 98,072, malaysia $35,751, thailand $14,754 and philippines $10,026. the productivity competitiveness of indonesia is ranked sixth after the philippines with a productivity value as large as $9,848 and it is still better compared with vietnam and cambodia. the counting is implemented based on constant values in 2005 and its development in 2013. the labor absorbtion in food and beverages of small business enterprises in aceh province 5 table 1 asean labor market indicator 2014 country workforce (000s) (a) education and skill development average monthly wage ($) labor productivity (constant numbers 2005 ($) literacy rate 15 years and over (%) tvet (number of admissions) (%) higher education admissions (%) brunei darussalam 186 95.4 11.4 24.3 ... 100 015 cambodia 7 400 73.9 2.3 15.8 121 3 989 indonesia 118 193 92.8 18.0 27.2 174 9 848 lao pdr 3 080 72.7 0.8 16.7 119 5 396 malaysia 13 785 93.1 6.8 36.0 609 35 751 myanmar 30 121 92.7 … 13.8 ... 2 828 philippines 41 022 95.4 … 28.2 206 10 026 singapore 3 444 95.9 11.6 ... 3 547 98 072 thailand 39 398 93.5 15.4 51.4 357 14 754 viet nam 53 246 93.4 … 24.6 181 5 440 source: ilo, 2015 towards the asean economic community the competition of labor is determined by the productivity value of labor in each country, because the mentioned value reflects the ability of a nation’s labor in producing goods and service products. observed from the results of this publication, the competitive position of indonesia’s labor in facing the asean economic community is in a position below the average of developed countries in the asean region. 3.2 the number of small business enterprises in aceh province small business enterprises in aceh province total at 1,862 business units that spread in 81 regencies/cities (aceh central body of statistics, 2015). locations in regencies/cities influence the number of small business enterprises, this is able to be seen in table 2. table 2 developing numbers of small business enterprises of regencies/cities in aceh province 2014 no. regency/city the number of small business enterprises (unit) percentage of the province (%) 1 simeulu 8 0.43 2 aceh singkil 20 1.07 3 aceh selatan 74 3.97 4 aceh tenggara 29 1.56 5 aceh timur 46 2.47 6 aceh tengah 17 0.91 7 aceh barat 39 2.09 8 aceh besar 40 2.15 9 pidie 416 22.34 10 bireuen 255 13.69 11 aceh utara 197 10.58 the labor absorbtion in food and beverages of small business enterprises in aceh province 6 no. regency/city the number of small business enterprises (unit) percentage of the province (%) 12 aceh barat daya 17 0.91 13 gayo lues 165 8.86 14 aceh taming 36 1.93 15 nagan raya 21 1.13 16 aceh jaya 14 0.75 17 bener meriah 3 0.16 18 pidie jaya 303 16.27 19 banda aceh 67 3.60 20 sabang 30 1.61 21 kota langsa 35 1.88 22 lhokseumawe 28 1.50 23 subulussalam 2 0.11 provincial total 1862 100.00 average regency/city 81 source: bps aceh, 2015 based on table 2, the largest number of small business enterprises in aceh province is in pidie as many as 416 small business enterprises, followed by pidie jaya as many as 303 units or as large as 16.27 percent and third place is achieved by bireun regency which is as many as 255 units or 10.8 percent. the regency with the smallest number of small business enterprises is simeulu regency with a total of 8 units or 0.43 percent. the number of small business enterprises in a regency is influenced by private investment conditions, pushed by entrepreneurial spirit of the people and the role of the government that supports the people’s economic activities. the higher entrepreneurials spirit of the people, the higher the growth of micro and small businesses. this is seen in pidie regency and pidie jaya, generally people that are from pidie (pidie regency and pidie jaya) are people that have a high entrepreneurial spirit. strengthened by the opinion of selo sumardjan in the book (ishak hasan made business of grassroots 2013) “many of the pidie people are capable in trading (making business), and only a few that enjoy working as farmers, they wander individually not as a group”. 3.3 food and beverage small business enterprises in regencies/cities in aceh province if observed from the distribution of food and beverage industry types, the industry that has the most interest by businessmen is the cake industry, followed by melinjo chips, banana chips, where the number of industries is greater than 10 units. this is illustrated in illustration 3.1 below. the labor absorbtion in food and beverages of small business enterprises in aceh province 7 figure 1 distribution of food and beverage industry types in aceh province based on figure 1, it is able to be seen that the business that is most distributed is the cake type business with a total as large as 40% from the total businesses reaching 149 business units. this is a sign that the business opportunity of cakes is the largest opportunity compared to other businesses in aceh province today. 3.4 number of labor absorption in small business enterprises in aceh province the number of labor absorption is the number of labor that has already worked in the food and beverage industry sector. the number of labor absorption is much varied in a business, where the number of labor starts from 1 person in labor up to 15 people in labor, this is seen in table 3 below: table 3 the number of labor absorptions in the food and beverage industry in aceh province 2014 no number of labor frequency percent (%) 1 1 person 13 8.72 2 2 persons 44 29.53 3 3 persons 35 23.49 4 4 persons 37 24.83 5 5 persons 5 3.36 6 6 persons 3 2.01 7 7 persons 1 0.67 8 8 persons 3 2.01 9 9 persons 2 1.34 10 10 persons 1 0.67 11 11 persons 1 0.67 12 12 persons 2 1.34 13 15 persons 2 1.34 total 149 100 based on table 3 above it is able to be seen that the largest absorption of labor, which is 15 persons, only happen in 2 business units, while the labor absorption at most used by businesses are 2 persons in labor with a number of businesses reaching 44 business units and the least which are 7 persons, 10 persons, and 11 persons each 1 business unit. if seen from the absorption of labor in the food and beverage industry, illustrated in figure 2. 2% 3% 11% 1% 2% 1% 5% 3% 1% 1%7% 1%5% 40% 1% 1% 2% 1% 1% 3% 1% 1% 1% 2% 4% air isi ulang bulu pancing emping melinjo es campur es cream es lilin garam jamu keripik ketan keripik peyek keripik pisang the labor absorbtion in food and beverages of small business enterprises in aceh province 8 figure 2 the absorption of labor in food and beverage industries in aceh province 2011 if the observed from the number of labor absorption distribution, the absorption of labor with a total of 1-4 persons that are absorbed most where the largest are 2 persons with a total number of businesses reaching 29.53% followed by the number of 4 persons as large as 24.83% and the last with a number of 4 persons at 23.49%. 3.5 the number of labor wages of labor in food and beverage small business enterprises in regencies/cities in aceh province the amount of labor wages in a business is highly influenced by the number of labor used by a business. this is because if the labor that is used is in a large amount and the total production value produced is small, the mentioned business is unworthy of using labor in a large amount. this is able to be seen in the table. table 4 the number of labor wages of labor in the food and beverage industry in regencies/cities in aceh province 2011 no. labor wages frequency percent 1 < 631,249 37 24.83 2 631,250 – 712,499 58 38.93 3 712,500 – 793,749 24 16.11 4 793,750 – 874,999 22 14.77 5 875,000 – 1,037,499 2 1.34 6 1,037,500 – 1,118,749 2 1.34 7 > 1,118,750 4 2.68 total 149 100 based on table 4 above it is able to be seen the amount of wage that are issued by businessmen for paying labor wages where the highest wage number is rp.1,200,000. there are only 4 businesses that give wages as large as rp.1,118,749 per month while the most is rp.712,499 per month with the number of businesses reaching 58 units. 8.72 % 29,53% 23,49% 24,83 3.36 % 2.01 % 0.67 % 2.01 %1.34 % 0.67 %0.67 % 1.34 % 1.34 % 1 orang 2 orang 3 orang 4 orang 5 orang 6 orang 7 orang 8 orang 9 orang 10 orang 11 orang 12 orang 15 orang the labor absorbtion in food and beverages of small business enterprises in aceh province 9 if seen from the curve below, the largest portion which is as large as 38.93 percent is in the wage level of rp.631,250 – 712,499 per month. a clearer explanation can be seen in figure 3. figure 3 number of labor wages of labor in the food and beverage industry in aceh province 2011 based on figure 3, it shows that the spread of distribution in the accepted wages that starts from the wage of rp.875,000 > 1,118,750 only 6 business units, while a wage of less than rp.875,000 per month reaches 143 business units. 3.6 business capital in food and beverage small business enterprises in regencies/cities in aceh province business capital is an important component in a business, where with a large capital businessmen are able to spend according to business needs, this is influenced by the type of business that will be built, because of that, the larger the business, the capital that is used is also larger. this is seen in table 5 about the condition of business capital usage. table 5 business capital in the food and beverage industry aceh province 2014 no business capital frequency percent (%) 1 < 26,418,749 136 91.28 2 26,418,750 – 51,787,499 4 2.68 3 51,787,500 – 77,156,249 3 2.01 4 77,156,250 – 127,893,749 1 0.67 5 127,893,750 – 153,262,499 2 1.34 6 153,262,500 – 178,631,249 1 0.67 7 > 178,631,250 2 1.34 total 149 100 based on table 5 shows that the number of capital that is most used by businessmen for opening a food and beverage business which is < rp.26,418, 749 as many as 136 business units, while the rest are rp.26,418,750 – rp.178,631,250 as many as 13 business units. for observing the distribution of the mentioned business capital, it is able to be seen in figure 4. the labor absorbtion in food and beverages of small business enterprises in aceh province 10 figure 4 business capital in the food and beverage industry aceh province 2011 based on figure 4, it shows that the total distribution other than the 91% of business uses a business capital as large as < rp.26,418,749, the rest which is as large as 9 percent rp.26,418,750 – rp.178,631,250. 3.7 the production value in the food and beverage small business enterprises in aceh province the production values that were produced from food and beverage enterprises were the results of product sales in a 1 year period. as for this production value shows that products produced by the food and beverage industry are responded well by consumers so it will influence the amount of production value in an industry. if seen from the production levels in the food and beverage industry, it is able to be grouped to 6 levels of production values as seen in table 6 below. table 6 production value levels in the food and beverage industry aceh province 2014 no production values frequency percent 1 < 14,693,624 133 89.26 2 14,693,625 – 28,137,249 5 3.36 3 28,137,250 – 41,580,874 2 1.34 4 41,580,875 – 55,024,499 6 4.03 5 55,024,500 – 68,468,124 2 1.34 6 > 68,468,125 1 0.67 total 149 100 based on table 6 shows that the most frequent business production value level is < rp.14,693,624 per year as many as 133 business units and the rest rp.14,693,625 – rp.68,468,125 which is as many as 16 business units. meanwhile if seen in a business production is value level distribution point, such as seen in figure 5. 91% 3% 2% 1% 1% 1%1% < 26.418.749 26.418.750 51.787.499 51.787.500 77.156.249 77.156.250 127.893.749 127.893.750 153.262.499 153.262.500 178.631.249 > 178.631.250 the labor absorbtion in food and beverages of small business enterprises in aceh province 11 figure 5 production values in the food and beverage industry in aceh province year 2014 based on figure 5, it shows that the largest distribution of production values which is < rp.14,693,624 per year as large as 89% and the rest as large as 11% which starts from rp.14,693,625–rp.68,468,125 per year. 3.8 data analysis results a. normality test figure 6 scatter plot normality test based on the result of the normality test analysis, it is seen that data distribution approaches the diagonal line, so it is able to be declared that this research’s data shows normality. b. multicollinearity test table 7 results of multicollinearity test analysis independent variable tolerance vif remarks wage level 0.837 1.194 non multicollinearity production value 0.782 1.279 non multicollinearity business capital 0.867 1.154 non multicollinearity source : processed data (archives) 89% 4%1% 4% 1% 1% < 14.693.624 14.693.625 28.137.249 28.137.250 41.580.874 41.580.875 55.024.499 55.024.500 68.468.124 > 68.468.125 the labor absorbtion in food and beverages of small business enterprises in aceh province 12 from the count above we are able to know that the vif value and tolerance are as the following: 1. the level of labor wage variable has a vif value as large as 1.194 and tolerance as large as 0.837. 2. the production value variable has the values vif 1.279 and tolerance as large as 0.782. 3. the business capital variable has a vif value as large as 1.154 and tolerance as large as 0.867. from the present determinations which if vip < 10 and tolerance > 0.10, a multicollinearity symptom does not happen and values obtained from the count are in accordance with determined vip values and tolerance, so it is able to be summarized that the mentioned regression mode does not show the presence of multicollinearity symptoms, c. heterocedastity test table 8 results of multiconiarity data test model unstandardized coefficients t sig. b std. error partial 1 (constant) -.774 1.791 -.432 .666 2 labor wage level .105 .143 .733 .465 3 production value -.015 .026 -.563 .574 4 business capital -.005 .020 -.250 .803 from the output above is is able to be known that the variables labor wage level, labor production value and business capital do not have heterocedastity symptoms because sig, > 0.05 d. t test table 9 regression coefficient model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) -4.758 2.925 -1.626 .106 labor wages .150 .233 .051 .643 .521 labor productivity .224 .043 .431 5.217 .000 capital .021 .033 .052 .659 .511 dependent variable: the number of labor for observing how far the influences of wage level, production value and business capital to the absorption of labor with the final estimator count as the following: lnld= -4.758 + 0.150 (ln w) + 0.224 (lnq) + 0.021 (ln r) from the model above there is one variable that significantly influences dependent variables partially. the mentioned variable is production value. while the two other independent variables that are not significant influences dependent variables partially which are, x1 (wage levels) and x2 (business capital). lnld = dependent variable which the value will be predicted by independent variables. in this research that will become the dependent variable is labor absorption the labor absorbtion in food and beverages of small business enterprises in aceh province 13 c = (constant) valued at -4.758 which means when lnw, lnq, and lnr = 0 the unemployment level increases as large as 4.758 percent that is caused by workforce growth. b2 = the ln q variable which the probability is as large as 0.000 < 0.05 which means the production value variable partially and significantly influences labor absorption. the value of the ln q coefficient as large as 0.224 means that when there is an addition of production values as large as 1 percent , this will increase the income of fishermen as large as 0.224 percent. e. f test tabel 10 annova model sum of squares df mean square f sig. 1 regression 7.428 3 2.476 14.046 .000a residual 25.560 145 .176 total 32.988 148 a. predictors: (constant), capital, labor wages, labor productivity b. dependent variable: the number of labor based on the results of the f test (simultaneously) an fcount of 14.046 is obtained while the ftable in a significance level of ȣ = 5% is as large as 2.67. this shoes that fcount> ftablewith a significance level of 0.0001. so it is able to be declared that wage (x1), production values (x2) and labor capital (x3) simultaneously influence absorption to labor absorption (y) in small business enterprises for the food and beverages sector in aceh province. f. r2 test table 11 correlation coefficient model r r square adjusted r square std. error of the estimate 1 .475a .225 .209 .41985 predictors: (constant), capital, labor wages, labor productivity dependent variable: the number of labor based on analysis, results a coefficient determination (r2) as large as 0.225 is obtained. this means that changes as large as 22.5% in dependent variables (labor absorption) is able to be explained by changes in the wage level, production value, and business capital factors. while the rest which is as large as 77.5% is able to be explained by other factors outside of the research variables such as the above explanation. discussion the influence of production values to labor absorption the amount of the regression coefficient of the production value is 0.224 has a meaning that if this variable increases 1%, labor absorption will increase as much as 0.224% with the assumption that other variables are constant. so the relation of production value with labor absorption is positive and influences significantly to small business enterprises for the food and beverage sector in aceh province. this significant influence contains a further understanding that production values in small business enterprises in this food and beverage subsector influences the labor absorbtion in food and beverages of small business enterprises in aceh province 14 the small businessmen party to determine the number of labor that are used in production. while the positive relation in this regression result shows that if production values raise, the number of labor, neither labor that have skill nor less skilled labor that are used in the production process will also increase, because an increase in production values reflect an increase in total production with the assumption that the price of products are still fixed. in accordance with the theory that for increasing output an increase in the input that is used is needed, in this context, it is labor. so the higher the labor productivity, the higher the total of goods produced with the assumption that other production factors are fixed, the production value will also increase. in accordance with the research of adrianto (2013) that implemented a research about factors that influence labor absorption in small business enterprises in mojokerto regency shows that production value is a factor that influences labor absorption in small businesses. the influence of labor wage levels to labor absorption results of research to the labor wage variable (x1) a tcount value as large as 0.643 is obtained, while the ttable value is as large as 1.976. this result shows that tcount<ttable with a significance level of 0.521. therefore statistical count results show that partially the labor wage variable (x1) does not influence significantly to the absorption of labor in the food and beverage industry. this insignificant relation is causes by the partial labor in the food and beverage sector in aceh province are household businesses, generally the labor consists of family elements that will drive the industry in the food and beverage business, other than that, food and beverage industry businessmen in aceh pay wages based on the production and productivity of labor, the more productive, the greater their income. this is the cause why wages are insignificant to labor absorption in aceh. then small business enterprises in the food and beverage industry in aceh province if they convert into manufacturing industries, there will be an influence between labor absorption and wage levels. the influence of business capital to labor absorption the amount of regression coefficient of business capital is 0.021 with a significance level of 0.511 or greater than 0.05 which means that the value does not have a significance between the addition of capital with labor absorption in food and beverage small business enterprises in aceh province. showing that small business enterprises in the food and beverage subsector in aceh province, labor absorption is not influenced by capital addition, because capital addition is more in the effort of total production increase through the addition of raw materials, machine and technology usage compared with the usage of labor, for changing the ways of production to a more modern direction for increasing total production and labor productivity. 4. summary based on analysis results of factors that influence labor absorption in the small business enterprise sector in the food and beverage industry in aceh province we are able to summarize that: the labor absorbtion in food and beverages of small business enterprises in aceh province 15 1. indonesian labor productivity competitiveness is in sixth place. the cause is because of the low levels of education and training, the average wage is also very low. 2. analysis results above show that production values influence labor absorption in small business enterprises subsector food and beverages in aceh province, yet production values influence positively to labor absorption in small business enterprises for food and beverages in aceh province. however the level of wage and capital does not influence significantly to labor absorption in small business enterprises for food and beverages in aceh province. 3. for increasing the absorption of labor in aceh province, what has to be done is to increase business production values, because of that a growth it the food and beverage industry is needed to increase labor absorption through investment increases, cheap credit awarding in small business enterprises and the expansion of the production market so production values are able to increase. references amir, a. (2004). the influence of inflation and economic growth to the unemployed in indonesia. jurnal inflasi dan pengangguran, 1(1). adrianto, rizky. (2013). analysis of factors that influence labor absorption in small business enterprises (case study in the rambak chips industry in bangsal village, bangsal district, mojokerto regency). central body of statistics. (2010). small business enterprises. jakarta:central body of statistics. central body of statistics. (2015). social economic data (60th ed). jakarta :central body of statistics. central body of statistics. (2015). social and economics of the aceh people. aceh: central body of statistics aceh. dumary. (2002). perekonomian indonesia. jakarta:airlangga. ilo. (2015). asean cummonity 2015. bangkok:ilo and adb. s, mulyadi. (2003). ekonomi sumber daya manusia dalam perspektif pembangunan. jakarta:pt. raja grafindo persada. s, sukirno. (2005). mikro ekonomi manajemen sdm, ketenagakerjaan. yogyakarta:graha ilmu. ts, partomo., & ar, soejoedono. (2004). ekonomi skala kecil/menengah dan koperasi. jakarta:ghalia indonesia. the transmission of monetary policy trough bank lending channel in indonesia 82 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) the transmission of monetary policy trough bank lending channel in indonesia ajeng ayu saraswati, m. khoerul mubin* economics department, universitas airlangga abstract this study aims to determine the effect of policy interest rates (bi rate), gdp, and bank characteristics (size, liquidity, equity, profitability) on the volume of credit through bank lending channels in indonesia. the study utilize data of 26 state commercial bank in indonesia. bank characteristic variables are measured by various approaches related to bank balance sheets. data collection is retrieved from the websites of bank indonesia, the financial authority services, and indonesian central statistics agency. this study examines the volume of credit distributed by indonesian commercial bank during 2006 to 2016. utilizing the gmm method, we found that the policy interest rate (bi rate), gdp, and bank characteristics (size, liquidity, equity, and profitability) significantly affect the volume of credit through bank lending channel in indonesia. keywords: bank lending channel, size,liquidity, profitability, equity. 1. introduction according to mishkin (2004), the central bank can control the amount of money used in an economic activity with various forms of policy instruments. bank indonesia (the central bank of indonesia) continues to do this in achieving its main objective of maintaining the value of the rupiah by regulating the amount of money in circulation. there are several measure held by the central bank to achieve the ultimate goal of monetary policy using various instruments. the instruments reach the ultimate goal trough the channel transmission of monetary policy. the interest rate that was the policy of bank indonesia during 2006 to 2016 was the bi rate so that it is expected to achieve the targeted monetary policy target. source: financial service authority (2016) figure 1 indonesian commercial bank credit volume, including stated owned banks and sharia bank from 2006 to 2016 (billion rupiah) *coressponding author. email address: mkmubin@feb.unair.ac.id 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 private bank state owned bank sharia bank https://creativecommons.org/licenses/by/4.0/ mailto:mkmubin@feb.unair.ac.id afebi economic and finance review (aefr) volume 7, no 2 (2022) 83 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) the main instrument of central bank monetary policy is the discount policy or the interest rate policy. during 2006 to 2016, bank indonesia set the policy interest rates using the bi rate as the reference for bank’s interest rate in indonesia. in line with its objectives, bank indonesia continuously working to achieve its targets by setting up the policy interest rate in accordance with the current economic conditions. the increase in the amount of credit extended by the bank when the central bank lower the policy rate, indicates the existence of monetary policy transmission through the credit channel, particularly the bank lending channel. the monetary policy transmission mechanism through the bank lending channel observes the various effect of monetary policy according to banking characteristics, such as the assets and liabilities side. according to berger (2015), there are several characteristics of banks that affect the transmission of monetary policy, namely size, liquidity, profitability and equity. banks in certain characteristics can increase their ability to seek funding sources as the response to the monetary policy exercised by the central bank. research on the mechanism of monetary policy transmission through bank lending channels has been carried out in many countries by gunji and yuan (2009), gambarcota (2004), mahathanasetha and tauer (2018), matousek and solomon (2017), golodniuk (2005), apergis, et al. (2012), salachas, et al. (2016), heryan and tzeremes (2016). however, study on the bank lending channel with regards the bank characteristics in indonesia has not been exercised. this study aims to determine the effect of policy interest rates and gdp on credit volume and to determine the effect of bank characteristics on credit volume through bank lending channels in indonesia. the difference between this study and previous research lies in two things. first, this study utilize the data of individual bank of 26 commercial bank in indonesia. second, this study adds the variable bank profitability in the characteristics of banks to see the behavior of banks in responding monetary policy by the central bank in indonesia. the initial part of this research includes an introduction containing the background, research gaps, objectives, research contributions. the literature review contains the theory and results of previous researchers. the research method contains data sources, population and sample, research data period, empirical model, descriptions of variables and empirical techniques. the results and discussion contain statistics description, discussion of finding, and robustness check. the final section contains conclusions. 2. literature review 2.1 monetary policy transmission mechanism 2.1.2 credit channels in the monetary policy transmission mechanism according to mishkin (2004), monetary policy through its mechanisms can affect output and prices (inflation). the mechanism for transmitting monetary policy through the credit channel is divided into five channels, namely: 1. bank lending channel, which explains the effect of monetary policy on credit according to bank financial conditions. all sides of the assets and liabilities are important components in the credit channel. 2. the firms balance sheet channel is the route used by the central bank in knowing the company's financial condition which can affect companies in obtaining bank credit. 3. the path of unexpected price level changes. in industrialized countries, debt payments are usually contractually in nominal terms, an increase in the price level which is not expected to reduce the value of the company's real liabilities (a decrease in debt burden) but should not decrease the value of the company's real assets. 4. the effect of household liquidity. this path illustrates the outlook for credit based on consumer spending, especially on durable goods and housing. this understanding occurs with https://creativecommons.org/licenses/by/4.0/ the transmission of monetary policy trough bank lending channel in indonesia 84 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) regard to liquidity in consumer spending. when an income shock occurs, consumers will sell their durable goods to increase their liquidity. as a result, they incure large losses because they do not get the full value of the assets under selling pressure. 2.2 previous research several studies in different countries have had mixed results. research conducted in thailand by mahathanasetha and tauer (2018) using the gmm method provides results that there is a monetary policy transmission mechanism through the credit line in thailand. as a result, banks with small sizes are more sensitive to monetary policy in thailand than large banks. this occurs due to the tendency of banks to offset the flow of borrowed funds caused by tightening monetary policy by acquiring more deposits. another study by gunji and yuan (2009) in china. the study examines the impact of monetary policy in china according to bank profitability. by using the gmm method, the results show that banks with liquidity are more likely to be sensitive to monetary policy. the profitability results show a positive relationship to credit volume through bank lending channels in china. the impact of monetary policy that occurs is more sensitive for banks with high profitability. this happens because the tight monetary policy causes a decrease in deposits, profitable or high profitability banks should be able to finance this deficiency more easily than banks with low profitability. the results of other research on bank profitability are similar (martynove, et al., 2019). several other studies have also examined how the impact of the economic crisis on the monetary policy transmission mechanism. the first study looked at the effect of monetary policy on bank lending channels during the financial crisis period before and after 2007 (salachas, et al, 2016). the results show that the adoption of new monetary policy measures is fast in stimulating credit growth in the post-crisis sub-period in america, uk, japan, germany, italy and france. research on the transmission of monetary policy is also being developed on the effects of competition between banks. research conducted in asean (khan, et al., 2016) observed bank responses to changes in monetary policy based on bank characteristics (size, liquidity, and capitalization). the results shows that bank concentration undermines the effectiveness of monetary policy transmission through the bank lending channel. the results of the characteristics of banks that respond more to monetary policy are banks with high size and capital and with very liquid liquidity. this result is consistent with the theory of banking characteristics on credit volume through bank lending channels. previous research has shown that the variables used in this study have an influence on the transmission of monetary policy through the credit line. however, there is no research that explains the effect of the relationship between profitability on credit volume through bank lending channels in indonesia by including the profitability variable. hence, profitability is added in this study as the contribution to the literature. in addition, the data used in this research is individual bank. whereas in previous studies use aggregate banking data. then, the variable characteristics of the bank in this study were differentiated based on ten banks with the highest characteristics and ten banks with the lowest characteristics. the results will show which one is faster in influencing lending based on differences in bank characteristics, both in terms of influence and the level of significance of the development of credit volume through bank lending channels in indonesia. 3. research methods 3.1 data https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 2 (2022) 85 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) table 3.1 data sources variable source bank loan financial authority services gdp (gross domestic product) central statistics agency policy rate (bi interest rate) indonesian statistics of economic and finance (bank indonesia bank characteristics (size, liquidity, equity, profitability) financial authority services this study has a sample of 26 commercial banks in indonesia during the period 2006 to 2016. state-owned and public-owned banks is selected as the sample based on the consideration that the circulation of money that occurs in those banks has a wider scope. 3.2 empirical model the gmm method is a method using dynamic panel data. the gmm method is appropriate to use in this study because it solve the issue of endogeneity. in dynamic panel data, there is a lag in the dependent variable so that it correlates between the dependent variable and the residue. as a result, there will be data bias when using simple regression (baltagi, 2005; ekananda, 2016). to solve this problem, arrelano & bond (1991) suggest using gmm which includes the dependent variable lag as the independent variable. this study uses the gmm (generalized methods moments) method in testing hypotheses with dynamic panel data estimation during 2006 to 2016. the empirical model is as follows: 𝒍𝒏𝒍𝒐𝒂𝒏𝒊𝒕 = 𝜶 + 𝜷𝟏 𝒍𝒏𝒍𝒐𝒂𝒏𝒊,𝒕−𝟏 + 𝜷𝟐𝒔𝒊𝒛𝒆𝒊,𝒕−𝟏 + 𝜷𝟑𝒍𝒊𝒒𝒊,𝒕−𝟏 + 𝜷𝟒𝒆𝒒𝒖𝒊,𝒕−𝟏 + 𝜷𝟓𝒑𝒓𝒐𝒇𝒊,𝒕−𝟏 + 𝜷𝟔𝒍𝒏𝒑𝒅𝒃𝒊,𝒕−𝟏 + 𝜷𝟕𝒓𝒊,𝒕−𝟏 + 𝜺𝒊,𝒕 (3.1) description: lnloanit : volume of bank’s credit distribution lnloani,t−1 : lag of dependent variable sizei,t−1 : bank size liqi,t−1 : bank liqudity equi,t−1 : bank capitalization profi,t−1 : bank profitabiliy lnpdbi,t−1 : gross domestic product ri,t−1 : policy interest rate εi,t : error term β1, … β7 : coefficient of regression to 1, 2,… 7 i=1,2… 7 : cross section of commercial banks t : time period α : constant 3.3 definition of variables in this study, there are 7 variables with the definition of each variable is as follows: a. total credits: in the bank lending channel, total credit is defined as the total credit that has been extended by the bank to borrowers. https://creativecommons.org/licenses/by/4.0/ the transmission of monetary policy trough bank lending channel in indonesia 86 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) b. bank size: according to matousek and holomon (2016), bank size is measured by the total assets owned by the bank. the greater the total assets owned by a bank, the bigger the size of the bank. c. bank liquidity: the calculation of the liquidity variable is the ratio between liquid assets divided by total assets. the higher the liquidity value, the more liquid assets the bank has. d. bank capitalization (equity): the measurement of bank equity uses the ratio of equity divided by total assets. the unit used in the variable equity is the ratio of equity to total assets (decimal). e. bank profitability: the measurement of bank profitability uses the total asset turnover ratio (total asset turnover ratio). this ratio measures the ability of banking assets to generate profits or income. the calculation of the total asset turnover ratio is by means of the ratio of total income to total assets. the unit used in the profitability variable is the ratio of total income to total assets. 3.4 test of gmm specifications 3.4.1 arellano bond test the arellano bond test aims to determine the consistency of the results obtained. to test autocorrelation on gmm, look at the arellano bond ar (2). if the probability value (pr> z) appears below the significance level of 1%, 5%, and 10%, it means that there is autocorrelation in the model so that the model is invalid. meanwhile, if the probability value (pr> z) is above the significance level of 1%, 5%, and 10%, then the null hypothesis (h0) is not rejected. that is, there is no autocorrelation in the model and the model is valid. 3.4.2 sargan test or hansen test the sargan test or hansen test tests the validity of the instrument for overidentifying restrictions. this test is carried out in order to find out whether the regression model is exogeneous, in which the dependent variable is only influenced by the variables in the model without being influenced by other variable. 4. results and discussion 4.1.1 gmm estimation results for all sample the gmm estimation results for all banks during 2006 to 2016 show that the effect of bank size on the volume of credit through the bank lending channel has a significant positive relationship. the results of the bank size variable are the same as the bank profitability. for the bank liquidity, the effect on the volume of credit through bank lending channels is significant negative. then, the effect of equity on credit volume through bank lending channels is not significant. meanwhile, the effect of the bi rate on the volume of credit through bank lending channels is negative significant. table 4.1 gmm-sys estimation results for all banks variable system gmm coefficient prob lag loan 0.4179335*** 0.000 size 0.5443872*** 0.000 liquidity -0.5252631*** 0.000 equidity 0.0120188 0.262 https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 2 (2022) 87 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) profitability 0.9933418*** 0.000 gdp 0.045711*** 0.000 bi rate ( r ) -0.0272432*** 0.000 ar(1) [0.066] ar(2) [0.540] hansen test gmm [0.662] difference gmm [0.193] hansen test iv [0.998] difference iv [0.378] difference iv null [0.378] description : (***) estimate with a significance level of 1%, (**) an estimate with a significance level of 5%, (*) an estimate with a significance level of 10%. 4.1.2 gmm estimation results considering bank’s size bank size and profitability have a significant positive effect to credit volume through bank lending channel. however, for gdp, liquidity and equity have a non-significant positive relationship. for banks with smaller sizes the results are as follows, bank sizes and gdp have a significant positive effect to the volume of credit through bank lending channels. meanwhile, bank liquidity and bi rate shows insignificant effect to credit volume. table 4.2 gmm-sys estimation results considering bank size variable higher size lower size coefficient prob coefficient prob lag loan 0.6271415*** 0.000 0.2695398 0.122 size 0.320656*** 0.000 0.5697876*** 0.001 liqudity 0.538292 0.784 -0.305108 0.241 equity 0.535142 0.433 0.0622488 0.542 profitability 4.171014*** 0.000 0.7111372* 0.083 gdp 0.441921* 0.086 0.1607498*** 0.000 bi rate -0.0247046*** 0.005 -0.0231991 0.141 ar(1) [0.015] [0.005] ar(2) [0.488] [0.987] difference gmm [0.602] [0.903] sargan test iv [0.813] [0.607] difference iv [0.955] [0.976] difference iv null [0.348] [0.370] description : (***) estimate with a significance level of 1%, (**) an estimate with a significance level of 5%, (*) an estimate with a significance level of 10%. 4.1.3 gmm estimation results considering bank’s liquidity table 4.3 gmm-sys estimation results considering liquidity variable higher liquidity lower liquidity coefficient prob coefficient prob lag loan 0.3124811*** 0.002 0.8414639*** 0.000 size 0.6442862*** 0.000 0.1213948 0.193 liquidity -0.0814386 0.615 -0.754159** 0.021 https://creativecommons.org/licenses/by/4.0/ the transmission of monetary policy trough bank lending channel in indonesia 88 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) equity 0.0288882 0.742 0.1752604* 0.064 profitability 0.5441215** 0.032 0.6810672 0.526 gdp 0.0424454*** 0.004 0.0568295*** 0.005 bi rate -0.262987** 0.045 -0.0243415* 0.086 ar(1) [0.004] [0.006] ar(2) [0.988] [0.333] difference gmm [0.904] [0.170] sargan test iv [0.802] [0.159] difference iv [0.917] [0.266] difference iv null [0.751] [0.088] description : (***) estimate with a significance level of 1%, (**) an estimate with a significance level of 5%, (*) an estimate with a significance level of 10%. the result of the bank group with high liquidity is as follows, bank size, profitability and gdp have significant positive effect to credit volume. however, the effect of equity is not significant. as for policy rates (bi rate), the effect is negative to the credit volume. for banks with lower liquidity the results is as follows. bank size, equity, and profitability are not significant in affecting credit volume. moreover, the gdp significantly affects the distribution of credit positively. then liquidity and policy rates (bi rate) shows negative effect on credit volume through bank lending channels. 4.1.4 gmm estimation results considering bank’s equity the results for banks with higher equity are as follows. sizes and gdp have a significant positive effect to the volume of credit. equity, liquidity and bi rate shows insignificant effect to credit volume. moreover, the results for banks with lower equity is as follows, liquidity, equity and bi rate have a negative impact to the credit volume through bank lending channels. while size, profitability and gdp have a positive impact to credit volume through bank lending channels. however, the effect of profitability is not significant. the result obtained by model estimation is that the loans volume of banks with lower equity is more quickly affected than banks with higher equity. table 4.4 gmm-sys estimation results considering equity variable higher equity lower equity coefficient prob coefficient prob loan 0.5311585*** 0.000 0.466851*** 0.000 size 0.4052502*** 0.003 0.512733*** 0.000 liquidity -0.03468099 0.302 -0.302251** 0.046 equity 0.1610402 0.305 -0.0290338 0.668 profitability (prof) 0.5322063 0.256 0.4697903 0.536 gdp 0.0670446*** 0.001 0.032054** 0.040 bi rate -0.0010137 0.959 -0.379771*** 0.000 ar(1) [0.004] [0.020] ar(2) [0.893] [0.244] difference gmm [0.592] [0.812] sargan test iv [0.565] [0.929] https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 2 (2022) 89 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) difference iv [0.607] [0.943] difference iv null [0.543] [0.766] description : (***) estimate with a significance level of 1%, (**) an estimate with a significance level of 5%, (*) an estimate with a significance level of 10%. 4.1.5 gmm estimation results considering bank’s profitability results for banks with higher profitability characteristics are as follows, bank size, profitability, and gdp have significant positive effect to credit volume. liquidity and bi rate has negative effect to the volume of credit. in category of banks with lower profitability, bank sizes and gdp have significant positive impact on the volume of credit. meanwhile, variables that shows negative influence on credit volume are bank liquidity, equity, policy interest rate (bi rate). table 4.5 gmm-sys estimation results considering profitability variable higher profitability lower profitability coefficient prob coefficient prob loan 0.5292631*** 0.000 0.4436315*** 0.000 size 0.411548*** 0.000 0.5354678*** 0.000 liquidity -0.6929613** 0.011 -0.4936246*** 0.003 equity 0.0696787 0.586 -0.0277911 0.689 profitability 1.012882*** 0.007 0.546934 0.400 gdp 0.0672697*** 0.000 0.0334302** 0.031 bi rate -0.0107004 0.526 -0.388417*** 0.000 ar(1) [0.000] [0.021] ar(2) [0.985] [0.216] difference gmm [0.518] [0.575] sargan test iv [0.781] [0.563] difference iv [0.462] [0.352] difference iv null [0.897] [0.899] description : (***) estimate with a significance level of 1%, (**) an estimate with a significance level of 5%, (*) an estimate with a significance level of 10%. 4.2 discussion in this study, the results of gmm estimates showed that the characteristics of banks (size, liquidity, equity, and profitability) significantly influenced the lending in the sample of all banks. this indicates that the bank lending channel has a role in the transmission mechanism of monetary policy in indonesia during 2006 to 2016. the lag of dependent variables indicates the potential for credit growth that occurs annually. other results in this study for samples throughout the bank also showed results that fit the theory. the policy rate effect is negative to the volume of credit through the bank lending channel while economic growth has a positive impact to the volume of credit. this finding in line with the theory that changes in interest rates will affect capital costs and eventually affect investment and consumption as a component of aggregate demand (mishkin, 1995). according to the results of gmm estimates, banks with larger size is more quickly affected by economic policy. this happens when the central bank loosens monetary policy by lowering interest rates, then banks with higher sizes already have more assets, so it tends to increase lending. hence, its revenue will also increase. when the central bank implements contractive monetary policies such as raising interest rates, deposit rates also increase. as a https://creativecommons.org/licenses/by/4.0/ the transmission of monetary policy trough bank lending channel in indonesia 90 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) result, many people put their money in the bank so that the total deposit increased, while the loan disbursed is decreased. this is in accordance with the results of previous research (matousek, roman and helen solomon, 2017; golodniuk, inna, 2005; gambarcota, leonardo, 2004). banks with higher liquidity more strongly affected by monetary policy. this occurs because when central bank loosens monetary policy (for example lowering interest rates), banks with higher liquidity have large liquid assets so that the volume of credit through bank lending channels for the short term increases. as a result, disbursed credit increases followed by the increase of output. according to kashyap and stein (1994, 2000), the bank's liquidity position is important in determining its reserve deposits. for example, when the central bank tightens monetary policy by increasing reserves at the central bank, the large amount of liquid assets in the bank can cover the depletion of reserve deposits by selling some of the bank's securities. as for banks with lower liquidity, they are likely to maintain their liquidity due to the small amount of their liquid assets (john thornton, john and tommaso, caterina di., 2019; yang, jun and shao, hanhua., 2015; apergis, et al., 2012). gmm results for estimation by classifying banks acoording to its equity show that lower equity banks tend to be more affected by the policy rate in term of distributing loans. this is because lower equity banks will reduce the volume of credit more than banks with large equity due to tight monetary policy (gambarcota, et al., 2011). mechanisms that occur as follows. when the central bank conducts contractive monetary policy by increasing the bank's capital ratio, then the bank with higher equity still has other capital in channeling credit (resistant to monetary policy). as a result, banks with lower equity tend to reduce loan more than banks with higher equity. lastly, the results for estimation by classifying banks acoording to its profitability characteristics indicate that banks with lower profitability are affected stronger by the monetary policy. this happens when the central bank tightens monetary policy, then banks with lower profitability will be more difficult to profit compared to banks with higher profitability. as a result, banks with lower profitability tend to increase loans from other funds so that the profits obtained can cover the loan as a result of underfunding (martynove, et al., 2019; gunji, hiroshi &yuan, yuan., 2009).. 5. conclusions the conclusions of this study are: 1. the policy rate (bi rate) negatively affects the volume of credit through bank lending channels during the period of 2006 to 2016. 2. economic growth (gdp) positively affect the volume of credit through bank lending channels during the period of 2006 to 2016. 3. bank karaketristic variables (size, liquidity, equity, profitability) significantly affect the volume of credit through bank lending channels during the period 2006 to 2016. following the grouping of the samples banks based on the highest rate and the lowest level of its characteristics. the results show that: (i) the effect of monetary policy on credit volume through bank lending channels is stronger on banks with higher size. 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(2019). bank consolidation and financial stability in indonesia. international economics, 159, 94-104. https://creativecommons.org/licenses/by/4.0/ impact of education to head of household in indonesia 1 impact of education to head of household in indonesia maudytia rismalasari prabowo1**, dominicus savio priyarsono2, and mutiara probokawuryan3 1,2,3 institut pertanian bogor, bogor, indonesia abstract poverty is one of the most crucial problems in indonesia which is the fifth city in south-east asia, have a poverty line around 11.2% in 2014 (bps 2016). moreover, poverty in indonesia has decreased slowly from 2000 (19.1%) until 2016 (10.9%) (smeru, 2015). it means poverty in indonesia should be accelerated the decline. one of the things that can reduce poverty is education (gounder and xing 2012). education has a relationship with household consumption per capita. that means, the higher the education of household head, the higher the consumption per capita that household get. the aim of this study is to analyze the impact of education on poverty as measured by household's consumption in west indonesia in 2014. this study uses two-stage least square (2sls) methods with cross-section data and obtained from ifls (indonesia family life survey). the result shows that there is a relationship between education and other independent variables on poverty. the independent variables that significantly affect poverty are age, age squared, gender, and marital status. the implication of this study is education can increase the number of consumption per capita so that the living standard will increase and poverty will decrease. jel classification: i20, i21, i25 keywords: consumption per capita, cross section, education, two stage least square, poverty. 1. introduction poverty is one of the crucial problems in indonesia. the comparison with other countries in south-east asia that indonesia is the fifth city that has the biggest number of poverty, after kamboja, is about 11.2 percent in 2014 (bps, 2016). the important thing of poverty's problem is also contained the first goal of sustainable development goals (sdgs) ends up the poverty. moreover, rencana pembangunan jangka menengah nasional (rpjmn) 2015-2019 in indonesia which targetted 7-8 percent, have to decrease the poverty in indonesia. poverty can measure with some points, for example, living standard. according to bps (2005) in rahman (2009), poor people are when their living standard is low. the living standard can measure the spending or household's consumption. the lower household consumption, the lower living standard they get and vulnerable to the poverty. household consumption chose because it can describe the poverty condition (rolleston, 2011). nowadays, the development of poor people has an increasing trend from 2012 until 2015 (bps, 2016). moreover, urban and rural areas are also has a different number of poor people where the rural areas have an increasing * corresponding author. email address : maudytiarp@gmail.com mailto:maudytiarp@gmail.com afebi economic and finance review (aefr) vol.03 no.01, june 2018 2 number every year. this shows that there's a household's limitation to get their living standard, for example, consumption, wage, job, and education. it means poverty can describe as an inability to fulfill their living standard (bps 2017). therefore, this research uses the head of household's consumption to identify the poverty and describe their living standards condition. one of the factors that increase the living standard or quartile revenue is education (gounder and xing 2012). this indicates that educational attainment can affect the income and play a role to cut off the vicious circle. however, some researcher showed that poverty is inversely proportional to education. according to bps (2016), the biggest educational attainment in indonesia is elementary school's graduated. the government in indonesia is also has a 12 years education program to support education in indonesia so that senior high school's graduated increased in 2012 (figure 1). figure 1 educational attainment in 1994-2015 (in percent) source : badan pusat statistik (2016), processed in rural areas, educational attainment is lower than urban areas (figure 2). educational attainment in rural areas is just 7 years, meanwhile in urban areas is 9 years. this suggests that the lower living standard of poor people still limit them to access the education. one of this inequality factors is the low access to get the education in some areas. if the education in rural areas is low, it will have an impact on the type of job which dominates at the fields of agriculture, that have a lower living standard and vicious circle will occur. figure 2 educational attainment in average according to the areas of residence in 2016 (in years) source : badan pusat statistik, 2016 0.00 10.00 20.00 30.00 40.00 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 p e rc e n ta g e ( % ) not yet school not completed in primary school primary school junior high school senior high school 8.42 9.56 7.18 0 2 4 6 8 10 12 urban + rural urban rural e d u c a ti o n a l a tt a in m e n t (y e a r s) areas of the household impact of education to head of household in indonesia 3 pearson (2017) did a survey about the education's rank in 40 countries. the result was indonesia reached 40th ranked in terms of education. this suggests that education in indonesia still relatively low. this low educational attainment is also affected by their household's living standard in indonesia (wuryandari, 2015). on the other hand, indonesia's government have a program to increase the education's access that showed in the rpjpn (rencana pembangunan jangka panjang) 2005-2025, rpjmn (rencana pembangunan jangka menengah nasional) 2015-2019, rkpt (rencana kerja program tahunan) and nawa cita. not only within the scope of indonesia, the united nations also have a target of developing countries around the world, called sustainable development goals (sdgs) with the 4th goals is about quality and equitable education. the scope of this research is west indonesia. the reason for determining this scope, because of the bigger number of household every year in west indonesia than the east. according to the data (bps, 2016), the number of population in 2016 is 197,757 thousand people in west indonesia, meanwhile in east indonesia is about 73,730 thousand people. this higher number of the population make a number of poor people are bigger than east indonesia. according to the problem in the background, the formulations of this research are : 1. how's the general description of the characteristic of household according to education and living standard in west indonesia? 2. how's the impact and characteristic of the household to the living standard? according to the title, background, and formula, the aims of this research are : 1. to describe the general description of the characteristic of household according to education and living standard in west indonesia. 2. to analyze the impact of education and characteristic of the household to living standard. 2. literature study mincerian’s theory mincerian's theory is the function model that used in many studies to estimate the effect of the investment on human capital for increasing the income. this theory explained the effect of educational attainment and experience to income that they get. the function of mincerian's theory is: ln y = β0 + β1s + β2t + β3t 2 + ε where, y = income in level of education (s) and experience’s year (t) s = educational attainment t = experience t2 = quadratic of education ε = error afebi economic and finance review (aefr) vol.03 no.01, june 2018 4 figure 3 correlation between educational attainment with income source : bunzel (2008) in figure 3, there's a correlation between human capital's investment (educational attainment) with income distribution. educational attainment and income distribution have a curve that drops from the top right to the left. this show, a higher educational attainment of the head of household, a higher income that they get. education education is one of part of human capital which affects the economic growth and decreases the poverty. according to todaro and smith (2006), education is the main thing to reach a satisfactory and precious livelihood. a higher education that they get, it will increase their income from the educational outcomes. it will also affect the country aggregately and individually to get the income from their educational outcomes. education will give some information to decide what's good or no to their life. todaro and smith (2006) said that a lower education cause by education's facilitation. educations facilitation in some developing country is still low. this seems in the less curriculum and inadequate. otherwise, most of the government budget allocates to education. duration of education can measure the availability of one's educational access. the measure of educational attainment in this research is based on the constitution of uu no. 2/1989 about the national education system and education level in indonesia. first, if educational attainment to finish the elementary school (sd) for 6 years, the total time taken is 6 years. second, if educational attainment to finish the junior high school (smp) for 3 years, the total time taken is 9 years. third, if educational attainment to finish the senior high school (sma) for 3 years, the total time is taken in 12 years. same as for diploma 1 for 1 year, diploma 2 for 2 years and diploma 3 for 3 years. next, for undergraduate for minimum 4 years, for master minimum 2 years, and doctoral for 2 years. living standard theory todaro and smith (2006) said that the low level of income or occurrence the poverty means their living standard is also low. the living standard often involves the inadequate housing, poor health, the low education, high infant mortality, low life expectancy, low employment opportunities, and in general income educational attainment impact of education to head of household in indonesia 5 experience powerlessness. it means, the condition of living standard always indicate the household condition in poverty. according to bps (2005) in rahman (2009), living standard is the level of ability to fulfill their livelihood. in this case, living standard as an important need to fulfill their livelihoods, such as consumption or social needs (esmara 2004). economics condition in a household can also be seen as a living standard. this indicates that good or not the economic condition in a household can be measured with the living standard. if a household can fulfill their needs, it means that living standard will increase and have a good economic condition. poverty poverty always identified on the economics side to fulfill their basic needs as food and non-food through household expenses (bps 2015). according to bappenas in bps (2016), poverty is a condition of someone or a group that unable to fulfill their basic needs to maintain and develop the livelihood. the basic right that needs to be complete such as food, health, education, employment, housing, clean water, land, natural resources and the environment. poverty is also the complex problem and multidimensional. not only from economics side, but poverty can be seen from social and other aspects (bps 2016). moreover, in any analysis, poor people category always be used as an economic disability. this much of definition of poverty doesn't mean the definition of poverty goes wrong. according to rozi (2007), the different meaning of poverty is not due to the data and research method, but rather lies in its ideological background. these differences in ideological backgrounds make the definition of poverty also different. it can also be caused by poverty that has multidimensional character. therefore, poverty is divided into two types namely the origin of causes and conceptual. first, the causes of poverty occur because : a. cultural poverty is a poverty condition which is referring to the issues of public or individual attitudes. this caused by the cultural factor. this condition makes people's life or individual is like not trying to improve their quality of life, wasteful and not creative regardless of there's an assistance from outside. b. structural poverty is a poverty condition which caused by the low access to the resources. this condition occurs in a socio-cultural system and political social which cause society or individual becomes poor. second, if we viewed in concept, poverty is divided into two types, namely : a. absolute poverty is a poverty which occurs if income is below the poverty line or insufficient to fulfill the food, clothing, health, housing, and education which needs to survive. these types take into account the minimum standard of living or poverty line. the existence of an absolute poverty line will assess the effect of anti-poverty policies overtime or estimate the impact of a policy on poverty. b. relative poverty is a poverty that occurs when the influence of development policy has not reached all levels of society. this causes an inequity in the income side. the vicious circle is a condition when someone entangled in the poverty chain. poverty chain theory will make a country being poor again. this low afebi economic and finance review (aefr) vol.03 no.01, june 2018 6 income will have a low-quality nutrient. this cause of the low education level and caused by the low quality of health. in this case, education level will influence the quality life of their household. the low education level has a low knowledge which affects the health. this will make a low quality of health and it'll impact the low productivity. this indicates that low income affects the low livelihood (health, education, and poverty). there are two statements that capture the vicious circle of poverty theory. first, the vicious circle of poverty just happened in the developing country. second, the benefits of investing are not settled in the recipient country, but returning to the home country so as not to be able to create the multiplier effect in the economy. the investment in any sector can affect the other investment so that if one sector can't develop itself, the other sector will not develop also. the solution to ending the vicious circle is through basic need (health and education). this statement in line with todaro and smith's opinion that education and health can help people to go out of the vicious circle. 3. research methodology types and source of data this research uses cross section data in 2014. the secondary data comes from indonesia family life survey (ifls) 5. the data obtained in rand website which provides the information from household's survey in indonesia. the scope of ifls 5's survey data is west indonesia (north sumatera, west sumatera, south sumatera, lampung, bangka belitung, banten, dki jakarta, west java, central java, east java, di yogyakarta, south kalimantan, west sulawesi, south sulawesi, west nusa tenggara and bali). after the data was obtained, the data processed with stata 13 to method analyze and microsoft excel to descriptive analyze. the variables which used in this research are the head of household head in ifls 5. model of education on the living standard is used two-stage least square (2sls). the dependent variables from this model are living standard or household consumption. the choice of this model is based on endogeneity's problem between education and living standard, as soon as identify the model with the result of over identified. the first step is estimation the instrument variable (educational assistance and disability of head of household) to resolve the endogeneity's problem of reduced form equity. the following is the equity of reduced form’s first step : yos = β0 + β1age + β2age2 + β3hhsize1 + β4agri + β5rural + β6java + β7gender + β8dis + β9banpendum + ei ….....(i) next, the second’s step is to estimation the consumption from reduced form’s result. this result is calculation of 2sls’s method with the dependent variable is living standard : ln(kons) = α0 + α1yos + α2age + α3age2 + α4hhsize1 + α5agri + α6rural + α7java + α7gender + u1i ……..(ii) where, yos = educational attainment of head of household (years) age = age of head of household (years) age2 = quadratic age of head of household hhsize1 = household size kons = consumption per capita of household per month (rupiah) impact of education to head of household in indonesia 7 agri = job sector (1 : agricultural and 0 : non-agricultural) java = province where household live (1 : java and 0 : non-java) rural = area where household live (1 : rural and 0 : urban) gender = gender of head of household (1 : female and 0 : male) dis = disability of head of household (1 : disability and 0 : not disability) banpendum = educational assistance that head of household get (1 : accept the educational assistance and 0 : didn’t accept the educational assistance) α, β = intersept e, u = error research hypothesis the hypothesis is a temporary answer or conclusion that gets to answer the problems from the previous sub-section. the hypotheses are: 1. educational attainment of the head of household has a positive relation to household's consumption so that it can decrease the poverty. 2. the employment of head of household in this research is agricultural's sector and non-agricultural sector. the agricultural sector has a negative relation with the consumption per capita. 3. educational assistance which received by the head of household has a positive relationship with the educational attainment so that it can increase the living standard of the household. 4. disability has a negative relation to educational attainment so that it can decrease the consumption per capita. 5. age variable have a positive relation to consumption per capita but for quadratic-age have a negative relation to consumption per capita. 6. the regional variable with urban areas as a dummy is 0 and rural areas are 1 have a negative relation to consumption per capita. 7. an island in indonesia is divided by java (0) and non-java (1) as a dummy have a positive relation to consumption per capita. 8. gender variable has a negative relation with dummy1 for woman and 0 for a man. 9. household size variable has a negative variable to consumption per capita. 4. result and discussion descriptive analysis head of the household characteristic could be seen from job sector, age and education. first, a higher head of household's education, a higher their living standard. these statements showed in figure 3 that describe the head of household's level of education with the average of consumption per capita. the highest consumption per capita achieved by the head of household that has a higher education which is undergraduate, while the lowest consumption per capita is head of household's which doesn't achieve the education. afebi economic and finance review (aefr) vol.03 no.01, june 2018 8 figure 4 correlation of level of education and consumption per capita source: indonesia family life survey (2014), processed second, the job sector of the head of household also determines their consumption. this job sector of this research consists of agriculture and nonagriculture sector. figure 4 shows a correlation between job sector and consumption per capita. the household which worked in a non-agriculture sector has a higher consumption per capita than in agriculture sector. this also causes a large number of people prefer to work in a non-agriculture than agriculture sector. figure 5 correlation of type of job and consumption per capita source: indonesia family life survey (2015), processed third, the more productive head of household will increase their consumption per capita. this also suggests in figure 5 that a productive head of household will increase the consumption per capita. head of the household will decrease when reaching productive age limits. this leads when reaching unproductive age; they don't have a fixed job. there is something interesting inside, that age category to consumption per capita is an increasing consumption per capita drastically in 65-74 age. this happened because of, there's a household that has a higher outcome. rp856,676 rp976,196 rp1,162,842 rp2,488,377 rp2,737,800 rp3,718,544 rp6,802,586 no school primary school junior high school senior high school diploma/undergraduate (d3/s1) master (s2) doctor (s3) consumption per capita rp1,159,268 rp1,814,422 rp rp500,000 rp1,000,000 rp1,500,000 rp2,000,000 agricultural non-agricultural consumption per capita impact of education to head of household in indonesia 9 figure 6 correlation of head of household age and consumption per capita source : indonesia family life survey (2015), processed fourth, household's characteristic according to gender from the head of household and consumption per capita. there's a high average consumption per capita in female than male. this phenomenon is interesting because of in west indonesia, there's much female that has a double profession, which is a housewife and working. figure 7 correlation of gender and consumption per capita source: indonesia family life survey (2015), processed the characteristic of household in this research is a rural area and a province where household live. table 1 shows a household's area. there are so many people that live in urban area. this cause of in this areas can increase the living standard. figure 8 correlation areas of household and consumption per capita source : indonesia family life survey (2015), processed second, a province where household lives in this research divided into two parts is java and non-java areas. table 2 shows descriptive analyzes from the province that household live. there's different between people who live in java and non-java. the most people live is in java than non-java. this because of there's an economic convergence so that it can increase their living standard. rp rp1,000,000 rp2,000,000 rp3,000,000 rp4,000,000 rp5,000,000 15-24 25-34 35-44 45-54 55-64 65-74 75-84 >85 rp1,389,680 rp2,946,520 rp rp1,000,000 rp2,000,000 rp3,000,000 rp4,000,000 male female consumption per capita rp2,064,887 rp1,083,499 rp rp1,000,000 rp2,000,000 rp3,000,000 urban rural consumption per capita afebi economic and finance review (aefr) vol.03 no.01, june 2018 10 figure 9 correlation of province that household live and consumption per capita source : indonesia family life survey (2015), processed correlation of education and characteristic to the living standard in indonesia’s household impact of education on the living standard is analyzed by econometric's approach. table 3 explains a result of estimation result analysis from 2sls. the first step from that table shows a reduced form equation and the second step is 2sls's equation. the result of parameter estimation from this model have a determination coefficient or r-squared is about 19.09 percent in the first step and 14.13 percent in the second step. r-squared can give information as if that model is capable to explain the diversity of problem is about 14.13 percent and the other is explained by other variables out of the model. the significance value of this model concludes that independent variable determines together to the dependent variable. this show by the value of f-statistic is about 363.33 which is significant at the real level 1 percent. educational attainment of the head of household has a positive and significant effect on consumption per capita of 0.14. this result is in accordance with the hypothesis. this indicates that every 1 percent increase in education will increase household consumption per capita by 0.14 percent. a higher educational attainment is the result of investment from acceptable education in the future. this statement is also accordance with human capital theory from todaro and smith (2009) that education is the main thing to reach a satisfying and precious life. age variable from the head of household also has a significant and positive effect on consumption per capita. this result is in accordance with the hypothesis. this shows that every 1 percent increase in age of head oh household will increase household's consumption of 0.03 percent and decrease 0.000023 which described in the quadratic age. this statement about age is in accordance to gounder (2012), nasution (2015) and wuryandari (2015) that an increasing age will increase the level of consumption per capita or living standard. according to the hypothesis, household size will decrease consumption per capita of the household. this result is in accordance with the hypothesis. on the regression result, household size decreases the consumption per capita of the household. every 1 percent household member will decrease consumption per capita is about 0.1624. more and more a member of the household will cause a burden for a head of household to increase the cost of living in their household. that means a higher consumption per capita that must spend and certified to the java non-java food rp606,026 rp598,935 non food rp1,260,777 rp822,799 rp rp200,000 rp400,000 rp600,000 rp800,000 rp1,000,000 rp1,200,000 rp1,400,000 c o n su m p ti o n p e r c a p it a impact of education to head of household in indonesia 11 head of household. this research is in accordance to ito (2009) that household size has a negative effect on consumption per capita. table 1 analysis result from education and household characteristic to the living standard independent variable first step (dependent variable : educational attainment) second step (dependent variable : log of consumption per capita) coeffisient probability coefficient probability educational attainment 0.14163 0.000(*) age -0.03585 0.011(*) 0.03065 0.000(*) quadratic age -0.00063 0.000(*) -0.00023 0.000(*) gender -1.03855 0.000(*) 0.08208 0.070(** ) household size -0.10189 0.000(*) -0.16242 0.000(*) agriculture -0.55438 0.000(*) -0.00665 0.812 java -0.51750 0.000(*) -0.01551 0.549 rural -2.18155 0.000(*) 0.00596 0.947 educational assistance 1.75585 0.000(*) disability 0.38166 0.909 _cons 13.4328 0.000 12.2428 0.000 r-squared 0.2053 0.1502 number of obs 12,625 12,625 f(9, 12614) 363.33 prob>f 0.0000 prob>chi2 0.0000 information : *significant at the real level 1 percent; ** significant at the real level at 10 percent afebi economic and finance review (aefr) vol.03 no.01, june 2018 12 the gender variable doesn't match with the hypothesis that female have a negative effect on consumption per capita. the result of calculation using 2sls indicates that gender has a significant and positive effect on consumption per capita. the female head of household will increase the consumption per capita. according to bps (2015), female workers occurs a more increase than male workers by 4.37 percent in august 2014. there's a different wage that makes female worker is larger than male workers. next, a province that household life will significant and positive effect on consumption per capita. this according to the hypothesis. consumption in java is higher than non-java, because of the large of people. regression also accordance to purwantini (2012) that social welfare increasing in java. a dummy from group areas (urban and rural) effect but not significant to consumption per capita of the household. this cause, rural areas has a small consumption per capita than urban areas. next, in the urban areas also has a negative and doesn't have a significant effect on the parameter by 0.0066% to consumption per capita of the household. the instrument variable of the reduced form of education is education assistance and disability. both of them have a different parameter and significance. first, education assistance has a significant and positive effect by 1.17. this analysis result shows that every 1 percent increase in education, it will increase the educational attainment become 1.17 percent. second, other instrument variables, disability, doesn't have a significant. 5. conclusion and suggestion conclusion 1. overall, this research in accordance with hypothesis and theory, that education can affect the level of consumption per capita. this condition is captured by significance and positive coefficient. the higher access to education, the higher level of consumption per capita. 2. there is an endogeneity correlation between education and living standard of the household. the way to resolve that problem is using the instrument variable in the reduced form, for example, education assistance and disability of head of household. 3. impact of education on poverty has a positive and significant effect. some characteristic household variable has a positive and significant impact on consumption per capita, as educational attainment, gender (female), and age of head of household. to negative variable for this model are the household size and quadratic age. some variable which is not significant to poverty is agricultural sector, java and rural. suggestion 1. there needs to increase the education access so that consumption per capita will increase. education access needs to develop equally in java and nonjava, also urban and rural. this will decrease the gap in education. a higher education access is to increase the consumption per capita and reduces poverty according to some theory. 2. the educational attainment with skills will lead them to enter the good quality work as an agricultural sector or non-agricultural sector to get a higher wage. impact of education to head of household in indonesia 13 references adam, l. 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(2015). faktor-faktor yang mempengaruhi pengeluaran makanan, pendidikan, dan kesehatan rumah tangga indonesia. jurnal kependudukan indonesia, 10(1), 27-42. zuluaga, b. (2007). different channels of impact of education on poverty : an analysis for colombia. centre for economic studies. http://www.rand.org/labor/fls/ifls/ifls5.html http://www.smeru.or.id/sites/default/files/events/siaran_pers_peluncuran_peta_kemiskinan_dan_penghidupan_smeru.pdf http://www.smeru.or.id/sites/default/files/events/siaran_pers_peluncuran_peta_kemiskinan_dan_penghidupan_smeru.pdf development inequality of district/ city in south sumatra (2008 2015) 42 development inequality of district/ city in south sumatra ( 2008 2015) siti rohima 1*4 1 universitas sriwijaya, palembang, indonesia abstract this study aims to determine the effect of pad, dau, regional expenditure and economic growth to the development gaps in the province of south sumatra. the data used is secondary data in the grdp, regional expenditure, pad and dau per district / city in the period 20082015. in this study, using a quantitative approach. technical analysis of using williamson index calculation and linear regression. these results indicate that the pad and expenditure have a positive effect, on the contrary dau and economic growth have a significant negative effect on the development gaps district / city in the province of south sumatra. jel classification: h70, h77, o10 keywords: dau, development inquality, economic growth, pad, regional expenditure 1. introduction development is defined as a multidimensional process that involves a variety of fundamental changes in the social structure, social behavior, and social institutions, in addition to the acceleration of economic growth, equitable distribution of income inequality, and poverty eradication (todaro, 2007). therefore, the purpose of the construction itself is to improve the welfare of the community. in improving people's welfare required increased economic growth and equitable distribution of income. rapid economic growth is not matched by equity, will lead to disparity. south sumatra province has a fairly high economic growth, but also can not be separated from development gaps. this is reflected in the grdp district and the city of south sumatra province are very different. there are several areas of the city has grdp rate relatively high, and there are some parts of the district that has a level of development of the grdp is quite low. one measure of the achievement of the development is to look at the gross regional domestic product (grdp) owned. the grdp figures as well as a comparison of the achievements of development across the country. the greater value of grdp of a region depict the economic level achieved. in addition it also as an evaluation of development that has been achieved. the highest economic growth is pagaralam city amounted to 446, 58%, the second highest is prabumulih amounted to 349.64%, and the third is lubuk linggau amounted to 291.84%. the lowest economic growth is empat lawang 12.32%, the second lowest is banyuasin district amounted to 76.20%, and the third lowest is the musi rawas amounted to 79.32%. this condition can be seen in the following figure: * corresponding author. email address: sitirohima@unsri.ac.id mailto:sitirohima@unsri.ac.id afebi economic and finance review (aefr) vol.03 no.01, june 2018 43 figure 1 economic growth district / city source: data processed, 2016 based on figure 1 which shows the economic growth through the realization of grdp at constant 2000 prices come into force during the years 2004 to 2013 has fluctuated, during the 2004-2009 period, the city of palembang who occupied the highest positions, but during 2010-2013 musi banyuasin who occupy the highest position , based on descriptive statistics table the average rate of economic growth in south sumatra province amounted to 0.068027 (7%), with the highest value is palembang amounted to 0.275665 (28%) in 2009 and the lowest value is pagaralam by 0, 009 465 (9%) occurred in 2009, as well as the standard deviation of 0.060505 (6%). development gaps between regions is a common aspect in economic activity in a region. this inequality is basically caused by the difference in the content of natural resources and differences in geography contained in each region. as a result of this difference, the ability of an area to encourage the development process also becomes different. therefore, it is not surprising when in any area there is usually a forward region (development region) and underdeveloped region (underdevelopment region).in addition, the disparity can be seen from several aspects of fiscal imbalances. it can be seen from the locally generated revenue (pad), dau and expenditure different in each district / city. this condition will contribute and implications for the level of social welfare. if this situation continues, then the imbalance of development will be increased and equitable development will not be realized in the province of south sumatra. issues how the influence of locally generated revenue (pad), general allocation fund (dau), regional expenditure and economic growth to the development inquality in the province of south sumatra? 2. literature review 1. inequality of regional development one of the goals of regional economic development is to reduce the inequality (disparity). the increase in per capita income does indicate the level of economic progress of the region. but the increase in income per capita does not always indicate that a more equitable distribution of income. often in developing countries into the economy over emphasize the use of capital than development inequality of district/ city in south sumatra (2008 2015) 44 on labor so that the advantage of the economy is only enjoyed by some community members. if it turns out the national income are not enjoyed equally by all levels of society, it can be said that there has been inequality. there are several forms of imbalance in regional development. 2.regional income disparities inequality is not only on the distribution of public revenues, but also occurs on development between regions in the territory of a country. jeffrey g. williamson (1965) examined the relationship between regional disparities in levels of economic development, using economic data and the developed countries that are developing. it was found that during the early stages of development, regional disparity becomes greater and development concentrated in certain areas. at this stage a more "mature", judging from economic growth, it appears the balance between the regions and the disparity is reduced significantly. williamson uses williamson index (williamson) to measure the inequality of development among regions. williamson index using the grdp per capita as a baseline. figures williamson index coefficient is 0 <iw <1. if the index gets smaller williamson or close to zero indicate that the smaller imbalance or otherwise more evenly and greater numbers indicate inequality widened. although this index has a weakness that is sensitive to the definitions used in the calculation region means that if the size of the area used is different it will affect the results, but quite commonly used measure of inequality of development among regions. 3. causes of inequality of regional development the process of accumulation and mobilization of resources, such as capital accumulation, inequality of labor, and natural resources are owned by the region is the trigger in the region's economic growth rate is concerned (riadi, 2007). heterogeneity and diverse characteristics of an area leads to a tendency imbalance between regions and between sectors of the economy of a region. based on the fact that, inequality / disparity between regions is the logical consequence of development and a step change in the development itself. according to myrdal (1957), differences in the level of economic development between regions overload will cause an adverse effect (backwash effects) dominated the beneficial effects (spread effects) on the growth of the area, in this case resulted in the imbalance. actors who have the power in a normal market will tend to increase rather than decrease, resulting in inequality between regions (arsyad, 1999, in pakpahan, 2009). as for the factors of inequality of development among regions (manik, 2009), namely: a. differences content of natural resources b. differences demographic conditions c. less smooth mobility goods and services d. the concentration differences of regional economic activity e. inter-regional development fund allocation 4. growth theory development is a process of transformation in the course of time is marked by changes strktural that changes in economic activity and the afebi economic and finance review (aefr) vol.03 no.01, june 2018 45 foundation framework of economic structure of the community. in general, development is always accompanied by the growth, but growth is not necessarily accompanied by the development. at the beginning level, economic development accompanied by the growth and vice versa (irawan and suparmoko, 1988). neo-classical model adherents in sjafrizal (2008) argues that the mobility of factors of production, both capital and labor, at the beginning of the development process is less smooth. as a result, at the time of capital and skilled manpower tend to be concentrated in the more advanced so that the regional development gaps tend to widen (divergence). however, if the development process continues, with improvements in the infrastructure and communication facilities then the mobility of capital and labor will be more smoothly. thus, later after the country concerned has advanced the regional development gaps will be reduced (convergence). endogenous growth models developed to complement the theory of neoclassical economic growth. endogenous growth theory was originally developed in two branches of thought which is based on the importance of human resources as a key element in the economy (capello, 2007). according to simon kuznets in kuncoro (2006) hypothesized the inverted u curve (inverted u curve) that initially when construction began, the income distribution will be more unequal, but after reaching a certain level of development, more equitable income distribution. musgrave and rostow in mangkunsoebroto (1998), developed a model of the development of government spending, which connects the development of government spending with the stages of economic development. the development of state expenditures in line with the stage of economic development of the country. in the early stages of economic development required a large state spending for public investments, mainly to provide infrastructure. at the intermediate stage of economic development, investment is still required for economic growth, but private sector investment is expected to have already begun. in advanced stages of economic development, government spending is still needed, particularly to improve the welfare of the community. 5. locally generated revenue (pad) local revenue is revenue derived from various sectors of local taxes, levies, local owned company results, the results of seperated regional wealth management, and other legitimate local revenue (mardiasmo, 2502). according to law no. 33 of 2004 on the financial balance, the local revenue or pad is a local earned income levied by local regulations in accordance with the legislation. pad aims to give authority to local governments to be able to fund their own regional autonomy in accordance with the region's potential as an embodiment of decentralization. the main characteristic that indicates a region capable of autonomous autonomy lies in the area of financial capability, which means the autonomous region must have the authority and ability to dig their own financial resources, manage and use their own finances are sufficient to finance the organization of local governments. in an effort to increase the revenue potential, then an area is prohibited: a. set rules about revenue which leads to a high cost economy, and development inequality of district/ city in south sumatra (2008 2015) 46 b. establish regional regulations that inhibit the income mobility of the population, the traffic of goods and services between regions, and import / export activities. under law no. 33 of 2004 on the financial balance, revenue derived from: (1) local taxes, (2) levies, (3) results of regional wealth management separated, and (4) other pad legitimate. 6. general allocation fund (dau) dau is the block grant given to all counties and cities for the purpose of filling the gap between capacity and fiscal needs and distributed by a formula based on certain principles that generally indicates that the poor and backward areas should receive more than poorer areas. according to ma (1997 in hamid: 2005) said there are three reasons to have allocation (transfer) between the government: (1) there is a vertical imbalances (vertical fiscal imbalance), (2) the existence of horizontal fiscal imbalances (horizontal fiscal imbalance) that is the difference kabutuhan fiscal and fiscal capacity between regions, (3) the effects of inter-regional delegation (spill over effect), namely the economic externalities and diseconomies of an activity in an area on the other area. under law no. 33 in 2004, the central government transfers to the district and the city in the form of general allocation fund (dau) and special allocation fund (dak). in the definition of general allocation funds can be interpreted as follows: (sidik in kuncoro, 2004), namely: 1. one of the components of the balance funds in the state budget is based on the concept of fiscal pengalokasiann gap or fiscal gap is the difference between fiscal needs and fiscal capacity. 2. instruments to address horizontal imbalance, which is allocated for the equitable distribution of financial capability among the areas where the user is determined entirely by the region. 3. equalition grant, which serves to neutralize the ability of regional financial imbalances in the presence of pad, tax revenue and profit sharing obtained sda area. in reducing fiscal imbalances to the financing needs and the taxation between center and regions have coped with the financial balance between the central and regional (dau policies for results and a minimum of 25% of domestic revenue). dau will provide capacity for the region in obtaining the financial resources to finance the expenditure needs which it is responsible (khusaini, 2006). factors to be considered by the dau formula is the variable needs of the region and the economic potential of the region. reflect local needs of regional spending with a variable number of population, area, geography and income levels to pay attention to the poor. while the economic potential of the region is reflected by the revenue potential areas such as pad, sda, non sda and the dau. 3. research methods 1. the scope of research research on the analysis of the financial performance of the district / city in south sumatra province using quantitative research methods. the data used is the data the grdp, regional expenditure, pad and dau per district / afebi economic and finance review (aefr) vol.03 no.01, june 2018 47 city in south sumatra province in the period 20082015.this study uses an index wiiliamson and multiple linear regression analysis model with the scope of the 15 districts / cities in south sumatra province period 2008-2015. 2. data analysis this study used quantitative analysis techniques. this study uses analysis techniques 1. williamson index basically williamson index is the coefficient of dispersion (coefficient of variation) of the average value calculated based on the estimated distribution of the values of the regional expenditure and population areas that are in the scope of areas to be studied and analyzed. calculation basis is to use the revenue share per capita in relation to the total population. the higher the index value williamson then the discrepancy between regions will be even greater (kuncoro, 2004). the williamson index calculation formula is: ( ) y n y = k =i  1 2 fi yi iw ................ (1) information: iw: williamson index yi: grdp per capita in the district / city i ŷ: average grdp per capita in the province fi: the population of the district / city i n: the number of residents in the province of south sumatra i: 1,2, ... .. k: the number of districts / cities 0 ≤ iw ≤1 so the higher williamson index, the higher the inequality between districts / cities. multiple linear regression analysis in analyzing the effect of economic growth, pad and dau to development gaps used test equipment in the form of descriptive statistical analysis, regression analysis and hypothesis testing. multiple linear regression analysis to measure whether the dependent variable is really determined by the independent variables with the method of least squares (ls). as for the model equations used in this study are: iw = ɑ + β1 padit + β2dauit + β3 β4 bd + pe + etit ................ (2) information : iw = inequality development ɑ, β = coefficient pe = growth in region i in year t pad = locally generated revenue in region i in year t dau = general allocation fund the region i in year t bd = regional expenditure etir = error term development inequality of district/ city in south sumatra (2008 2015) 48 4. result and discussion inequality development district / city in the province of south sumatra south sumatra is one of the provinces in indonesia, located in the southern part of the island of sumatra. the province thousands of cities in palembang. geographically, south sumatra province is situated between 1 degree to 4 degrees south and 102 degrees to 106 degrees east longitude with a wide area entirely 87017.41 km2 and is bordered by the province of jambi in northern province of kep. bangka belitung in the eastern province of lampung in the south, and the province of bengkulu on the west. administratively south sumatra province consists of 15 districts and the city government. the province is rich in natural resources, such as petroleum, natural gas, and coal. different natural resources and the ability and financial performance of different areas in the district / city influence developments in south sumatra province. development gaps between regions and between the regions with the central one to the other is a natural thing, because of the differences in resources and the early implementation of development across the country. this imbalance was initially caused by the difference in the content of the natural resources and differences in demographic conditions contained in each each region. as a result of this difference, the ability of a region to promote economic growth and encourage the development process also becomes different. the most commonly discussed inequality is economic disparity. economic development gaps between regions in absolute terms and relative imbalance between the potential and the welfare of the implications for social welfare in the region concerned and the problems in the relationship between the regions. this implication is typically generated in the form of jealousy and discontent communities can also continue with political implications and public tranquility. therefore, this aspect of economic development disparity between regions needs to be addressed through the formulation of regional development policies undertaken by local governments. south sumatra province with 15 districts / cities spreading and potentially diverse. these potential differences may affect the development of the district or the city. based on the index value calculation williamson south sumatra province in 20092015, the district has tertinggai ketimpang level is musi banyuasin is 0.736. basically fluctuated in the range of 0.777 to 0.947. when in view of the inequality district and the city's largest inequality figures contained in musi banyuasin which in 2015 reached the figure of 0.947 inequality. then, the second inequality occupied by the city of palembang in 2015 reached the figure of 0376. while the index of inequality based on williamson's most musi rawas lowest in the north with a rate of 0,103 in 2015. the condition of fluctuations in regency / city inequality can be seen in the following figure. afebi economic and finance review (aefr) vol.03 no.01, june 2018 49 figure 2 development of inequality in south sumatra province source: data processed, 2016 from the graph above is known developments williamson index contained in the province of south sumatra and its counties and cities from the year 2006-2015 is fluctuating or increasing and decreasing every year. inequality development in south sumatra province from the difference in economic growth in various sectors. based on the results of the index calculation can dikethui tngkat williamson inequality in south sumatra province, as can be seen in table 1. inequality index by williamson in 2006 lowest inequality level when compared with the years that followed that with a rate of 0.818. while in 2010 the numbers rose to 1.032 inequality and dropped back to the year 2013 but still in the high inequality figures. while in 2014 and 2015 the rate of inequality in south sumatra province continued to increase which amounted to 1.078 and 1.204. table 1 development disparities district / city in south sumatra province year iw 2009 0,951 2010 0,941 2011 1,032 2012 0,959 2013 0,935 2014 1,078 2015 1,204 average .980 overall, the spatial inequality in south sumatra province along with district and state is very high because the value of the index williamson south sumatra province and its districts and cities close to 1 even there that exceeds 1. this indicates a relatively high level of inequality. one contributing factor is the enactment of the regional autonomy system in the province of south sumatra, especially in 2003, namely the expansion area so there are new districts / cities with new potential for the city of lubuk linggau, banyuasin district, the city of pagar alam and prabumulih. the potential of the natural resources of a region will affect the reception and the local finance. an area that has a lot of oil, gas and other natural potential tend to have more advanced development than areas that have oil and gas development inequality of district/ city in south sumatra (2008 2015) 50 potential slightly so that a reasonable case of inequality between regions. in addition to the number of population and the low per capita income inequality is another factor causing the expansion of new districts so that the economic conditions of the new district is not adequate structuring and financial needs in the area to explore the potential as a source of revenue. the potential of different natural resources owned by the region may lead to imbalances between regions as more and more natural resources are owned it for greater results, whereas a poor area of natural resources. efforts are being made that the dau transfer administration of the regional center. this transfer is given to reduce the fiscal imbalance that occurs, especially for areas that lack natural resources. efforts are made with the transfer of dau from the central to the region. this transfer is given to reduce fiscal imbalances that occur, especially for areas with minimal natural resources (sda). representation: y = 0.234547269921 + 8.0726528297208x1 2.871049257507x2 – 0.000193190577511 x3 + 1.226597073709 x4 ➢ constants = 0.234547269921 ➢ coefficient β1 (pad) = 8.0726528297208 β2 (dau) = 2.871049257507 β3 (pe) = 0.000193190577511 β4 (bd) = 1.226597073709 based on calculations performed, that: variable pad has a significant positive relationship with development gaps where if pad increased by 8.0726528297208, then the discrepancy region will also be increased by 8.0726528297208, with the assumption of increasing economic growth so that pad can be distributed evenly. furthermore, variable dau has a significant negative correlation with development gaps. where if dau increased by 2.871049257507, then the discrepancy region will decrease by 2.871049257507. results of the calculations stated pe has significant negative correlation with development gaps. where if pe is increased by 0.000193190577511 will cause a decrease in the level of inequality region of 0.000193190577511. similarly, the variable sw has a significant positive relationship with development gaps. where if bd-09 increased by 1.2265970737 the imbalance development of the region also increased by 1.226597073709. because the area allocated expenditure indicates the amount of improvement that should be corrected in the area, so that the more unequal a region, the greater the expenditure incurred area but this does not guarantee a more equitable distribution of shopping areas throughout the district there. hypothesis testing hypothesis testing is done to see whether there is a direct influence of the independent variables on the dependent variable either partially or simultaneously (together). as for which is used to test hypotheses, namely: afebi economic and finance review (aefr) vol.03 no.01, june 2018 51 simultaneous test (f-test) f test was used to test whether the independent variables affect simultaneously / together against the dependent variable, ie by comparing the f-statistic with f-table variable coefficient std. error t-statistic prob. c 0.234547 0.021465 10.92682 0.0000 x1 8.07008 1.37008 5.892879 0.0000 x2 -2.87007 3.20008 -8.975939 0.0000 x3 -0.000193 5.48005 -3.526724 0.0007 x4 1.23009 2.89010 4.248165 0.0001 from the anova table can be obtained significance value of 0.000 f test where this value is less than 0.05 then the results obtained with the level of significance is ho was rejected and the conclusion there is significant influence simultaneously from pad, dau, economic growth and expenditure against inequality of development. partial test (t-test) this test is used to test whether a partial effect of independent variables on the dependent variable, namely by comparing each value of t-statistic of regression with t-table. variable coefficient std. error t-statistic prob. c 0.234547 0.021465 10.92682 0.0000 pad 8.07008 1.37008 5.892879 0.0000 dau -2.87007 3.20008 -8.975939 0.0000 pe -0.000193 5.48005 -3.526724 0.0007 bd 1.23009 2.89010 4.248165 0.0001 assessment of the effect of pad to regional development imbalances partially. at the output estimation results by using e-views with methodpanel egls (cross-section weights) found that the number of significance for the variable revenue of 0,000. due to the significance value less than 0.05 then the results obtained with the level of significance is ho is rejected and the conclusion there is significant influence partially from pad to regional development disparities in the district of se-south sumatra. assessment of the effect of the dau to partially regional disparities. at the output estimation results by using e-views with panel method egls (crosssection weights) found that the number of significance for variable dau 0,000. due to the significance value less than 0.05 then the results obtained with the level of significance is ho is rejected and the conclusion there is significant influence partially from the dau to the regional disparities in the district of south sumatra. testing the effect of economic growth on regional imbalances partially. at the output estimation results by using e-views with panel method egls (cross-section weights) found that the number of significance for economic growth variable of 0.000. due to the significance value less than 0.05 then the results obtained with the level of significance is ho is rejected and the conclusion there is significant influence partially on the growth of the regional disparities in the district of south sumatra. development inequality of district/ city in south sumatra (2008 2015) 52 testing the influence of local expenditure on regional imbalances partially. at the output estimation results by using e-views with methodpanel egls (cross-section weights) found that the number of significance for local expenditure variable of 0.000. due to the significance value less than 0.05 then the results obtained with the level of significance is ho is rejected and the conclusion there is significant influence partially from local expenditure on regional imbalances in the district of south sumatra. analysis of effect of pad, dau, economic growth and expenditure against inequality development pad has a significant positive relationship with the regional development imbalances. where if pad increased by8.07265282972, then the discrepancy region will also be increased by 8.07265282972. based on the results of this calculation means ho rejected in other words there is a significant and positive effect partially from pad to regional development disparities in the district of se-south sumatra. the higher revenue of a district / city will increase development in the region. if this condition is not offset by an increase in revenue from other districts / municipalities will cause an increase in inequality. according to research conducted by koswara (2006) that the imbalance will occur if supported equitable income distribution. equitable distribution provides the opportunity for society as a whole to enjoy development. this condition will increase per capita income and the community can participate in the development. dau has a significant negative correlation with development gaps. where if dau increased by 2.8710492575, then inequality will decrease by 2.8710492575 region. dau provides financial assistance to regions mainly lack of funds for development activities. so if there is an increase in the dau can reduce inequality. this condition is in line with research conducted sukarno (2008) that dau significant impact on the reduction of inequality such as income per capita. in addition, the necessary monitoring and setting standards that the use of general allocation funds right on the goal of decentralization is far local fiscal gap that ultimately reduce income inequality. in addition dau / apbd significant impact on the reduction of inequality such as income per capita. an area that progress will be more advanced and lagging regions will be left behind, this is due to differences of capital, labor, skills, technology, and public facilities are different in each region. in terms of capital, the capital in the area of advanced tersedian certainly more due to the rapid economic development is clear that there is also high turnover thus increasing the income of people in the area. in accordance with economic laws that increased revenues will increase consumption and private savings, and increase public savings to be the cause of a large capital investment in the area. in the area behind the sluggish economy the public revenue will be small so small that people's savings also resulted in the amount of capital available too small, not even rule out the little capital will be used by economic operators in developed regions. in terms of labor, wage level differences developed areas with underdeveloped areas would automatically lead to the displacement of labor from underdeveloped areas to developed areas heading for a higher income, thus lagging regions will lose its workforce. this is evidenced by the efforts made by many developed regions in order to stem the tide of urbanization is not afebi economic and finance review (aefr) vol.03 no.01, june 2018 53 successful. in terms of skills and technology, in developed regions with so high level of competition to encourage people in the area to improve their skills and develop the technology that will support the economic activities of businesses that would be more superior than an entrepreneur to another, then businesses are lagging automatically do not want to lose the competition thus looking for ways to improve their skills and tekonologinya, and this condition continues. while in the lagging regions will take place conditions of stagnation, with a mindset that does not want to accept change is not impossible that the region will suffer a setback. furthermore, economic growth 0,000. due to the significance value less than 0.05 then the results obtained with the level of significance is ho is rejected and the conclusions are negative and significant effect on the economic growth disparities in the development district / city of south sumatra province.along kuswara study (2006) on linkage analysis of economic growth and unequal distribution of income in the province of south sumatra shows that income distribution between districts / cities in south sumatra province during 20002005 by entering the oil and gas factor tends to be skewed, while the unequal distribution of income between districts / city in south sumatra relatively well without oil and gas. relations unequal distribution of income and economic growth of oil and gas in south sumatra is the higher economic growth, the lower the degree of inequality of income distribution, which means it tends to follow the neoclassical hypothesis, regional expenditure has a significant positive relationship with development gaps. where if the local expenditure increased by 1.2265970737, then the imbalance development of the region also increased by 1.2265970737. because the area allocated expenditure indicates the amount of improvement that should be corrected in the area, so that the more unequal a region, the greater the expenditure incurred area but this does not guarantee a more equitable distribution of regional expenditure throughout the district there. overall it can be said that the pad, dau, local expenditure and economic growth also influence the development gaps district / city in south sumatra province. necessary that regional governments can minimize the occurrence of these imbalances, so that development tends to be evenly and well-being can be improved. 5. conclusion from a series of discussions about the regional development imbalances, the government's role in addressing regional development imbalances through government spending, and the influence of economic growth on development gaps. based on the index value calculation williamson south sumatra province in 20092015, the district has the highest inequality level is musi banyuasin is 0.736. basically fluctuated in the range of 0.777 to 0.947. when in view of the inequality district and the city's largest inequality figures contained in musi banyuasin which in 2015 reached the figure of 0.947 inequality. then, the second inequality occupied by the city of palembang in 2015 reached the figure of 0376. while the index of inequality based on williamson's most musi rawas lowest in the north with a rate of 0.103 in 2015. development inequality of district/ city in south sumatra (2008 2015) 54 partially pad and expenditure positive and significant impact on inequality development district / city in the province of south sumatra. while dau significant negative effect on the development inequality regency / city in the province of south sumatra. as the need to control and setting standards that the use of general allocation funds right on the goal of decentralization is far local fiscal gap that ultimately minimize income gaps. similarly, economic growth has a negative and significant impact to the development gaps regency / city in the province of south sumatra. in general it can be said that the pad, dau, regional expenditure and economic growth positive and significant impact on inequality development district / city in the province of south sumatra. suggestions 1. the need for serious government attention to resolve the problems related to the economy, especially for distributing development and the grdp per capita of the population in the existing district or region. one way is to increase the economic activities or economic centers in the region through the empowerment of community economic activities. 2. consolidation between regions or districts with the provincial administration necessary for the implementation of development can be carried out thoroughly so that equitable development can be achieved and inequality on economic development can be minimized. references akita, t. (2003). decomposing regional income inequality in china and indonesia using two-stage nested theil decomposition method. the annals of regional science, 37, 55-77. boex, j. (2001). an introductory overview of intergovermental fiscal relations. the world bank institute. brodjonegoro, b. p. s. (2001). the impact of fiscal decentralization process to the indonesian regional economies: a simultaneous econometric approach. vanersborg, sweden: udavella symposium 2001: regional economies in transitions, une 14-16. dartanto, t., & brodjonegoro, b. p. s. (2003). the impact of fiscal decentralization in indonesia against economic growth and regional disparity: simultaneous analysis macroeconomic model. journal of economic and development of indonesia, 4. etharina. (2005). income disparities between regions in indonesia. journal of economic policy, 1(1), 59-74. gujarati, d. n. (2003). basic econometrics 4th ed. mcgraw hill international editions. hamid, a. (2003). effect of general allocation fund (dau) and revenue (pad) to the government expenditure: a case study of regencies / cities in java, bali. jakarta. afebi economic and finance review (aefr) vol.03 no.01, june 2018 55 kuncoro, m. (2004). autonomy and regional development. yogyakarta: publisher grants. kuswara, g. (2006). linkage analysis of economic growth and income distribution inequality in sumatra south. [thesis]. palembang: pps unsri. musgrave, r. a. (1983). who should tax, where, and what? in wallace e oate (ed) the economics of fiscal federalism and local finance. edward elgar, centelham, united kingdom. mardiasmo. (2002). autonomy and local financial management. yogyakarta: publisher andi. noviardy, a. (2006). development gaps between provinces and their relation to growth in central sumatra south. pps unsri mopangga, h. (2011). inequality analysis of development and economic growth in gorontalo. trikonomika journal, 10(1), 40-51, issn 1411514x. resosudarmo, b. p., & vidyattama, y. (2006). regional income disparity in indonesia: a panel data analysis. asean economic bulletin, 23, 31-44. sjafrizal. (1997). economic growth and inequality regional territory west indonesia. prism, march 3. syafrizal. (2000). regional economic inequality: tendency cause and prevention policy. presented at the congress of isei xiv in makassar, 21-23 april 2000 sidik, m. (2002). the central and regional financial balance for fiscal decentralization (between theory and applications). yogyakarta. uppal., & suparmoko. (1986). inter government finance in indonesia. economy finance indonesia, xxxiv. jakarta. the influence of the 1998 asian banking crisis and the 2008 global financial crisis to growth of the third party funds of banking sector in indonesia 15 the influence of the 1998 asian banking crisis and the 2008 global financial crisis to growth of the third party funds of banking sector in indonesia rani nurfaidah¹ ⃰ 2and fitri hastuti² 1,2 universitas padjadjaran, bandung, indonesia abstract the purpose of this research is to investigate the influence of macroeconomic fundamentals such as real gdp growth, deposit rate, and return of composite stock price index, and the influence of bank performance such as the growth of secondary reserve and non performing loans to third party funds. the growth of the banking sector in indonesia in the 1998 asian banking crisis and the 2008 global financial crisis and also to analyze the different influence of independent variables to third party funds growth in both crises. the data used are secondary data with the research object of 101 banks which were established in both crises consistently. the method which is used in this study is the pooled egls (crosssection weight) and fixed effect method. the results show that macroeconomic fundamentals such as real gdp growth, deposit rate, and return of ihsg have significant effect to growth of third party funds, and bank performance such as the growth of secondary reserve has a significant effect while npl has no significant effect to growth of third party funds in both crises. besides that, there is a different effect of each independent variable in both crisis periods where all the independent variables in the period of the 1998 asian banking crisis is not according to the theory, while all of the independent variables in the period of the 2008 global financial crisis is according to the theory. jel classification: e50, g01, g21 keywords: banking performance, crisis, cross-section weight, macroeconomic fundamentals third party funds growth 1. introduction banks are intermediation institutions which function to collect and distribute the funds of society. for supporting that function a good bank management is needed, one of the indicators can be seen from the total of third party funds which grow stably each period. so, the key of bank management success is how banks are able to win the heart of society and their role as intermediation institutions are able to function well because bank management activities cover planning, implementation, and control to collecting funds from society (nurdiana, 2008). the performance and health of a bank is influenced by the domestic economic situation. a national economy which tends to be stable such as a * corresponding author. email address: rani.nfdh@gmail,com afebi economic and finance review (aefr) vol.03 no.01, june 2018 16 positive economic growth, a stable interest rate, and a stable composite share price index level will create a healthy banking system and able to be seen from several indicators such as a positive secondary reserve growth and a low non performing loan value. but if an economy experiences shock it will influence the banking system performance and health. mccandless, f. gabrieli, & j. rouillet, 2003) used individual bank data and a dynamic data panel model to find the determinant of the argentine bank crisis in 2001, and the result shows that one of the bank crisis determinants in argentina is macroeconomic shock. indonesia has experienced that shock in mid-1997. this crisis is especially triggered by the rupiah exchange rate crisis which caused the rupiah to depreciate severely, in the end of 1997 the rupiah exchange rate to the us dollar is noted at rp. 4,850/dollar and continues to depreciate in 1998 penetrating rp. 17,000/dollar. this rupiah depreciation is from a contagious factor of the thai baht exchange rate crisis which also spreads to other asian countries such as malaysia, philippines, and south korea. this crisis which opens macroeconomic fundamental fragility impacts several economic sectors including the banking sector. in the money market, the bank indonesia certificate interest rate increase to 70.8 percent and money market securities to 60 percent in july 1998 (from 10.87 percent and 14.75 percent each early in the crisis) caused bank difficulties to peak. ten years later, the world experienced a shock again which is caused by financial crisis in the united states and some european countries. this crisis began in august 2007 with the primary cause of bad housing credit (subprime mortgage). the peak is when international financial institutions fall in the west, especially in the united states and britain. learning from the previous crisis, asian countries seem to already have a stronger economic fundamental foundation in facing the shock especially the banking sector. although it is not very severe, this global financial crisis provides an impact to the economic condition of indonesia, among others in the stock market, where the stock trade volume and composite share price index experienced strong pressure until a trade stop (blackout) occurred in october 2008. the composite share price index decreased drastically from 2,830 early in the year to 1,355 in the end of 2008. in the money market or banking, this uncertain situation because of this crisis has created a perception of liquidation tightness and pushes the banking to tend to hold their liquidation. external shock is able to influence bank function as intermediation institutions. the 1998 asian banking crisis and the 2008 global financial crisis already impacts to the decrease of macroeconomic performance such as the economic growth rate decrease, increasing interest rates, and composite share price index decreasing return levels and impact the indonesian banking sector, one of which is able to be seen from the growth of third party funds through banking performance indicators such as secondary reserves and non performing loan (npl). so the external shock which is reflected in those two crisis periods is able to influence bank function as intermediation institutions, one of which is as a collector of society funds which are involved in the growth of third party funds. the influence of the 1998 asian banking crisis and the 2008 global financial crisis to growth of the third party funds of banking sector in indonesia 17 2. literature study 2.1 theoretic study based on the loanable funds theory, a high deposit interest rate level causes credit tender to increase because of a high tendency of people to save funds in banks as a cause of higher opportunity funds to hold money. so, the higher the deposit interest rate the third party funds of banking will also be higher. the composite stock price index is a composite index from all types of stock recorded in the stock exchange (samsul, 2006:185). investment in stock bears a larger risk than deposit or interest rates, so the investment is expected to provide a larger return than deposit interest/interest rates levels or what is usually named premium risk (samsul, 2006:294-295). if the composite stock price index return increases it will cause some stock to return, so people will be more interested in investing their funds in the capital market than the money market (deposit) consequently collection and growth of third party funds will decrease. based on the camel’s concept, liquid assets become one of the indicators in assessing the health of a bank, the higher the liquid assets, the health of a bank is able to be stated as good. where the liquid assets are able to be seen from the total or growth of secondary reserves, so the higher the growth of secondary reserves of a bank the more interested people are to save their funds in the bank because it has a good health. based on the camel’s concept, the development of troubled productive assets (such as bad credit) becomes an indicator in assessing the health of a bank, the lower the troubled productive asset values the health of a bank is able to be stated as good. where the troubled productive assets are able to be seen from non performing loan (npl) values, so the lower the non performing loans (npl) of a bank the lower the default risk so people will be interested to save their funds in the bank because it has a good health. 2.2 empirical study simorangkir (2011) in his research result, it is known that bank performance variables such as car, roa, roe, liq, ldr, credit growth and npl have significant influences to third party funds. while from the macroeconomic condition, economic growth, exchange rate, and money supply growth m2 significantly and positively influences third party funds. haron, azmi, & safie (2005) in their research found that profit levels in sharia bank, deposit interest rate levels, interest rate credit, composite index of malaysian bourse, consumer price index, the money supply (m3), and significant gdp influences the number of savings. kim (2010) implemented this research with the purpose for testing determinants from personal savings in the united states by using internal and external determinants. the result shows that the level of personal savings very much depends on income, tax, credit, and employment status, while dependency ratio, housing credit, real interest, and other economic performance indicators are unable to determine personal saving levels. tkalec (2012) implemented this research with the purpose to know determinants and movement dynamics from deposit euroization (de) in twelve european countries post economic transition, by using the threshold var model. the result shows that exchange rate depreciation has a stronger effect to de than exchange rate appreciation. while the influence of interest rate levels are more spread after domestic currencies depreciated than after domestic currencies afebi economic and finance review (aefr) vol.03 no.01, june 2018 18 appreciated. de changed rapidly after interest rate differentials increased than after interest rate differentials decreased. wibowo and suhendra implemented this research with the purpose to know the presence of correlation between the variables of rupiah to dollar exchange rate value, inflation levels, and interest rate levels with third party funds in foreign exchange banks in indonesia. the result is that the variables of exchange rate value, inflation, and bank indonesia interest rate have weak influences to foreign exchange banks in indonesia. there are only some banks which the third party funds are influenced by those variables such as, bank permata, bank pan indonesia, and bank uob buana. the inflation and exchange rate value have positive influences to third party funds, meaning the higher the inflation level, third party funds will also experience increase and if the exchange rate decreases (depreciation) the third party funds also experience decrease. while the bank indonesia interest rate levels variable influences negatively to third party funds, meaning the higher the bank indonesia interest rate level the third party funds will decrease, and the reverse. 2.3 research hypothesis based on the theoretical and empirical study which is already presented above, the hypothesis from this research is: 1. there is a fundamental influence of macroeconomics and bank performance to third party fund growth in the 1998 asian banking crisis. 2. there is a fundamental influence of macroeconomics and bank performance to third party fund growth in the 2008 global financial crisis. 3. there is a difference of fundamental influence of macroeconomics and bank performance to third party fund growth in the 1998 asian banking crisis and 2008 global financial crisis. 3. research methodology this research has a purpose for observing the influence of macroeconomic indicators and bank performance indicators to third party fund growth in the 1998 crisis period and 2008 crisis, it also analyzes how is the difference of impact from the 1998 crisis and 2008 crisis to third party fund growth of the banking sector. the research objects are all banks which consistently stand in the 1998 crisis period and 2008 crisis period by excluding banks which implement mergers for avoiding the presence of outliers which causes the data of those banks to be too high or too low. the research period focuses in the 1998 asian banking crisis period and 2008 global financial crisis. for the 1998 asian banking crisis, the periods used are the early crisis period (semester ii 1997) and closing period (semester i 1999), the selection of these periods is based as a cause of the crisis influence which was felt since mid-1997 observed from the decrease of economic growth and depreciation of the rupiah exchange rate and the recovery of the economic condition in mid-1999. while for the 2008 global financial crisis the periods used are the early crisis period (semester ii 2007) and crisis close (semester i 2009), the selection of these periods is based on the increase of bad housing credit in the united states which appeared since august 2007. therefore the research period is determined at 4 semesters in every crisis. the data used is secondary data and is panel data from 101 observed banks (cross section) and semester time series data from each crisis period. the data gathering is based on searching, recording, and categorizing the forms of dependent and independent variables which are from the the influence of the 1998 asian banking crisis and the 2008 global financial crisis to growth of the third party funds of banking sector in indonesia 19 indonesian statistical and financial economic documents, indonesian banking statistics, and bank publication reports, which are sourced from bank indonesia. in this research a data processing with the panel data regression model is used. this panel data analysis is used because the data which will be processed is a cross section observation and pooling of time series. for estimating the model parameter with the panel data, there are some techniques which can be used, which are: 1. common effect/pooled effect this technique is unchanged from making regression with cross section or time series data. but for panel data, before making a regression we have to combine cross section with time series data (pool data). then this combined data is treated as an observation unit for model estimation. this method is known as the common effect/pooled effect estimation. by combining data, we are not able to see the difference between individuals and between times. or in other words, in this approach there is no dimension of individual or time. it is assumed that the data behavior between companies are the same in several time periods. 2. fixed effect the fixed effect model assumes the presence of variables which not all are entered in the model equation which enables the presence of intercept which is not constant. or in other words, this intercept might change for each individual and time. 3. random effect if in the fixed effect model, the difference between individuals and or time is reflected through intercept, in the random effect model, the difference is accommodated through error. this technique also considers that error might correlate through the time series and cross section. modified from the research implemented by iskandar simorangkir (2011) in this research the following econometric model is used. log(dpk)it=α+γ1log(pdbr)it+γ2bdepit+γ3tpihsgit+δ1log(cads) t+ δ2nplit+ εit ……….(1) remarks: log(dpk)it = semester growth of third party funds which is counted from the logarithm log(pdbr)it = economic growth which is counted from the logarithm. pdb riil bdepit = deposit interest rate tpihsgit = return rate from composite stock price index log(cads)it = growth of secondary reserve which is counted from secondary reserve logarithm. nplit = ratio between total performing loans with total credit α = intercept γ, δ = parameter εit = error term i = bank i t = observation semester afebi economic and finance review (aefr) vol.03 no.01, june 2018 20 for observing the validity from the model used or model estimation results, several statistical tests are implemented among others (1) t-statistic test (2) f-statistic test; and (3) determination coefficient count (r2), other than that tests for classic assumptions are also implemented which are, (1) multicolinearity test; (2) heteroscedascity test, and (3) autocorrelation test. in this research the effort to minimalize heteroscedascity and autocorrelation problems is also implemented by using the generalized least square (gls) which is by providing weight in variables in the model. there are 4 variant structures which might occur in the panel data and able to be minimalized by gls (eviews 6 user’s guide ii 457-576), which are: 1. cross-section heteroscedascity, where there is heteroscedascity between individuals (cross-section). this problem can be minimalized with cross section weight. 2. period heteroscedascity, where there is heteroscedascity between time (period). this problem can be minimalized with period weight. 3. cross-section heteroscedascity and contemporaneous correlation, where there is correlation and heteroscedascity between individuals (crosssection). this problem can be minimalized by using cross-section sur. 4. period heteroscedascity and serial correlation, where there is a presence of correlation and heteroscedascity in between data in a certain time period but there is no residual correlation between cross-sections. ). this problem can be minimalized by using period sur. 4. results the method used in this research is the pooled egls (cross-section weight) (the consideration to use this method will be explained in the problem test part in the linear regression) and fixed effect. the following is the chow test result as a base of fixed effect use. table 1 chow test result model cross-section f statistic d.f probability model 1 (1998 crisis) 299.155797 (100,298) 0.0000 model 2 (2008 crisis) 583.629324 (100,297) 0.0000 source: data processing results from the table above it is able to be seen the probability from model 1 and 2 each as large as 0.0000. that value is less than the significance level (α = 0.05). so based on the chow test criteria h0 is rejected in model 1 and 2. because of that, the panel model estimation will be better if it uses the fixed effect method (fem) approach. by using the fem approach, count results of the regression equation for this research is obtained such as seen in the following table 2 and table 3: the influence of the 1998 asian banking crisis and the 2008 global financial crisis to growth of the third party funds of banking sector in indonesia 21 table 2 model 1 estimation test result (1998 crisis) dependent variable: log(dpk) independent variable coefficient std.error t-stat prob c 30.92511 1.243716 24.86509 0.0000 log(pdbr) -1.470412 0.102930 14.28556 0.0000 bdep -0.007406 0.001596 4.640760 0.0000 tpihsg 0.001633 0.000424 3.849702 0.0001 log(cads) -0.020461 0.005178 3.951657 0.0001 npl 0.000140 0.000167 0.836796 0.4034 r2 0.993401 0.991076 427.2707 2.376049 adj r2 f-stat dw-stat source: data processing results table 3 model 2 estimation test result (2008 crisis) variabel dependen: log(dpk) independent variable coefficient std.error t-stat prob c 10.12259 1.497358 6.760297 0.0000 log(pdbr) 0.268449 0.104180 2.576779 0.0105 bdep 0.008358 0.001286 6.500353 0.0000 tpihsg -0.001031 0.000191 5.404328 0.0000 log(cads) 0.047819 0.008117 5.891544 0.0000 npl -0.000280 0.002401 0.116595 0.9073 r2 0.998078 0.997401 1473.979 2.332103 adj r2 f-stat dw-stat source:data processing results statistic tests a. t-statistic test the t-stat is used for observing the independent variable influence to the dependent variable partially in certain significance levels • model 1 : 1998 asian banking crisis for the t-stat test of the 1998 asian banking crisis it is as the following. afebi economic and finance review (aefr) vol.03 no.01, june 2018 22 table 4 model 1 t-statistic test result (1998 crisis) variable tstatistic h0 remarks c 24.86509 h0 rejected significant in every significance level log(pdbr) 14.28556 h0 rejected significant in every significance level bdep 4.640760 h0 rejected significant in every significance level tpihsg 3.849702 h0 rejected significant in every significance level log(cads) 3.951657 h0 rejected significant in every significance level npl 0.836796 h0 unable to be rejected not significant source: data processing results from the table above it is able to be seen that constants and composite stock price index return levels have positive and significant influences to third party fund growth in significance levels of 1%, 5%, and 10%. real gdp growth, deposit interest rates, and secondary reserve growth have negative and significant influences to third party fund growth in significance levels of 1%, 5%, and 10%. while non-performing loan (npl) does not influence positively and significantly to third party fund growth. • model 2 2008 global financial crisis for the t-stat test of the 2008 global financial crisis is as the following. table 5 model 2 t-statistic test result (2008 crisis) variable tstatistic h0 remarks c 6.760297 h0 rejected significant in every significance level log(pdbr) 2.576779 h0 rejected significant in significance levels 5% and 10% bdep 6.500353 h0 rejected significant in every significance level tpihsg 5.404328 h0 rejected significant in every significance level log(cads) 5.891544 h0 rejected significant in every significance level npl 0.116595 h0 is unable to be rejected not significant source: data processing results from the table above it is able to be seen that constants, deposit interest rate and secondary reserve growth have positive and significant influences to third party fund growth in significance levels of 1%, 5%, and 10%. real gdp growth, deposit interest rates, and secondary reserve growth have positive and significant influences to third party fund growth in significance levels of 5%, and 10%. while non-performing loan (npl) does not influence negatively and significantly to third party fund growth. the influence of the 1998 asian banking crisis and the 2008 global financial crisis to growth of the third party funds of banking sector in indonesia 23 b. f-statistic test the f-stat test is implemented for observing the influence of independent variables to dependent variables simultaneously in certain significance levels. table 6 shows the critical limit value for the f test. table 6 f-test critical limit value n1 n2 f-table α = 0,01 α = 0,05 α = 0,1 5 403 3.063 2.236 1.862 n1 = df numerator (parameter without constant) n2 = df denominator (n-k) source: microsoft excel processing for the f-stat test results of the 1998 asian banking crisis and 2008 global financial crisis are as the following. table 7 f-statistic test results model f-statistic h0 remarks model 1 (1998 crisis) 427.2707 h0 rejected significant in every significance level model 2 (2008 crisis) 1473.979 h0 rejected significant in every significance level source: data processing results from estimation results in table 4.8 it is known that model 1 (1998 asian banking crisis) has an f-statistic value as large as 427.2707. that value is larger than the f-table value in the significance levels of 1%, 5%, and 10% so h0 is rejected, this shows that simultaneously the independent variable has a significant influence to the dependent variable. while in model 2 (2008 global financial crisis) the f-statistic is as large as 1473.979. that value is large than the f-table value in significance levels of 1%, 5%, and 10%, so h0 is rejected, this shows that simultaneously the independent variable has a significant influence to the dependent variable. c. determination coefficient (r2) count the determination coefficient is used to measure the level of success of a regression model which is used in predicting the dependent variable value, the closer the r2 value is to one, the better the model. table 8 determination coefficient (r2) count results model r2 value model 1 (1998 crisis) 0.993401 model 2 (2008 crisis) 0.998078 source:data processing results from the table above it is able to be seen that the r2 value for model 1 (1998 asian banking crisis) shows a value of 0.993401, this shows that as large as 99.34% dependent variable variations are able to be explained by independent variables while the rest as large as 0.66% are explained by other variables outside of the model. while the r2 value in model 2 (2008 global afebi economic and finance review (aefr) vol.03 no.01, june 2018 24 financial crisis) shows a value of 0.998078, this shows that as large as 99.81% dependent variable variations are explained by independent variables while the rest as large as 0.19% are explained by other variables outside of the model. problem test in linear regression a. multicolinearity multicolinearity detection is able to be implemented by using a correlation coefficient matrix between the independent variables (gujarati, 2009). if the correlation coefficient value is larger than 0.8 it shows that there is a multicolinearity problem. • model 1 1998 asian banking crisis for observing the correlation between independent variables for the equation in the 1998 asian banking crisis model it is able to be seen in the following table: table 9 model 1 correlation matrix test results (1998 crisis) log(pdbr) bdep tpihsg log(cads) npl log(pdbr) 1.000000 0.094872 -0.482072 -0.003621 0.030190 bdep 0.094872 1.000000 0.693240 -0.028029 -0.092402 tpihsg -0.482072 0.693240 1.000000 -0.049401 -0.059427 log(cads) -0.003621 -0.028029 -0.049401 1.000000 -0.060993 npl 0.030190 -0.092402 -0.059427 -0.060993 1.000000 source: data processing results based on the correlation matrix in the table above it is known that the correlation coefficient in each independent variable does not show value of more than 0.8, so this model does not have a multicolinearity problem. • model 2 2008 global financial crisis for observing the correlation between independent variables for the equation in the 2008 global financial crisis model it is able to be seen in the following table: table 10 model 2 correlation matrix test results (2008 crisis) variable t-statistic h0 keterangan c 6.760297 h0 rejected significant in every significance level log(pdbr) 2.576779 h0 rejected significant in significance levels 5% and 10% bdep 6.500353 h0 rejected significant in every significance level tpihsg -5.404328 h0 rejected significant in every significance level log(cads) 5.891544 h0 rejected significant in every significance level npl -0.116595 h0 is unable to be rejected not significant source: data processing results based on the correlation matrix in the table above it is known that the correlation coefficient in each independent variable does not show value of more than 0.8, so this model does not have a multicolinearity problem. b. heteroscedascity heteroscedascity shows that the variant from interference factor u1 is not constant, the consequence is that the assessment is not efficient anymore because it has a variant which is not minimal anymore. the breusch-paganthe influence of the 1998 asian banking crisis and the 2008 global financial crisis to growth of the third party funds of banking sector in indonesia 25 godfrey test is used as an instrument for observing the presence of heteroscedascity in this research model. table 11 breusch-pagan-godfrey test results model θ chi-square value (χ2) h0 remarks α = 0,01 α = 0,05 α = 0,1 model 1 (1998 crisis) 32.7009 15.0863 11.0705 9.23635 h0 rejected heteroscedascity model 2 (2008 crisis) 20.8731 15.0863 11.0705 9.23635 h0 rejected heteroscedascity source: data processing results from the table above the θ value in model 1 and model 2 are 32.7009 and 20.8731. that value is larger than the x2 critical value in every significance. so it is able to be concluded that in model 1 and model 2 there is a heteroscedascity problem. c. autocorrelation autocorrelation shows that there are relationships between error terms, the consequence is that the parameter which will be estimated becomes inefficient. the durbin-watson test is used as an instrument for observing the presence of autocorrelation problems in this research model. table 12 durbin-watson test results model dw-table value in 5% significance level remarks dw-stat dl du 4dl 4 du model 1 (1998 crisis) 2.376049 1.718 1.82 2.282 2.18 negative autocorrelation model 2 (2008 crisis) 2.332103 1.718 1.82 2.282 2.18 negative autocorrelation remarks: k’= number of independent variables not including constant (5) n = number of observations (404) source: data processing results and gujarati, 2009:l-114 from the table above it is able to be seen in model 1 and model 2 that there are negative autocorrelation problems because the dw-stat value is in the region of 4-dl < dw-stat<4 which in model 1 (2.282<2.376049<4) and model 2 (2.282<2.332103<4). effort for minimizing heteroscedascity and autocorrelation based on the test results of the linear regression models above, it is known that in the research models, in model 1 (1998 asian banking crisis) and model 2 (2008 global financial crisis) have heteroscedascity problems and autocorrelation problems which can cause the estimation model to be inefficient afebi economic and finance review (aefr) vol.03 no.01, june 2018 26 and not accurate. some improvement steps are needed in minimalizing those problems which are by the egls (estimated generalized least square) method which are cross section weight and cross section pcse (panel corrected standard errors). so by using that method, the problems of heteroscedascity and autocorrelation are able to be minimalized, such as the estimation results seen in the previous discussion. 5. discussion in the analysis the influence of the 1998 asian banking crisis there are some matters which are able to be observed. real gdp has a negative influence to third party fund growth, this is caused by the snowball effect of the crisis which occurs where the crisis previously began from the baht exchange rate crisis in thailand rapidly develops into an economic crisis, continuing into a social crisis, then a political crisis in indonesia (suruji et al, 1998) this crisis which spreads creates an anomaly condition and makes the monetary instrument not able to work for stabilizing the rupiah and the economy, and the fiscal sector which is expected to be the motor of the economy is also under pressure as a cause of decreasing income. so the economic situation is unpredictable and causes uncertainty to society including customer expectations to the banking sector. the real bank indonesia interest rate variable has a negative influence to third party fund growth percentage because the higher the interest rate, the ability of customers to repay/pay off credit will decrease and tend to increase bad credit. so, the interest of customers for saving their funds in the bank decreases because of high risks. meanwhile for the composite stock price index return level it has a positive influence to third party fund growth because the relation between the money market and the capital market is an imperfect substitution (simorangkir, 2011). when the composite stock price index return increases, people use profit from the stock to be saved in banks so it will increase the number of bank deposits. for the bank performance, the growth of secondary reserve has a negative influence to third party funds, this is not in line with the theory because of the problem of limited information from customers about bank performance (asymmetric information) (simorangkir, 2011). as well as the non-performing loan (npl) variable which has a positive influence to third party fund growth, this is not in line with the theory because of the limited information from customers about bank performance (asymmetric information) (simorangkir, 2011). while in the 2008 global financial crisis influence analysis the matters which are able to be observed are as the following. the real gdp variable has a positive influence to third party fund growth and in line with the research results of simorangkir (2011) that the higher the economic growth the higher the interest of obtaining funds in banks and the smoother the credit payment, and also able to decrease the chance of bad credit. because of that, customers are not worried for saving their funds in banks so the number of banking third party funds are able to increase. the real bank indonesia interest rate has a positive influence and in line with the loanable funds and liquidity presence theories which states that the higher the interest rate level the higher the credit offers or in other words the tendency of customers for saving their money in banks are high because the opportunity cost from holding money is higher. this composite stock price index level which has a negative influence is in line with the influence of the 1998 asian banking crisis and the 2008 global financial crisis to growth of the third party funds of banking sector in indonesia 27 the modern theory from friedman which states that a person is able to hold their wealth in several forms of assets including in the form of stock, when the return level to stock increases the return level is relative from money decreases and causes the number of bank savings of people to decrease. this is in line with the research of haron, azmi, and safie (2005) that the level of composite stock price index return has a negative and significant influence to the number of savings. for the bank performance variable, the secondary reserve growth variable which has a positive influence is in line with the camel’s concept where the liquid assets which are reflected by the secondary reserve becomes a health assessment of a bank. the higher the number of secondary reserve the health of a bank is able to be stated as good. this camel’s concept is supported by the multiple deposit creation theory where when banks choose to use their reserve funds for purchasing securities which are able to impact the increase of customer savings in the bank. although not significant this negative influence is in line with the camel’s concept where the development of problematic productive assets is reflected by the non-performing loan (npl) to be an assessment of the health of a bank. the lower the npl value the health of a bank is able to be stated as good. so the trust of customers to a bank increases and the number of deposits in a bank will increase. this is supported by the research results of simorangkir (2011) that the smaller the npl the smaller the customer funds which are restrained in bad credit, so it will decrease the vulnerability of a bank to default (failure to pay). 6. conclusions based on the qualitative and quantitative analysis which are implemented in previous chapters, several results below are able to be concluded: 1. for the 1998 asian banking crisis, the fundamental macroeconomic variables which significantly influences the growth of third party funds are the real gdp growth with a negative influence, deposit interest rate with a negative influence, and composite stock price index return rate with a positive influence. while the bank performance variable which is significant whch influences the growth of third party funds of the banking sector with a negative influence, while npl does not influence significantly. yet, all those variables which are significant and not significant have opposite coefficient signs theoretically and empirically. this shows the presence of influence deviation from those variables in the crisis period. 2. for the 2008 global financial crisis period the fundamental macroeconomic variables which significantly influences the growth of third party funds are the real gdp growth with a positive influence, deposit interest rate with a positive influence, and composite stock price index return rate with a negative influence. while the bank performance variable which is significant which influences the growth of third party funds of the banking sector with a positive influence, while npl does not influence significantly. all those variables which are significant and not significant have coefficient signs which are corresponding theoretically and empirically. 3. there is a difference of influence from each independent variable in both crisis periods where all variables in the 1998 asian banking crisis are opposite with what it should be based on theory and empirical, the cause is afebi economic and finance review (aefr) vol.03 no.01, june 2018 28 that the crisis which occurs becomes a crisis which develops into an economic crisis, social crisis, and political crisis in indonesia which impacts into uncertainty to society including the expectations of customers and causes a deviation of macroeconomic variable influence and bank performance to the banking sector. while all variables in the 2008 global financial crisis period are corresponding with what it should be based on theory and empirical, this shows that in the 2008 crisis the economy functions normally and there is no deviation of macroeconomic variable and bank performance to the banking sector. references bank indonesia. 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(2003). determining the causes of bank runs in argentina during the crisis of 2001. revista de analisis economico , 18. mishkin, f. s. (2008). the economics of money, banking and financial markets (9th ed.). pearson. mohammad, s. (2006). pasar modal & manajemen portofolio. jakarta: erlangga. nurdiana, e. (2008). analisis pemilihan bank sebagai tempat menabung dengan metode analytical hierarchy process. simorangkir, i. (2011). penyebab bank runs di indonesia: bad luck atau fundamental? buletin ekonomi moneter dan perbankan . 90 the influence of the 1998 asian banking crisis and the 2008 global financial crisis to growth of the third party funds of banking sector in indonesia 29 suruji, a. et al. (1998, desember 21). laporan akhir tahun bidang ekonomi krisis ekonomi 1998 tragedi tak terlupakan. accessed september 28, 2013 tkalec, m. (2012). the dynamic of deposit euroization in european post transition countries: evidencefrom threshold var. finance a uver czech journal of economics and finance , 3, 62. wibowo, a., & suhendra, s. (2010). analisis pengaruh nilai kurs, tingkat inflasi, dan tingkat suku bunga terhadap dana pihak ketiga pada bank devisa di indonesia. poverty conditions and policy solutions (data analysis years 2009-2013) 26 3poverty conditions and policy solutions (data analysis years 2009-2013) muhammad findi1* and veni lutfiani zulia2 1,2 bogor institute of agriculture, bogor, indonesia abstract the aim of this study is to describe conditions of regional poverty to analyze the factors that affect the level of poverty in banten province from 2009 to 2013, and to formulate solutions minimizing problems of poverty in the province of banten. a methods used in this study is regression using panel data. variables in this study are economic growth, minimum wage, unemployment, and literacy rate. the result of this study show that that significant variables on poverty levels in province of banten are minimum wage, unemployment, and literacy rate. while variable is not significant to level of poverty in province of banten is economic growth. jel classification: i30, j30, n30 keywords: banten province, poverty, regression panel data 1. introduction poverty is a situation where an inability occurs for fulfilling basic needs such as food, clothing, residence, education, and health (mardimin, 1996:20). the poverty phenomenon in indonesia already took place since a long time, although several efforts have been implemented to solve it such as increasing economic growth that has good quality through labor intensive efforts, increasing access to basic needs such as education and health, people empowerment through national people empowerment programs. however in reality based on data in 2013, there are still more than 28 million people of the indonesian population that live under rp. 239,000 per month or live below the poverty line number. the complexity and diversity of poverty in a region is different with other regions, depending on the primary condition that is faced by each region. because of that poverty countermeasures are not only implemented by the central government, but also implemented by regional governments. banten province is one of the regions that still face problems in counter measuring poverty. after separating itself from west java province in 2000, banten province still has many problems that have to be faced, including poverty problems. * corresponding author. email address: muhammadfindi73@yahoo.com mailto:muhammadfindi73@yahoo.com poverty conditions and policy solutions (data analysis years 2009-2013) 27 table 1 number and percentage of the poor population according to regency/city in banten province in 2013 regency/city number of poor populations (persons) percentage of poor population (percent) pandeglang regency 121,100 10.25 lebak regency 118,600 9.5 tangerang regency 183,900 5.78 serang regency 72,800 5.02 tangerang city 103,100 5.26 cilegon city 15,900 3.99 serang city 36,700 5.92 south tangerang city 25,400 1.75 source: central body of statistics, 2016 based on table 1 it shows that the highest number of the poor population is in tangerang regency and the lowest number of the poor population is in cilegon city. while the highest percentage of the poor population is in pandeglang regency and the lowest percentage of the poor population is in south tangerang city. observed from data in 2013, the difference in number and percentage of the poor population between regencies/cities in banten province is very striking, where there is an occurrence of imbalance between regencies/cities in banten province. 2. theoretical framework and previous research poverty the social democrat theory views that poverty is not an individual problem, but structural. poverty is caused by the presence of inequality and imbalance in society because of access blockage of groups to social sources. the social democrat theory pressurizes on the importance of management and state funding in the allotment of basic social services for all citizens and influenced by the approach of management economics. this approach heavily criticizes the free market system, yet does not view the capitalist system as a system that has to be eliminated, because it is still viewed as the most effective form of economic organizing. this approach pressurizes on equality that is an important requirement in obtaining and freedom. the achievement of freedom is only possible if every person has a source of welfare. this freedom is more than being free from outside influences, but also being free in determining choices. types of poverty absolute poverty absolute poverty according to the central body of statistics, is determined based on the inability of a person or a group of people to fulfill their primary needs such as food, clothing, health, housing, and education. the minimum basic needs poverty conditions and policy solutions (data analysis years 2009-2013) 28 are translated as a financial measure in the form of money and the minimum value of basic needs that is known as the poverty line term. because of that, the population with incomes below the poverty line are categorized as the poor population. relative poverty the definition of relative poverty according to the central body of statistics (2016) is a poor condition because of influences from development policies that is not yet able to reach all layers of society so it causes an imbalance in income distribution. the central body of statistics expresses that the minimum standard is arranged based on the living conditions of a state in a certain time and the attention is focused on the poor population group. the measure of relative poverty is very dependent on the income distribution or income spending of the population. structural poverty according to suyanto in the central body of statistics (2008), structural poverty is poverty that is considered or manipulated caused from structure conditions or life order that is not prospered. poverty in the above structure is not caused by natural factors or personal factors from poor people themselves but by causes of the social order that is unfair. this unfair order causes the society to access sources that are needed to develop themselves nor to increase their life quality. poverty line the poverty line is a representation of the number of minimum rupiah that is needed for fulfilling primary food needs that is equal with 2,100 kcal/day and nonfood primary necessities (central body of statistics, 2016). according to the central body of statistics the concept of poverty line consists of: 1. the poverty line is a total from the food poverty line and the non-food poverty line. the population that have an average monthly per capita spending below the poverty line are categorized as the poor population. 2. the food poverty line is a value of spending the minimum food necessities that is equal with 2,100 kcal/day. the commodity package of basic food needs are represented by 52 types of commodities (rice, yams, fish, meat, eggs and milk, vegetables, nuts, fruit, oil and fats, and others). 3. the non-food poverty line are the minimum necessities for housing, clothing, education and health. factors that influence poverty economic growth the mercantilism theory states that the economic growth or economic development of a state is determined by an increase in international trade and a rise in marketing industrial output and a surplus of trade balances. an economy is stated to experience growth or develop if the level of economic activities are higher than what has been achieved before (kuncoro, 2004). as for according to todaro, economic growth as a steady process where the capacity of production of an economy increases over time to produce a national income level that increases more and more. according to the views of the classic economist adam smith, basically there are four factors that influence economic growth which are:  total population poverty conditions and policy solutions (data analysis years 2009-2013) 29  total stock of capital  land area and natural wealth and  the level of technology that is used. minimum wage the productivity labor border theory that was submitted by clark states that the level of wage has a tendency to be the same with the level of the last paid labor productivity, that is known as border labor. this means that wage given to workers is not able to exceed border labor productivity of labor. the minimum wage is a minimum standard that is used by businessmen or industry for giving wages to workers in their work or business environment. because the fulfillment of basic needs in every province is different, it is named the provincial minimum wage. unemployment unemployment is a situation where a person that is categorized as the workforce does not have a job and actively not searching for jobs (nanga, 2005:249). in the population census of 2001 unemployment is defined as a person that does not work at all or work less than two days a week before the census and is trying to get a job (central body of statistics, 2001:8). sukirno (2000) differentiates unemployment into several types which are: natural unemployment unemployment that is implemented in a level where there is a full chance of work. a full chance of work is a situation where about 95 percent of the workforce in a timeframe works full. this five percent unemployment is known as natural unemployment. frictional unemployment a type of unemployment that is caused by the action of a worker to leave his/her job and search for a better job or a job that is more suitable with his/her wants. structural unemployment unemployment that is caused by economic growth. education based on the indonesian language dictionary, education is a learning process for every individual for reaching a higher knowledge and understanding about certain and specific objects. the knowledge above that is obtained formally has an impact to every individual that has thinking, behavior, and morals that is suitable with the education that is obtained. other than that according to the act of the republic of indonesia number 20 year 2003 about the national education system, education is an effort that is implemented with realization and planned for creating an atmosphere and a learning process so the learners can actively develop their inner potential to have a spiritual religious strength, a good personality, self-control, a good behavior, intelligence and skills that are needed by themselves and the society. 1. formal education formal education is a way of education that is structured and tiered that consists of early childhood education, basic education, middle education, and high education. formal education consists of public formal education and private formal education poverty conditions and policy solutions (data analysis years 2009-2013) 30 2. non formal education non formal education is a way of education outside of formal education that is able to be implemented structurally and tiered. results of non-formal education is able to be appreciated equally with the result of formal education after going through an equalization process by a body that is chosen by the government or a regional government by referring to the national education standard. 3. informal education informal education is a family and environmental way of education in the form of independent learning activities. the result of informal education is recognized equally with formal and non-formal education after learners pass a test in accordance with the national education standard. the literacy rate is the proportion of the population aged 15 and over that have the ability to read and write latin letters and other letters, without having to understand what is being read or written to the population aged 15 and over. in regional development planning, literacy rate numbers are used for observing the accomplishment of basic indicators that have already been achieved by a region, because reading is the primary basic in expanding knowledge. the literacy rate is an important indicator for observing how far a population of a region is open to knowledge. previous research mallo (2011) analyzed factors that influence the level of poverty in jakarta. this research uses a data panel analysis method. results of this research show that the literacy rate influences poverty, the higher the literacy rate of the jakarta population, the poverty rate will decrease. the rate of economic growth influences poverty, the higher the economic growth rate of jakarta, the poverty rate will decrease. the regional gross domestic product of the industrial sector influences poverty, the larger the regional gross domestic product of the jakarta industrial sector, the lower the poverty rate. labor in the industrial sector influences poverty, the larger the absorption of labor in the jakarta industrial sector, the lower the poverty rate. jonaidi (2012) analyzed economic growth and poverty in indonesia. this research uses the two stage least squares method. results of this research show that economic growth influences significantly to the decrease in poverty numbers, especially in rural areas that have many pockets of poverty. through the increase of capital access, education quality (increase in literacy rate and time in education) and the degree of health (increase in life expectancy) the poor population is expected to be able to increase productivity in their work. the level of unemployment influences significantly and negatively to indonesian economic growth. a decrease in unemployment levels in indonesia especially in the agricultural sector where the majority of the indonesian population reside, causes the national income to increase because of the occurrence of an increase in economic performance. furthermore, investments in the form of foreign and domestic influences significantly and positive to economic growth. hudaya (2009) analyzes factors that influence poverty levels in indonesia. this research uses a panel data analysis method. results of this research show factors that influence significantly to poverty levels are unemployment levels, poverty conditions and policy solutions (data analysis years 2009-2013) 31 income, and education. these three factors above are factors that are very influential to poverty levels. this indicates that the high and low levels of poverty that occurs in indonesia one of them depends on the income that are accepted by the people and depends on the population’s spending on education and depends on the government’s policy in decreasing unemployment levels. the per capita income is a factor that has a large enough influence to the poverty levels compared with the literacy rate and unemployment levels, this shows that the role of the government in unemployment is not yet maximal for decreasing poverty numbers. cahyono (2011) analyzes factors that influence poverty levels in north moluccas province in 2005-2009. this research uses a panel data analysis method. results of this research show factors that significantly influence poverty levels in north moluccas which are a change in domestic investment (economic growth), education levels, number of unemployment and shares of domestic investment in the agriculture sector. economic growth, increases in education levels, and increases in domestic investment shares will decrease poverty levels, while increases in unemployment numbers will increase poverty levels. amelia (2012) analyzes factors that influence poverty levels in east nusa tenggara, this research uses a panel data analysis method. results of this research show that what influences significantly to the poverty levels in east nusa tenggara are economic growth, number of the population that graduate junior high school, and life expectancy numbers have a negative influence, the number of the population have a positive influence. while the open unemployment variable is not significant to the level of poverty in east nusa tengggara. this research refers to previous researches that uses variables that are obtained from previous researches such as what are used by mallo (2011), jonaidi (2012), hudaya (2009), cahyono (2011) and amelia (2012). the advantage of this research compared with previous researches is that it enters a new variable element which is the minimum wage variable, where the minimum wage variable is an important variable in factors that influence poverty levels. 3. research methodology the type of data that is used in this research is secondary data, secondary data is data that is obtained in a ready-made form in the form of publications or inside digital files (juanda, 2009). the secondary data that are used are poverty numbers, economic growth, minimum wage, and literacy rate. the data of this research is obtained from the central body of statistics banten province, while other information are sourced from scientific journals and textbooks. the secondary data that is used are time series data for the time period 2009-2013 and cross section data that covers 8 regencies/cities in banten province which are: pandeglang regency, lebak regency, tangerang regency, serang regency, tangerang city, cilegon city, serang city and south tangerang city. poverty conditions and policy solutions (data analysis years 2009-2013) 32 table 2 data type, data unit, and data source data type data unit data source poverty numbers thousands of persons central body of statistics banten province economic growth percent central body of statistics banten province minimum wage rupiah central body of statistics banten province unemployment numbers persons central body of statistics banten province literacy rate percent central body of statistics banten province data analysis method the analysis method that is used is a descriptive analysis and econometric method. the econometric method that is used is the data panel regression analysis. data processing uses microsoft excel 2010 and eviews 6.0 software. descriptive analysis descriptive analysis is implemented for providing a picture of poverty conditions (the number of the poor population) in banten province. the descriptive analysis is used for implementing an analysis to quantitative data and interpretation to quantitative data such as the results of factors that impact poverty. data panel regression analysis data panel regression analysis is a regression analysis with data structure that is panel data. generally the prediction of the parameter in a regression analysis with a cross section data is implemented using a prediction of the ordinary least square method (ols). panel data is a combination between cross section data and time series data where the cross section unit that is the same is measured in a different time. the choice of a regression analysis data panel model is able to be implemented by implementing the chow test and the hausman test. there are three models in data panel regression analysis which are: pooled least square (pls), fixed effects model (fem)and random effects model (rem). 1. pooled least square (pls) pooled least square is the simplest data panel model approach because it only combines time series and cross section data. in this model the time dimension nor individual is not paid attention, so it is assumed that the behavior of corporate data is the same in several time periods. this method is able to use the ordinary least square (ols) method for data panel model estimation. 2. fixed effects model (fem) this model assumes that differences between individuals are able to be accommodated from their intercept. for estimating the data panel of the fixed effects model, a variable dummy for catching the intercept difference between corporations is used. a difference in intercept can occur because of the difference in work culture, managerial, and intensives. nevertheless the slopes are the same between corporations. this estimation model is also often mentioned as the least squares dummy variable (lsdv) technique. poverty conditions and policy solutions (data analysis years 2009-2013) 33 3. random effects model (rem) this model will estimate panel data where disturbing variables may be interconnected between time and between individuals. in the random effect model differences in intercept are accommodated by error terms of each corporation. the advantage of using a random effect model is the elimination of heteroscadistacity. this model is also known as the error component model (ecm) or the generalized least square (gls) technique. general research model where: lnpovertyit = (β0 + αi + µt) + β1peit + β2lnumit+ β3lnuit + β4amhit + uit (1) where: lnpovertyit = poor population number of regency/city-i in year-t peit = economic growth in regency/city-i in year-t lnumit = minimum wage ogregency/city-iin yef-t lnuit = unemployment number ofregency/city-iin year-t amhit = literacy rate of regency/city-iin year-t βj = parameter yang diestimasi, j = 0, 1, 2, 3, 4, 5, 6. αi = individual effect in city-i µt = time effectin year-t uit = error component model choice method in data processing for the most right choice of panel data model, a row of tests need to be implemented econometrically. generally the order of the mentioned tests are implementing a chow test then implement a hausman test. chow test the chow test is a test for determining whether a fixed effect model or a random effect model is the most right for being used in a data panel. the hypothesis for a chow test is: h0 : common effect model or pooled least square h1 : fixed effect model the base for rejection to the above hypothesis is by comparing the count of the f-statistic with the f-table. a comparison is used if the results of the f count is larger (>) than the f table so h0 is rejected which means the most right model that is used is the fixed effect model. the count of the f statistic is obtained from the chow test with the equation (baltagi, 2005) f = (𝑆𝑆𝐸₁− 𝑆𝑆𝐸₂) (𝑛−1) 𝑆𝑆𝐸₂ (𝑛𝑡−𝑛−𝑘) (2) where: sse1 : sum square error from the modelpooled least square sse2 : sum square error from the modelfixed effect n : number of regencies/cities (cross section) nt : number ofcross section x number oftime series k : number of independent variables while the f table is obtained from f – table = {α : df (n – 1, nt – n – k)} (3) poverty conditions and policy solutions (data analysis years 2009-2013) 34 where: α : level of significance used (alfa) n : number of regencies/cities (cross section) nt : number of cross section x number of time series k : number of independent variables hausman test after done implementing the chow test and it is obtained that the right model is the fixed effect, so then we will test which model between the fixed effect or random effect that is the most right, this test is known as the hausman test. the hausman test is able to be defined as a statistic test for choosing whether the fixed effect or the random effect model is the most right to be used. a hausman test is implemented with the following hypothesis: h0 : random effect model h1 : fixed effect model if the hausman statistical value is larger than its critical value h0 is rejected and the right model is the fixed effect model while vice versa, if the hausman statistical value is less than its critical value the right model is the random effect model. statistical test evaluation model normality assumption the purpose of a normality test is to observe whether residual values are distributed normally or not. a good regression model has a residual value that is normally distributed. there are two ways for identifying the presence of normality which are:  formal method the normality test is implemented through the kolomogorov-smirnov test, darling test, shapiro-wilk test and jarque-bera test. all the mentioned tests have a hypothesis interpretation as the following: h0 : normally distributed residual h1 : abnormally distributed residual the normality assumption is fulfilled when the normality test produces a pvalue larger than α, with a determined α value as large as 1 percent, 5 percent, 10 percent.  graphical method a normality test that is implemented through normality checks with a normal output of p-p plot q-q plot. the normality assumption is fulfilled when the split of residual data is around the straight line latitude. autocorrelation assumption the purpose of an autocorrelation test is to observe whether a correlation occurs between a t period with the previous period (t-1) or correlations between errors in the past with errors in the present. the presence of this autocorrelation causes parameters that will be estimated to become inefficient. for knowing the presence of autocorrelations, an indicator is able to be used such as: durbin watson (dw statistic) the dw statistic is located on interval 4. if the value of the dw statistic approaches 2 the mentioned model does not have an autocorrelation problem. if poverty conditions and policy solutions (data analysis years 2009-2013) 35 the dw statistic keeps away from 2 it identifies that there is a positive or negative autocorrelation. for that, the decision making whether there is an autocorrelation or not is the following by using dw statistics table 3 autocorrelation identification frame durbin watson value summary dw < dl autocorrelation present dl < dw < du without summary du < dw < 4-du autocorrelation not present 4-du < dw < 4-dl without summary dw > 4-dl autocorrelation present 1. breusch-godfrey serial correlation lm test in the breusch-godfrey serial correlation lm test using an x2 distribution where the hypothesis is: h0 : autocorrelation not present h1 :autocorrelation present if the obs* value r-squared> critical value, h0 will be rejected which means there is an autocorrelation, or p-value < α, means rejected which means there is an autocorrelation. ways for solving correlations among others:  adding ar variables (auto regressive)  adding an independent lag variable or a dependent lag variable  by implementing differencing or implementing value regression derivatives heteroskedacity assumption the heteroskedacity test has a purpose for observing whether there is a dissimilarity of variants of one residual from an observation to other observations. the regression model that fulfills the requirement is where there is a similarity of variants of one residual from an observation to other observations that are fixed or known as homoskedacity. the presence of heteroskedacity is able to be shown by probability obs*r-squared in the white heteroskedacity test. h0 = γ= 0 h1 = γ≠ 0 test critera probability obs*r-squared < α, h0 rejected probability obs*r-squared > α, h0 accepted multicoloniearity assumption the multicolonieraity test is for observing the presence or non-presence of a high correlation between independent variables in a double linear regression model. if there is a high correlation between the independent variables the relation between the independent variables to the dependent variables becomes disturbed. 4. result and discussion results for obtaining a picture as a whole about the economic condition of a region, it is able to be observed through its economic balance such as what is reflected in a region’s domestic product. economic development is a row of efforts and policies poverty conditions and policy solutions (data analysis years 2009-2013) 36 which the purpose is to increase the living standards of a society, increase jobs, and equalize the distribution of the people’s income. one of the ways for knowing the increase in the population’s welfare is by observing the count results of the gross domestic regional product based on the 2000 constant price. table 4 gross domestic regional product based on the 2000 constant price according to business fields in the years 2009-2013 regency/city gross domestic regional product based on the 2000 constant price according to business fields in the years 2009-2013 2009 2010 2011 2012 2013 pandeglang regency 3,985,776 4,255,062 4,547,852 4,810,925 5,018,451 lebak regency 3,895,541 4,152,209 4,387,622 4,608,622 4,872,701 tangerang regency 17,382,091 18,483,033 19,664,496 20,804,088 21,848,671 serang regency 9,557,282 10,048,820 10,646,610 11,232,280 11,963,660 tangerang city 27,562,540 29,402,850 31,417,620 33,433,900 35,411,360 cilegon city 11,580,598 17,111,197 18,228,289 19,470,423 20,624,738 serang city 26,707,520 28,842,260 31,105,050 33,367,350 35,674,470 south tangerang city 49,478,668 53,666,250 58,238,330 63,034,770 68,381,670 banten province 150,150,015 165,961,681 178,235,869 190,762,357 203,795,720 source: central body of statistics banten province (2016) based on table 4, it shows that the gross domestic regional product based on the 2000 constant price according to business fields, in every region that is in banten province from the year 2009 until the year 2013 every year experiences an increase. the largest contributor of the gross domestic regional product is south tangerang city which is as large as 68,381,670 million rupiah in 2013. an increase in the gross domestic regional product every year signifies that the economy in the banten region that is improving signified by an increase in prosperity and welfare, because the gross regional domestic product is a barometer for measuring results of development that have been implemented. poverty is a condition where a person or a group of people are unable to fulfill their basic rights for surviving and developing life that is dignified. poverty in banten province also gets serious attention, where the policies of the central government nor the regional government is not yet maximal in solving the present poverty problems in banten province, especially in regions that are not industrial cities. poverty conditions and policy solutions (data analysis years 2009-2013) 37 table 5 number of the poor population according to regency/city in banten province years 2009-2013 regency/city number of the poor population according to regency/city (thousands of persons) 2009 2010 2011 2012 2013 pandeglang regency 140.28 127.8 117.6 109.1 121.1 lebak regency 142.23 125.2 115.2 106.9 118.6 tangerang regency 256.15 205.1 188.6 176 183.9 serangregency 82.9 89.2 82 76.1 72.8 tangerang city 106.1 124.3 114.3 106.5 103.1 cilegon city 15.37 16.8 15.4 15 15.9 serang city 32.76 40.7 37.4 34.7 36.7 south tangerang city 18.65 21.9 20.1 18.7 25.4 banten province 794.4 751 690.9 642.9 677.5 source: banten central body of statistics, 2016 based on table 5, it is able to be observed that the number of the poor population in banten province is fluctuated where in the year 2009 until the year 2012 the number of the poor population banten province experienced a decrease from 794.4 thousands of persons to 642.9 thousands of persons, but in 2013 the number of the poor population in banten province experienced a return in increase becoming as large as 677.5 thousands of persons, this is caused by the cause of an increase in fuel prices in july 2013. for observing the factors that influence poverty levels in banten province, an analysis is implemented by using the data panel regression analysis. the determination of the model that is used in the data panel regression analysis is implemented with the chow test and the hausman test, is implemented for determining the conformity of the model that is used between the pooled least square, fixed effect model, or random effect model. table 6 model conformity test results test name probability remarks chow test 0 significant to the real tariff of 5% hausman test 0 significant to the real tariff of 5% source: eviews 06 poverty conditions and policy solutions (data analysis years 2009-2013) 38 table 7 results of model estimation with the fixed effect model variable coefficient prob. c -6,458048 0,0824 pe -0,00536 0,7935 lnum 0,958524 0,0000* lnu 0,593991 0,0000* amh -0,095972 0,0208** r-squared 0,993575 durbin-watson stat 1,757838 notes :*) significant to the real standard of 5 percent **) significant to the real standard of 10 percent from estimation results an r-squared value as large as 0.993575 is obtained which means the mentioned model is able to explain the diversity of poverty levels in banten province as large as 99.35 percent and the rest is explained by other variables outside of the model. after implementing an estimation of the best model approach by choosing the fixed effect model, then a classic assumption test is needed for obtaining a model that is free from classic assumption problems such as normality, heteroskedascity, autocorrelation, and multicoliniearity. the normality test is implemented by observing the jarque-bera value and the probability value that are able to be seen in the histogram-normality test. based on the mentioned test, the jarque-bera value is observed as 0.993352, the mentioned value is more than the real standard of 5 percent. the probability value shows a value as large as 0.608550, the mentioned value is more than the real standard of 5 percent. so it is able to be summarized that there is enough proof to accept h0, so it is able to be stated that the mentioned data spreads normally. the heteroskedascity test is able to be implemented by observing the value of the sum squared residunweighted which is larger than the sum squared resid weighted and observed from a graphical image that resembles a heartbeat. based on the mentioned test, it is able to be observed that the value of the sum squared residunweighted is 0.791754 larger than the value of the sum squared resid weighted which is 0.714176 and the graphical image that is obtained resembles a heartbeat which means there is no heteroskedascity. the autocorrelation test is able to be implemented by observing the durbin watson (dw) value. the autocorrelation test is able to be implemented by observing the manual count of the dw table. the durbin watson (dw) that is obtained is as large as 1.757838 the dl value as large as 1.2848 and the du value as large as 1.7209. the dw value that is obtained is in between the du (1.7209) < dw (1.757838) < 4-du (2.2791), that shows that there is no autocorrelation. the multicoliniearity test is able to be implemented by observing the coefficient correlation value between variables. the model estimation results from the multicolinearity test shows that there are no correlations between variables, that poverty conditions and policy solutions (data analysis years 2009-2013) 39 is showed by the non-presence of the correlation values that is more than the rsquared value as large as 99.35 percent. based on the results of data processing, a prediction model for the best research for factors that influence poverty in banten province is as the following: lnpovertyit=6,458048 – 0,00536 peit + 0,958524 lnumit+ 0,593991 lnuit 0,095972 amhit + uit (4) based on estimation results, it is obtained that variables that influence significantly to the poverty level in banten province are minimum wage, unemployment, and literacy rate. while variables that is not significant to the poverty level in banten province is the economic growth variable. discussion economic growth economic growth has a negative influence to poverty levels. the probability value of economic growth as large as 0.7935 shows that economic growth does not have a significant influence to poverty levels in banten province. the coefficient of economic growth as large as -0.00536, means that if economic growth increases by 1 percent, so the poverty level will decrease by 0.00536 percent (catrius paribus) minimum wage the minimum wage has a positive influence to poverty levels. the probability value of minimum wage as large as 0.0000 shows that minimum wage has a significant influence to poverty levels in banten province in the real standard of 5 percent. the coefficient of minimum wage as large as 0.958524 means that if the minimum wage increases 1 percent, so the poverty level will increase by 0.958524 percent (catrius paribus). this is not in accordance with the earlier hypothesis. unemployment number the unemployment number has a positive influence to poverty levels. the probability value of the unemployment number as large as 0.0000 shows that the unemployment number has a significant influence to poverty levels in banten province in the real standard of 5 percent. the coefficient of the unemployment number as large as 0.593991 means that if the unemployment number increases 1 percent, so the poverty level will increase by 0.593991 percent (catrius paribus). literacy rate the literacy rate has a negative influence to poverty levels. the probability value of the literacy rate as large as 0.0208shows that the literacy rate has a significant influence to poverty levels in banten province in the real standard of 10 percent. the coefficient of the literacy rate as large as -0.095972 means that if the literacy rate increases 1 percent, so the poverty level will decrease by -0.095972 percent (catrius paribus). policy solutions that are implemented by the regional government of banten province the body of development planning, economic bureau and development administration, and the governmental bureau of banten province implements programs in sparking economic growth through regional development, covering: planning and financing regional development programs, regional development control programs, and regional development cooperation programs. poverty conditions and policy solutions (data analysis years 2009-2013) 40 the agency of cooperation and small businesses of banten province implements programs in aiding people that are unemployed by forming a cooperation and small businesses, covering: business development programs and access to cooperation capital and small businesses, programs for increasing competitiveness, capacity of organization and cooperation human resources and small businesses. the education agency of banten province implements programs in the field of education, covering: early childhood education programs, the compulsory basic education learning for 9 years program, the compulsory middle education learning program for 12 years, programs increasing the quality, welfare and protection of educators and education staff, higher education programs, non-formal and informal education programs, and programs for increasing the quality, management and image of education. policy solutions for minimalizing poverty problems in banten province solutions are analyzed based on data processing results using a regression analysis data panel regarding the factors that influence poverty in banten province. factors that significantly influence poverty levels in this research are: minimum wage, unemployment numbers, and literacy rate. minimum wage has a significant influence to poverty levels in banten province, when the minimum wage increases, the poverty will increase in banten province. this is inversely proportional with the early hypothesis where the minimum wage has a negative relation with poverty which means when the minimum wage increases, poverty will decrease. unemployment numbers have a significant influence to poverty in banten province, when unemployment numbers increase, poverty will also increase. the unemployment problem is there because the available potential is not fully optimized, whether it is the natural resource and the human resource. the policy that is able to be implemented by the regional government of banten province for decreasing unemployment numbers is by providing entrepreneurial training to be able to educate and motivate the people to produce a product and/or a service. literacy rate has a significant influence to poverty levels in banten province, when the literacy rate increases, the level of poverty will decrease. the solution for increasing literacy rate is by increasing development in education. the regional government of banten province is able to provide a policy for increasing, expanding and equalizing education in formal and non-formal ways. in increasing the education system, education funding is also an important aspect in increasing the length of school expectation. subsidized facilities or scholarships from basic education up to a university level have to be provided by the regional government so the education funding problem does not decrease the length of school expectation in banten province. 5. summary from the results of panel data regression, the economic growth variable does not have a significant influence to poverty levels in banten province. variables that have significant influences to poverty in banten province are the minimum wage poverty conditions and policy solutions (data analysis years 2009-2013) 41 variable, unemployment numbers and literacy rate. economic growth and literacy rate in banten province have negative influences to levels of poverty in banten province, when 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(2006). pembangunan ekonomi (cover 1, edition 9). translator. erlangga the impact of covid-19 on indonesia's financial system stability using arima intervention analysis 11 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) the impact of covid-19 on indonesia's financial system stability using arima intervention analysis dyah makutaning dewi1)*, alvian ferrandy2), nur aini3), nasrudin4) 1,2 badan pusat statistik, indonesia 3,4politeknik statistika stis, indonesia abstract the financial system has an important role to play in helping the relocation of funds. if the financial system is in unstable condition it will disrupt production, consumption, and investment activities. then, if financial institutions and financial markets that have a role as financial mediators are facing uncertainty, as a result the allocation of funds will not go well. therefore, the financial system is strongly related to exchange rates and stocks. on march 2, 2020, the first case of covid-19 occurred in indonesia. as a result, the rupiah depreciated and in addition to impacting indonesia's weakening financial market conditions. capital markets in indonesia suffered a significant crash marked by a decline ihsg. the purpose of this research is to analyze the impact of covid-19 on exchange rate movements and ihsg. this research uses the arima intervention method. the results of the analysis showed the negative impact of covid-19 on the stability of the financial system in indonesia began to be felt after two weeks of confirmation of the first case. the depreciation of the rupiah is out of the ordinary since the 18th day and ihsg occurred since the 16th day after the announcement of the first case and temporary. keywords: covid-19, exchange rate, jci, financial stability, arima intervention 1. introduction the financial system has an important role to play in helping to reallocate funds. if there are units that have a surplus, the funds can be utilized by units that have a deficit. if the financial system is in an unstable condition, it will interfere with production, consumption, and investment activities. then, if financial institutions and financial markets that have a role as financial mediators are facing uncertainty, as a result the allocation of funds will not go well. therefore, the financial system is very concerned with exchange rates and stocks. in financial markets, stock sellers can earn capital in the capital market, such as the stock market. the capital market can be an alternative place to make investments for those who have excess funds. therefore, capital markets play an important role in financial system stability. this is because it can be used as a complement to the process of allocating funds or finance from the community to the rill sector (rushandie, 2014). in addition, exchange rates also play an important role in the capital market. this is because the exchange rate affects the share price (rohmanda, et al, 2014). however, in the event of financial system instability, the public is not easy to trust, followed by a cautious attitude of investors. if investors start to panic, investors will withdraw their investments resulting in liquidity difficulties. therefore, the importance of maintaining financial system stability in indonesia. this is because the complexity and *coressponding author. email address: dyahfriendly@gmail.com https://creativecommons.org/licenses/by/4.0/ mailto:dyahfriendly@gmail.com afebi economic and finance review (aefr) volume 7, no 1 (2022) 12 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) interconnectedness in the financial system can result in a crisis stemming from the financial sector and not only impacting the financial sector, but also impacting macroeconomic performance and resulting in high economic recovery costs (indonesia bank, 2014). the economic problems that occur in indonesia caused by global economic conditions prove that indonesia is one of the countries that is easily affected by the condition of the world economy. therefore, in 2020 indonesia also experienced the impact of the coronavirus disease-2019 (covid-19) pandemic. in early 2020, the world was enraged by the discovery of new cases that unsettled the community. this is based on the presence of cases of pneumonia with unclear etiology in wuhan city, hubei province, china at the end of 2019. the world health organization (who) announced the covid-19 outbreak as a public emergency that is troubling the world precisely on january 30, 2020. on march 2, 2020, indonesia reported for the first time two confirmed positive cases of covid-19 source: covid19.go.id, 2020 figure 1. covid-19 positive confirmed cases per day based on figure 1, there was a very sharp increase on july 8 to july 9, 2020 from 1,853 people to 2,657 people, and there was a sharp decrease on july 9 to july 10, 2020 from 2,657 people to 1,611 people. covid-19 is spreading rapidly and transforming into a pandemic in various countries around the world. the current pandemic has a significant influence on various countries that have a rapidly growing number of active cases, including in indonesia (supriyanto, 2020). the surge in the number of people with high fatality rates in the last four months is very worrying and causes panic both the government, the public, and the business world. based on the publication of national development planning agency, the government's response in conducting pandemic prevention efforts, namely through largescale social restrictions in various regions, thus making the economy slow and even stop. this is due to distance learning for students, work from home (wfh) for formal sector workers, delays and cancellations of various events in various business sectors, to the ban on homecoming or traveling outside the area resulting in the termination of several modes of public transportation. in addition, the panic caused by covid-19 is also indicated to hit indonesia's financial markets, as seen from indonesia bank’s data which states that during the covid-19 spread period in january to june 2020 there was a capital outflow of rp 159.3 trillion. capital outflow from foreign investors always creates high volatility both in the movement of the rp / us$ exchange rate and the movement of stock indices during the crisis. https://creativecommons.org/licenses/by/4.0/ the impact of covid-19 on indonesia's financial system stability using arima intervention analysis 13 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) based on data from the world bank in 2020, although indonesia's currency exchange rate is very volatile, there are still some regions that are more severe than indonesia, such as colombia down 17.6 percent, russia down 18.5 percent, and mexico down 25 percent. prior to covid-19, the rupiah exchange rate was in the range of rp.14,000/us$, but during the covid-19 pandemic, the rupiah depreciated to rp.16,600/ per us$ . based of indonesia bank, the rupiah exchange rate will continue to remain vulnerable during the spread of the covid-19 outbreak which has caused panic in global markets, causing foreign funds to flee as well as liquidity pressures and the urge to get dollars to make the dollar superior to everything. rupiah fluctuations before the covid-19 pandemic according to a number of economists are driven by a number of factors both external and internal. first, there is the sentiment of a hike in the benchmark interest rate by the central bank of the united states (fed) as well as the risk of a trade war between the united states and china and other countries. as for internal factors, indonesia faces the problem of trade deficit and current account deficit (cad). the current account deficit has reached 3% of gross domestic product (gdp). the covid-19 pandemic is not only affecting the health of the world's citizens. this outbreak has also eroded the global economy and spread to indonesia. in addition to impacting the exchange rate, covid-19 also impacted indonesia's weakening financial market conditions. based of indonesia bank, the capital market in indonesia experienced a significant crash marked by a decrease in the jakarta composite index (jci) which finally plunged. everything is beyond prediction and not an easy thing to control. prior to the first covid-19 confirmation in indonesia, jci was at the level of 6,244 (january 24) weakened to 5,942 (february 20) and corrected again to the level of 5,361 (march 2). on march 12, when who announced the pandemic, jci fell 4.2% to 4,937 when thursday's session opened, which is a level that has not happened in nearly four years. on march 13, stock trading was suspended for the first time since 2008 due to the covid-19 pandemic. based on haryanto (2020), on april 16, 2020, jci has been recorded at 28.27 percent since the beginning of 2020. meanwhile, other countries experienced the same, for example: phisix philippines corrected 29.3 percent, spi singapore corrected 18.95 percent, set thailand 24.03 percent and lse uk 25.98 percent. the rupiah exchange rate is still fluctuating tends to weaken, while the stock market is inflamed in line with the rate of the jci which is corrected quite deep. economic growth is also expected to slow dramatically, eroded by the spread of the virus to various sectors of the economy. therefore, it is very interesting and important to conduct an in-depth analysis of the impact of covid-19 on exchange rate movements and jci. 2. literature study financial system stability financial system stability is a condition that allows the national financial system to function effectively and effciently and be able to withstand internal and external vulnerabilities, so that the allocation of sources of funding or financing can contribute to the growth and stability of the national economy (indonesia bank, 2022). therefore, financial stability has an important role in maintaining the economic stability of a country. the financial system if it does not function properly can reduce the effectiveness of monetary policy, disrupt the smoothness of economic activities and slow growth to economic contraction. therefore, the realization of financial system stability is a shared responsibility among financial sector authorities (indonesia bank, 2022). https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 14 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) arima intervention the movement of time series data in practice is not always stable. this is because in a certain period of time the data experiences an unusual average pattern. these patterns are formed due to the occurrence of an event, such as natural disasters, government policies, economic crises, and others. therefore, these unexpected events are called interventions. the main purpose of intervention analysis is to measure the impact of interventions (wei, 2006). the impacts in question include from when the impact occurred, how long it will last, and how big the impact will be. according to wei (2006) interventions are divided into two types namely long-term interventions and short-term interventions. long-term intervention (step function) is an intervention that occurs from the time of t onwards because it does not know when the intervention will end. short-term intervention (pulse function) is an intervention that occurs from the time of t only or the time that has been known when the intervention ends. as for systematically can be written as follows: 1) step function 𝐼𝑡 = 𝑆𝑡 (𝑇) = { 0, 𝑡 < 𝑇 1, 𝑡 ≥ 𝑇 (1) 2) pulse function 𝐼𝑡 = 𝑃𝑡 (𝑇) = { 0, 𝑡 ≠ 𝑇 1, 𝑡 = 𝑇 (2) the form of multi input model can be written as follows: 𝑍𝑡 = 𝑓(𝐼𝑗𝑡 ) + 𝑁𝑡 (3) 𝑍𝑡 = ∑ 𝜔𝑠𝑗(𝐵)𝐵 𝑏𝑗 𝛿𝑟𝑗(𝐵) 𝐼𝑗𝑡 𝑘 𝑗=1 + (1−∅𝐵)𝑢𝑡 (1−𝜃𝐵)(1−𝐵) (4) 𝜔𝑠𝑗 (𝐵) = 𝜔0𝑗 − 𝜔1𝑗 𝐵 1 − ⋯ − 𝜔𝑠𝑗 𝐵 𝑠 (5) description: 𝑍𝑡 : response variable time-t 𝐼𝑗𝑡 : intervention variable j when time-t 𝑁𝑡 : arima model b : backshift order 𝜔𝑠𝑗 : parameter of the arima intervention when the j intervention function 𝛿𝑟𝑗 : parameter of the arima intervention when the j intervention function sj, bj, rj : arima order of intervention when the function of the j intervention before estimating the intervention model, it is necessary to first identify the intervention of the arima order. in the analysis of arima intervention there are three order, namely (lee, m. h., et al, 2010): • b order an order indicating the start time of the intervention. • s order https://creativecommons.org/licenses/by/4.0/ the impact of covid-19 on indonesia's financial system stability using arima intervention analysis 15 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) the order indicates the time it takes for the intervention effect to return to stable. • r order the order states a pattern on the effects of intervention. determining the order b, r, s can be seen from the residual plot pattern of the arima model before intervention. if the movement of residual value exceeds the ±2σ or ±3σ indicates the difference from the actual value with the forecasting value has a significant difference. in determining the best order, trial and error is required to produce the best model. the possible responses that occur both step and pulse intervention responses are as follows (wei, 2006): source: wei (2006) figure 2. response step and pulse function some research related to arima intervention has been widely done. research conducted by nuralaina (2016) with the title " analisis arima intervensi fungsi step untuk peramalan nilai kurs rupiah terhadap dollar amerika ". this study uses intervention analysis of step function. the findings of this study are the differences in the function of step in the data of rupiah exchange rate against the us dollar before and during the intervention. also, intervention analysis is also used to forecast rupiah exchange rate in january 2016. furthermore, the research conducted by mukhlis, et al (2015) entitled "analisis model intervensi fungsi pulse. studi kasus: peramalan harga saham malaysia airlines dan jumlah wisatawan asing". in his research, the authors used arima analysis method of pulse function intervention. the result of his research is that the disappearance of flight mh370 did not give an intervention effect on mas stock while the bali bombing incident had an intervention effect with the decrease in the number of foreign tourists at the time of the incident and one month after the incident. then, related to the impact of covid-19 on exchange rates and jci, shiyammurti, et al (2020) shows that the covid-19 pandemic in indonesia has lowered the indonesian https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 16 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) economy due to the decline in the jci. indonesia stock exchange and rising interest rates and inflation rates in indonesia. similarly, rupiah exchange rate (exchange rate) is very influential for the composite stock price index, the higher the rupiah exchange rate, the lower the value of jci. junaedi and salistia (2020) stated that jci movements are influenced by internal and external conditions. internally, the covid-19 pandemic and social distancing policies in the country have influenced the dynamics of the capital market (indicated by the jci movement). externally, the covid-19 pandemic in china and spain is affecting the dynamics of capital markets in indonesia. 3. research methodology scope of research the scope of this research is to analyze the intervention or impact of covid-19 on exchange rate movements and jci using time series data. the data used in this study includes data on rupiah exchange rate against dollar and jci collected per day during the period january 1, 2020 to june 11, 2020. the intervention used in this study is the first case of covid-19 in indonesia which occurred on march 2, 2020. this study involves several variables, namely exchange rate and jci as dependent variables and the first case of covid-19 in indonesia which is an intervention variable that is used as an independent variable. the details of the variables used in this study are as follows: 1) exchange rate indicating the rupiah exchange rate against the dollar per day. the currency exchange rate against the current payment between the two countries. the exchange rate data used is jisdor exchange rate which is the spot price of usd/idr which is arranged based on the exchange rate of usd/ idr transactions against interbank rupiah in the indonesian foreign exchange market. jisdor exchange rate provides a representative market price reference for spot transactions of usd/idr of the indonesian foreign exchange market. the exchange rate unit used in this study is rupiah. 2) jakarta composite index (jci) is stock market indexes effectively used on the indonesia stock exchange (idx). 3) variable intervention is the first case of covid-19 in indonesia that occurred on march 2, 2020. this intervention function follows a step function that can be defined as follows: 𝑆𝑡 { 0 1 (6) number 0 indicates if t < 62 is before march 2, 2020 while the number 1 indicates if t ≥ 62 is on march 2, 2020 and after. https://creativecommons.org/licenses/by/4.0/ the impact of covid-19 on indonesia's financial system stability using arima intervention analysis 17 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) data the data used in this study used secondary data obtained from the finance.yahoo.com website for jci variables at close and indonesia bank for exchange rate variables. data used in the form of daily data during the period january 1, 2020 to june 11, 2020. analysis method the analytical methods used in this study are descriptive and inference analysis. this analysis is used to describe the movement of exchange rates and jci in general. in this analysis, exchange rate movements and jci are displayed in the form of charts so that they can know the development of exchange rates and jci during the research period. in addition, this analysis to find out the different conditions of exchange rate movements and jci when before and after the intervention in general. the inference analysis used in this study is the arima method of intervention. analysis is used to analyze the impact of interventions affecting time series data. therefore, this analysis can find out when interventions start to impact, how much the intervention impacts the data, and find out if the impact of interventions has a temporary or permanent impact. the steps used in this study refer to nuvitasari’s research, et al (2009): 1) grouping data grouping data into two parts, namely data before the intervention and after the intervention. • before the intervention are t = 1, 2, 3, ...., 61 (61 observations) as series data i • after the intervention are t = 62, 63, 64, ..., 163 (102 observations) as series data ii 2) checking stationary of series data i 3) using series data i to form the arima model before intervention 4) diagnostic test to arima model before 5) perform data forecasting using arima model before intervention for the next 60 days. 6) calculating residual data for data. residuals are obtained from the results of the reduction of the original data minus the results of forecasting data using the arima model before intervention https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 18 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) 7) creating a plot graph of residual values with ± 2σ limit 8) identify the intervention response by looking at the plot graph of residual values so as to determine the order b, s, and r 9) estimation of intervention model 10) diagnostic test to intervention model 11) determine the best intervention model 4. result and discussion overview of exchange rate and jci officially on march 2, 2020, indonesia experienced the first case of covid-19. as a result, rupiah exchange rate movements experienced a significant weakening. on march 20, 2020, the rupiah exchange rate was in the range of rp. 16,000/us$. however, the turmoil in the rupiah depreciation did not last long. on april 13, 2020, the rupiah was in the range of rp. 15,000/us$ while on may 11, 2020 the rupiah was in the range of rp. 14,000/us$. source: indonesia bank (processed) figure 3. exchange rate movements january 1, 2020 to june 11, 2020 figure 3 shows the movement of exchange rates in indonesia fluctuating. from january 1, 2020 to february 26, 2020, exchange rate movements tended to remain stable despite the weakening. from february 27, 2020 to march 16, 2020, the rupiah exchange rate was in the range of rp. 14,000/us$. the rupiah continued to weaken due to adjustments in foreign capital inflows in the domestic financial markets. this is because the spread of covid-19 has depressed the rupiah exchange rate since mid-february 2020. then, the spread of covid-19 also impacted the movement of jci. the weakening of rupiah exchange rate against the capital market is due to investors' concerns in making https://creativecommons.org/licenses/by/4.0/ the impact of covid-19 on indonesia's financial system stability using arima intervention analysis 19 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) investments. the depreciation of the rupiah against the dollar means that indonesia's economy is not in good shape. as a result, investors will conduct a sell-off until the economic condition is in good condition. therefore, exchange rate conditions negatively affect the value of stock indices (valadkhani, etc., 2006; witjaksono, 2010). figure 4 shows the movement of jci that has fluctuating. from january 17, 2020 to january 31, 2020, jci movement continued to weaken. this is marked from the original in the range of 6,000 levels and continues to be corrected to the range of 5,000 levels. on february 1, 2020, jci movement increased but did not last long. after the first case of covid-19 was announced, from march 4, 2020 to march 24, 2020, it continued to weaken and eventually fell to a level of 3,000. the corrected value of jci is due to global capital market conditions that are not in good condition. the current pressure on global capital markets is caused by several things such as the covid-19 pandemic, oil price wars, and interest rate reductions by the united states federal reserve (money.kompas.com). source: finance.yahoo.com (processed) figure 4. jci movement january 1, 2020 to june, 11 2020 pre intervention arima box-jenkins model exchange rate the requirement in analyzing arima box-jenkins method is that the data must be stationary in both variance and average. figure 5 shows that exchange rate movement data from january 1, 2020 to march 1, 2020 is still not stationary. this is because the data pattern still has a trend. https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 20 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) source: indonesia bank (processed) figure 5. plot time series pre intervention exchange rate movement data figure 5 shows that the data has not been stationary on variance and average. meanwhile, in assuring whether the data has been stationary or not on average then conducted augmented dickey fuller (adf) test. the test results showed the p-value > 0.01. this indicates that the data has not been stationary at that level. due to the condition of the data has not been stationary, it is treated several steps to make the data stationary. in generating stationary data on variance, in this study pre intervention exchange rate movement data was transformed into a natural logarithm. another case with the treatment to get stationary data on average. in generating stationary data on average, in this study pre intervention exchange rate movement data was carried out differencing process 1. then, datastation testing is carried out using adf test. the test results showed a p-value < 0.01. this indicates that the data has been stationary in differencing 1. then, it is necessary to do the identification process of arima. in determining the results of the combination of autoregressive (ar) and moving average (ma) it can be seen in the pattern of autocorrelation (acf) and partial autocorrelation (pacf) so that it can determine the order p and q. in this study ar(2) and ma(2) were obtained so that the possible models are arima(0,1,0), arima(1,1,0), arima(0,1,1), arima(1,1,1), arima(2,1,0), arima(2,1,1), arima(0,1,2), arima (1,1,2), arima (2,1,2). in obtaining the best model, it can be seen from the smallest aic and sbc values. in the trial and error process, the best model is arima(1,1,1). arima model is said to be adequate if the model has residuals that meet the assumption of white noise. in knowing whether the model meets the assumption of white noise, it is necessary to conduct residual independence test. in this study residual independence test using ljung-box test. https://creativecommons.org/licenses/by/4.0/ the impact of covid-19 on indonesia's financial system stability using arima intervention analysis 21 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) based on table 1 shows the calculation results obtained p-value at some lag of pvalue > 𝛼. this indicates that the test results showed a failure to 𝐻0 at the level of significance 𝛼 = 1 percent. therefore, the arima model (1,1,1) has fulfilled the assumption of white noise and is good for the data forecasting process. table 1. parameter estimation results and residual independence test parameter white noise check estimation p-value lag p-value ∅ = 0.93084 <.0001* 6 0.7480 𝜃 = 0.78958 0.0024* 12 0.6956 18 0.9133 24 0.7025 *at the level of 𝛼 significance = 1 percent based on the estimated parameter, it can be written arima model equation (1,1,1) as follows: 𝑌𝑡 = 1,9255𝑌𝑡−1 − 0,9255𝑌𝑡−2 + 𝑢𝑡 − 0,7888𝑢𝑡−1 (7) jci as the treatment of exchange rate movement data, in analyzing the arima boxjenkins method is the data must be in a stationary state both on variance and average. figure 6 shows that jci movement data from january 1, 2020 to march 1, source: finance.yahoo.com (processed) figure 6. plot time series pre intervention jci movement data figure 6 shows that the data is not yet stationary on variance and average. meanwhile, in assuring whether the data has been stationary or not on average then conducted augmented dickey fuller (adf) test. the test results showed the p-value > 0.01. this indicates that the data has not been stationary at that level. https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 22 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) due to the condition of the data has not been stationary, it is treated several steps to make the data stationary. in generating stationary data on variance, in this study, pre intervention jci movement data was transformed into a natural logarithm. another case with the treatment to get stationary data on average. in generating stationary data on average, in this study, pre intervention jci movement data was carried out differencing process 1. then, datastation testing is carried out using adf test. the test results showed a p-value < 0.01. this indicates that the data has been stationary in differencing 1. then, it is necessary to do the identification process of arima. in determining the results of the combination of autoregressive (ar) and moving average (ma) it can be seen in the pattern of autocorrelation (acf) and partial autocorrelation (pacf) so that it can determine the order p and q. in this study ar(1) and ma(1) were obtained so that the possible models are arima(0,1,0), arima(1,1,0), arima(0,1,1), arima(1,1,1). in obtaining the best model, it can be seen from the smallest aic and sbc values. in the trial and error process, the best model is arima(1,1,0). arima model is said to be adequate if the model has residuals that meet the assumption of white noise. in knowing whether the model meets the assumption of white noise, it is necessary to conduct residual independence test. in this study residual independence test using ljung-box test. based on table 2 shows the calculation results obtained p-value at some lag of pvalue > 𝛼. this indicates that the test results showed a failure to 𝐻0 at the level of significance 𝛼 = 1 percent. therefore, the arima model (1,1,0) has fulfilled the assumption of white noise and is good for the data forecasting process. table 2. parameter estimation results and residual independence test parameter white noise check estimation p-value lag p-value ∅ = 0.33755 0.0057* 6 0.6682 12 0.7645 18 0.8575 24 0.8099 *at the level of 𝛼 significance = 1 percent based on the estimated parameter, it can be written arima model equation (1,1,0) as follows: 𝑌𝑡 = 1,33756𝑌𝑡−1 − 0,33756𝑌𝑡−2 + 𝑢𝑡 (8) https://creativecommons.org/licenses/by/4.0/ the impact of covid-19 on indonesia's financial system stability using arima intervention analysis 23 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) arima intervention model this study, the intervention used was the first case of covid-19 in indonesia which occurred on march 2, 2020 which is a step form. identification of arima intervention is done after obtaining the pre-intervention arima model. from the equation of the arima model of exchange rate movements and jci, it is necessary to forecast to look for residual values. forecasting is carried out for the next 60 days and residual value is obtained from the actual data reduction with forecasting data. in identifying the model is done by looking at the order b, s, and r. the determination of the order b, s, and r is done by looking at residual graph patterns that come out of the ±2 𝜎. in this study, the 𝜎 for exchange rate movement data was 0.045030627 so that the obtained limit was 0.090061255. then the σ for jci movement data is 0.083950588 so that the obtained limit is 0.167901176. exchange rate determining the order b, s, and r is done by looking at residual graph patterns that come out of the ±2σ. figure 7 shows that lag 18 (t+18) is the first time residuals cross the ±2σ limit so that it can be estimated the value of order b is 18. the value for the order s is 1 (t+19) because there is a decrease after the order b=18. furthermore, the value for the order r is expected to be zero (r=0) because the residual has no pattern, but after testing it turns out to be significant so that the order r=0. the determination of order b, s, and r in this study also involves trial and error process. figure 7. residual plot of exchange rate movement data then a parameter test was performed on the order and showed significant results at the level of 𝛼 =1 percent significance shown in table 3. table 3. estimated parameter of arima intervention exchange rate movement maximum likelihood estimation https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 24 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) parameter estimation p-value 𝜃1 0.90768 <.0001* ∅1 0.96137 <.0001* 𝜔0 0.02953 <.0001* 𝜔1 -0.03317 <.0001* *at the level of 𝛼 significance = 1 percent after obtaining the result of parameter estimation, it is necessary to test the assumption of white noise. in knowing whether the model meets the assumption of white noise, it is necessary to conduct residual independence test. in this study residual independence test using ljung-box test. table 4. arima intervention residual independence test exchange rate movement white noise check lag p-value 6 0.0646 12 0.0200 18 0.0411 24 0.0173 based on table 4 shows the results failed to 𝐻0 at a level of significance 𝛼 = 1 percent. this indicates that the arima intervention model of exchange rate has met the assumption of white noise. therefore, the arima intervention model of that is formed can be said to be a good model. mathematically, the arima intervention model of exchange rate movement data due to the first case of covid-19 in indonesia with order b=18, s=1, r=0 can be written as follows: 𝑌𝑡 = 0,02953𝐵 18 + 0,33170𝐵191,9255𝑌𝑡−1 − 0,9255𝑌𝑡−2 + 𝑢𝑡 − 0,7888𝑢𝑡−1 (9) the order of parameter b is 18 (b=18), which means that the impact of the first positive case in indonesia occurs on the 18th day after the first case. the long pause in the impact of this intervention is due to the market seeing the situation from covid-19. market concerns arose from who announcing the coronavirus outbreak as a pandemic as well as the establishment of covid-19 as a national disaster in indonesia. in addition, according to trfx garuda berjangka director ibrahim, the decline in retail sales data in the us reached minus 8.7 percent in march 2020 as well as economic projections from the world bank, imf, and oecd which stated that global growth negatively contributed to the weakening of the rupiah against the us dollar. then the parameter value of the order indicates that there is a significant decrease felt, namely in the period t +19 or on march 21, 2020. this is due to market concerns with domestic economic projections.. sindonesia's economy has the potential to grow negatively due to the covid-19 outbreak and the peak of weakening occurred on t+22 or on march 24, https://creativecommons.org/licenses/by/4.0/ the impact of covid-19 on indonesia's financial system stability using arima intervention analysis 25 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) 2020. this is because investors prefer to invest in other countries that are considered to have a bright economic future and rapid pandemic management, such as america. however, this did not last long, the exchange rate strengthened again after the period of t+38 or on april 9, 2020. according to indonesia bank the strengthening was a result of bi's intervention in maintaining rupiah exchange rate stability, such as using foreign exchange reserves, lowering interest rates, lowering mandatory minimum demand deposits, and so on. in addition, rupiah exchange rate appreciation was also caused by global financial market risks that began to subside. one of them can be seen through the volatility index (vix) which begins to show a downward trend from the highest level at 82. but until t+58, the exchange rate is still not able to return to its original position before the pandemic. according to mnc securities this is because indonesia's trade balance recorded more trade deficit than surplus trade balance. in addition, global economic conditions are very influential on international trade transactions. this will continue for the future if a vaccine has not been found. however, the exchange rate may also weaken again if there are extreme cases such as at the beginning of pandemic. jci determining the order b, s, and r is done by looking at residual graph patterns that come out of the ±2 𝜎. figure 8 shows that lag 15 (t+15) is the first time residuals have crossed the ±2 𝜎 limit. however, after the trial and error process, a b value of 16 is obtained. the value for the order s is 2 (t+18) because there is a decrease after the order b=16. furthermore, the value for the order r is expected to be zero (r=0) because the residual has no pattern, but after testing it turns out to be significant so that the order r=0. the determination of the order b, s, and r in this study involves the process of trial and error. figure 8. residual plot of jci movement data https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 26 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) then parameter test was performed on the order and showed significant results at the level of 𝛼 =1 percent significance shown in table 5. table 5. estimated parameter of arima intervention jci movement maximum likelihood estimation parameter estimation p-value ∅1 0.01558 0.8547 𝜔0 -0.05055 0.0054* 𝜔1 0.05330 0.0036* *at the level of 𝛼 significance = 1 percent after obtaining the result of parameter estimation, it is necessary to test the assumption of white noise. in knowing whether the model meets the assumption of white noise, it is necessary to conduct residual independence test. in this study residual independence test using ljung-box test. table 6. arima intervention residual independence test jci movement white noise check lag p-value 6 0.0942 12 0.0695 18 0.1289 24 0.1308 based on table 6 shows the results failed to 𝐻0at the level of significance 𝛼 = 1 percent. this indicates that the arima intervention model of exchange rate has met the assumption of white noise. therefore, the arima model of intervention that is formed can be said to be a good model. mathematically, the arima model of intervention in jci movement data due to the first case of covid-19 in indonesia with order b=15, s=2, r=0 can be written as follows: 𝑌𝑡 = −0,05055𝐵 16 − 0,05330𝐵17 + 1,33756𝑌𝑡−1 − 0,33756𝑌𝑡−2 + 𝑢𝑡 (10) the equation above indicates that the function of the first intervention has signed parameter 𝜔0. the negative parameter value of 𝜔0 indicates that the first impact that occurs after a positive case is a decrease in the value of jci. the order of parameter b is 16 (b=16), which means that the first positive case impact in indonesia occurs on the 16th day after the first case. the long pause in the impact of this intervention is due to investors seeing the covid situation in various worlds including indonesia. https://creativecommons.org/licenses/by/4.0/ the impact of covid-19 on indonesia's financial system stability using arima intervention analysis 27 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) on march 11, 2020, who officially announced the coronavirus outbreak as a pandemic. furthermore, the indonesian government followed the steps by establishing the pandemic as a national disaster and the application of social distancing on march 15, 2020 (kompas.com, 2020). the policy has drastically reduced the activities and movement of people in jabodetabek and major cities. this can be seen from the decrease in the number of passengers in various means of transportation ranging from airplanes, commuter trains, buses, public transportation, taxis, online taxis, to online motorcycle taxis (hadiwardoyo, 2020). the less conducive situation is what makes the economy less stable so that investors better attract their investment and put in a safer country, where the signs begin on march 17, 2020. then the parameter value of the order indicates that there is a significant decrease felt, namely in the period t +16 or on march 18, 2020. this is due to the increasing number of investors attracting capital from indonesia where the peak of weakening occurred on t+22 or on march 24, 2020. however, this did not last long, jci value strengthened again to the psychological level of 4000 after the period of t +32 or on april 3, 2020. according to the indonesia bank, , the strengthening shows the easing of investor panic in various worlds. according to him, the strengthening of jci can not be separated from positive developments related to the handling of covid-19 in various countries. notably, after the united states senate approved a proposed fiscal stimulus package of 2 trillion u.s. dollars and the german government disbursed fiscal stimulus of 860 billion u.s. dollars or 10 percent of its country's gdp. as a result indices such as the dow jones gained nearly 2.4 percent and european stock indexes also rose along with emerging market stock indices such as brazil, mexico, russia and others. this indicates that short-term intervention is occurring due to the covid-19 pandemic to financial stability in indonesia. based on figure 8, it can also be seen that jci has experienced a stable state, but the value is not as before the intervention. this will continue for the future if a vaccine has not been found. however, jci may also experience further shocks if there are extreme cases such as at the beginning of pandemic. from the explanation of the intervention model of jci and exchange rate, it can be known that the addition of positive cases of covid-19 does not have a continuous effect on financial stability in indonesia, especially on the value of jci. such conditions were also demonstrated when the government announced the implementation of large-scale social restrictions back in jakarta on september 14, 2020. on september 10, 2020, jci experienced freefall and so did the rupiah against the u.s. dollar. the sharp drop occurred on the stock market at 10:36 a.m. based of jawa pos, at that time, jci corrected by 5 percent to 4,891.88 so that stock trading in idx was suspended (halt trading) for about 30 minutes. however, slowly jci and the rupiah exchange rate strengthened again after the implementation of largescale social restrictions was announced again in jakarta. this was shown on september 14, https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 1 (2022) 28 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) 2020 at 09.30 wib jci again jumped by 1.79 percent to 5,106 (investasi.kontan.co.id). then on september 16, 2020 the rupiah exchange rate was rp 14,844/us$ while on september 15, 2020 it was rp 14,870/us$. therefore, exchange rate conditions negatively affect the value of stock indices. several steps have been taken to maintain financial stability. the financial services authority and the financial services industry, such as the capital market, remained operational when the large-scale social restrictions was re-enacted in jakarta. this is because the financial services sector is included in 11 important business areas that are allowed to operate during large-scale social restrictions. a series of pre-emptive policies have been carried out in the capital market in collaboration with self-regulatory organizations (sro). this is demonstrated by the prohibition of short selling, share buyback policy without rups with significant fluctuating market conditions, changes in auto rejection restrictions to asymmetric, changes in halt trading restrictions, and adjustment of trading sessions in pre-opening. this is done to reduce volatility. in addition, relaxation policies are also carried out such as relaxation of the principle of openness, relaxation of obligations in the delivery of reports, and stimulus for the investment processing industry (santoso, 2020). 5. conclusion the negative impact of covid-19 on financial system stability in indonesia began to be felt after two weeks of confirmation of the first case. rupiah depreciation has been unusual since the 18th day, while the weakening of jci occurred since the 16th day after the announcement of the first case. covid-19 intervention in rupiah exchange rate and jci as a proxy for financial stability, is gradual temporary, namely that intervention affects exchange rate movements and jci gradually and is temporary. the weakening continued until it reached its lowest point after the 22nd day then strengthened again and stabilized after the 38th day for the exchange rate and the 32nd day for jci, although it was stable at a lower level than before covid-19. based on these conclusions, when there is a high spike in confirmed positive cases of covid-19, then; (1) the government and bi must be able to assure the market that financial stability will remain stable, (2) businesses should not panic because the weakening of financial stability that occurs only err is not permanent, (3) the public must comply with health protocols established by the government to keep the covid-19 case from continuing to increase, thus disrupting market confidence. https://creativecommons.org/licenses/by/4.0/ the impact of covid-19 on indonesia's financial system stability using arima intervention analysis 29 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) reference hadiwardoyo, w. 2020. kerugian ekonomi nasional akibat pandemi covid-19. baskara journal of business and 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wp06-18, school of economics, university of wollongong, nsw, australia. wei, william w.s. (2006). time series analysis: univariate and multivariate 2nd edition. new jersey, pearson education. witjaksono, ardian agung. 2010. analisis pengaruh tingkat suku bunga sbi, harga minyak dunia, harga emas dunia, kurs rupiah, indeks nikkei 225, dan indeks dow jones terhadap ihsg (studi kasus pada ihsg di bei selama periode 2000-2009). masters thesis, universitas diponegoro. https://creativecommons.org/licenses/by/4.0/ the influence of ownership structure and specific characteristics to capital structure in public banks in indonesia 53 4 the influence of ownership structure and specific characteristics to capital structure in public banks in indonesia imas maesaroh1*, angga sucitra h2, and radis diding r3 1,2,3 universitas terbuka, tangerang, indonesia abstract this study aims to determine the effect of ownership structure and the specific characteristics of the capital structure in banks indonesia. the results showed that partial ownership structure and the specific characteristics of the bank (profitability, size, and credit risk) had no significant effect on the capital structure, while the bank characteristics (expenses management) partially significant effect on the capital structure. jel classification: e50, g10, g21 keyword: capital structure, ownership structure, specific characteristics of bank 1. introduction banks are financial institutions whose primary business is accumulating funds from society and redistribute those funds to society in the form of credit and other forms in order to increase the living standards of many people. banks also have an important role in the economy which functions as an intermediary (financial intermediary). banks belong to financial institutions that are profit oriented so in operating their business banks have to implement the intermediation function. the intermediation function is an accumulating process of funds from a surplus economic unit in the form of savings and distribute those funds to a deficit economy which is the party that needs funds in the form of credit/payment. taswan (2010) states that bank ownership in indonesia is seen from the banking control perspective that consists of concentrated ownership, government, private domestic, and foreign the size of ownership by individuals indicates that bank ownership structure in indonesia are concentrated to a number of owners. the consequence is that managers are only the right hand men of the controlling shareholders. the decision of the manager bows to and in parallel with the interests of the majority of shareholders/controllers. other than that bank ownership in indonesia also has a mixed ownership which are banks owned by foreign and domestic investors. basically policies and regulations by bank indonesia to foreign banks and mixed banks are equal. all regulations that are valid, including prudent regulations, are applied equally for all banks that operate in indonesia, neither government banks, domestic banks, mixed banks, nor foreign banks. the primary difference between government banks, domestic and mixed banks with foreign banks are only in their capital and legal form (siringoringo, 2012). an optimal capital structure is a target that is constantly reached by a corporation including banks. according to the trade-off theory or balancing theory it explains that for reaching the mentioned optimal capital structure, corporations have to integrate a * corresponding author. email address: imas@ut.ac.id mailto:imas@ut.ac.id the influence of ownership structure and specific characteristics to capital structure in public banks in indonesia 54 balance or trade off between benefit and return and risks or costs that are faces so that they are able to maximize the corporate value (bringham, 2005). specific characteristics of banks or factors that come from bank internals also have influence to capital structure. much research is implemented about the specific influence of banks to capital structure with different results. in this research specific bank variables that are used are profitability, size, credit risk and expense management. 2. literature study and hypothesis development ownership structure corporate ownership structure is able to be differentiated by insider ownership and outsider ownership. insider ownership is the portion of corporate stock ownership by people inside the corporation (the management party) relative to the total corporate stocks that circulate. while outsider ownership is the portion of stock ownership by parties outside the corporation, usually ownership by individuals and also institutional. this institutional ownership is usually from corporations, insurance, government organizations, investment corporations and others (sugeng, 2009). 1. agency cost theory jensen& meckling (1976) expressed that in the process of financial decision making in corporations an interest conflict between management and owners (shareholders) often occur. relations between the manager and the owner are often mentioned as agency relations which is a contract between a person or more as a principal that give authority to a person (agent) for making some decisions in the name of the principal whose purpose is to maximize profit for the shareholders (principal). interest conflicts and consequences from the above contract in the end will create an agency cost. the agency cost is a cost that appears in order to control or monitor the actions of the manager so it is in accordance with the interests of the principal (owner). according to jensen & meckling (1976) that the ownership structure is able to be used to show that the most important factors in capital structure are not only determined by just the problems of debt and equity, but also the percentage of stock ownership by insider and outsider shareholders. agency cost is able to be decreased by increasing insider ownership (managerial ownership) because this makes it possible for the presence of conformity or the unification of shareholders’ interests with managers’ interests as an agent and as a principal outright. in relation with the policy of capital structure bathala, et al. (1994) states that the higher the proportion of insiders, the will to minimalize the risk of capital structure is also higher. or in other words, the increase of insiders will be able to replace the role of debt in minimalizing agency costs that are caused by debt. 2. asymmetric information theory myers and majluf (1984) shows that managers in corporations are assumed to have private information the characteristic of corporate opportunity or corporate quality as a whole. the capital structure is designed for decreasing inefficiency in making corporate investment decisions that are caused by asymmetric information. the approach of information costs in the capital structure context as a chosen financial instrument result for funding the mentioned investment opportunities is very dependent on the asymmetric information between insiders and outsiders. types of bank ownership in indonesia the structure of bank ownership in indonesia according to bank indonesia is divided into 6 groups which are state owned banks, general private national foreign the influence of ownership structure and specific characteristics to capital structure in public banks in indonesia 55 exchange banks, private national non foreign exchange banks, regional development banks, mixed banks, and foreign banks. taswan (2010) states that the structure of bank ownership in indonesia seen in a banking control perspective is divided into 4 (four) which are government ownership banks, domestic, foreign, and mixed banks which are explained below: 1. government ownership government banks are banks with the largest shareholders and controlled by the government, which includes state owned banks and regional development banks. state owned banks are owned and controlled by the central government and regional development banks by regional governments. in government owned banks an agent with agent relation occurs, not agent with principal. in the agency theory, agents will be controlled by the principal to reach the principal’s goals, so an agent without a principal is most likely will make a moral hazard. so control in government banks are relatively weak compared with private banks (mian, 2003). other than that government owned banks have a bad cash-flow intensive, the management gets a low intensive so it is less efficient in operating a bank business and a very tight limit on budget. 2. domestic private ownership domestic private bank ownership is bank ownership by indonesian citizens and institutions that are indonesian incorporated. generally domestic private banks are more aggressive in placing their funds in the form of credit with a higher interest rate than foreign banks. domestic private banks also tend to be aggressive in arranging their financial portfolio and often take high risks. in this situation banking control by private domestic stockholders are relatively worse than with private foreigners. domestic private banks also obtain a larger income from credit compared with foreign banks. yet have less liquidity compared with foreign banks. (mian, 2003) 3. foreign private ownership foreign banks are banks that operate in indonesia whose share ownership is dominated by a foreign party, incorporated following its headquarters overseas. generally foreign banks are almost the same with domestic private banks, only different in organization structure, other than that foreign banks have a higher level of liquidity, because of the presence of liquidity aid from the parent corporation. yet foreign banks in credit distribution tend to distribute consumption credit, provide credit to large corporations (multinational) and less responsive to the domestic economic condition. (mian, 2003). 4. mixed ownership mixed banks are banks whose shares are owned by indonesian and foreign citizens and institutions, locally incorporated which is perseroan terbatas (pt). the performance of mixed share ownership is also almost the same with domestic private banks and foreign private, yet tend to provide better control, because the ownership composition from both parties dominate equally (concentrated on the domestic party or concentrated on the foreign party), so it has equal responsibility for increasing bank performance to provide a high value for shareholders. basically policies and regulations by bank indonesia to foreign banks and mixed banks are equal. all requirements that are valid, including the requirement of circumspection, are applied equally for all banks that operate in indonesia, neither domestic banks, mixed banks nor foreign banks. regulation differences are in the capital. for banks that are indonesian incorporated, they comply with laws of perseroan terbatas, and business capital is noted as deposited capital, while for the influence of ownership structure and specific characteristics to capital structure in public banks in indonesia 56 foreign banks whose incorporation complies with their headquarters, the business capital is noted in the balance as inter bureau and known as business funds. the limit that is applied to foreign banks are in the form of a geographical limitin opening a bureau, which is only allowed in provincial capitals. (district statistics coordinator bank indonesia, september 2009). bank specific characteristics bank specific characteristics are factors that are from the corporate internal condition or banks that influence the policy of capital structure, that is able to be seen from the bank’s balance and income statement reports (athanasoglou et. al, 2005). gropp and heider (2009) determines the capital structure determinant by using bank characteristics which are (1) market to book ratio, (2) profitability, (3) size, (4) collateral and (5) dividend payers. while darwanto (2008) determines capital structure with specific bank variables which are: (1) credit risk, (2) sufficiency of cash flow (3) size (4) management load, (5) bank capital, and (6) operational income. while in this research 4 primary factors of bank specific characteristics will be used for determining capital structure policy which are: (1) profitability, (2) size, (3) credit risk, and (4) expenses management. these variables are used by the writer because they have a large influence to the capital structure of banks. 1. profitability profitability is the level of bank ability to produce profit in a certain period that is stated in percentage. the banking profitability level is usually counted by using an roa (return on asset) ratio which is a comparison between net incomes with total assets. roa reflects the ability of bank management for producing profit from bank assets (athanasoglou et. al, 2005). myers (1984) states that high profitability levels will make corporations use profit as a source of funds compared with outside sources of funds which is from debt and publications of new equities. 2. size size or scale shows the scale of business implemented by a corporation. the size or scale of a corporation is seen from the number of assets of the corporation, the increase of corporate assets shows an increase in investment scale that is implemented. the size of the corporation is very influential to the capital structure because large corporations usually obtain certain opportunities in their activities which makes then easier for entering markets, obtain a good credit rating for the loans that are implemented. (bringham, 2003) size or scale of banks also provide a picture about the bank’s ability for implementing expansions and is able to hold its ground in facing competition levels, the reason is because the higher the bank’s size the higher the chance that the bank is able to implement its business portfolio strategy. so the size of the bank has a positive influence to the leverage ratio or has a tendency to increase debt (darwanto, 2008). 3. credit risk credit risk or known as default risk is a risk as a cause of failure or inability of a customer to give back the total loans that are accepted from the bank with the interest in accordance with the determined time period (dahlan siamat, 1999). for the problem of credit risk, the size of this risk is able to be seen from the size of the level of bad credit, the size of bad credit in a bank is basically influenced by several factors, such as credit appraisal quality, macroeconomic factors, moral hazards neither the bank party nor other debtors. this level of credit risk has a significant enough influence to the bank’s ability to provide funds. the mentioned decision of the choice of fund the influence of ownership structure and specific characteristics to capital structure in public banks in indonesia 57 sources is able to be fulfilled well by the first party, bank loans and bank indonesia credit are also through third party funds. 4. expense management the load of management reflects the total load cost that is spent by management in operating their business which are operating costs and other expenses. an increase in management load that is proxied with a proportion that is relative between the total cost with the total corporate assets that have a historic relation with bank leverage, this indicates the presence of load increase and in general is followed by an increase in bank leverage (darwanto, 2008). capital structure the policy of capital structure is related with corporate financing decisions. capital structure is an important part in the process of financial decision making because it has a mutual relation to the decisions of other financial variables. the implementation of a weak capital structure decision is able to produce capital costs that are high, on the contrary an effective capital structure decision is able to decrease capital costs and in the end is able to increase the corporation’s value (gitman, 2009). the source of funds that are implemented by corporations are divided into two sources are internal sources of funds, which is from its own capital and retained earning and external funding which are from creditors or is known as debt. brigham (2005) states that capital structure policy involves the presence of balance (trade-off) between risks and levels of return. funds that are from debt have a capital cost in the form of interest cost, while funds that are from equity have a capital cost in the form of dividends. corporations will choose the source of funds that has the lowest cost between several sources of funds available. the composition of debt and equity that is not optimal is able to influence corporate value. the use of more debt will increase risks that are borne by shareholders, yet the use of debt that is larger will usually cause an occurrence in levels of return expectations as a cause of higher equity. so the optimal capital structure has to reach a balance between risks and return levels so it is able to maximize the costs of corporate shares. capital structure theory capital structure theory has a purpose to provide a thinking ground for knowing the optimal capital structure. a capital structure is said to be optimal if with a certain risk level is able to provide a return level that in the end is able to optimalize corporate value. a. modigliani-miller (mm) theory modigliani-miller (1958) in brigham (2005) form their analysis by using no tax assumptions and analyzes by using tax (with corporate taxes). if tax is not counted. mm contends that corporate value is not influenced by capital structure. mm states that an increase in debt in capital structure will increase the return on equity and at once the investor risk also increases. because the two influences are mutually exclusive, without tax and bankruptcy risks, the value of a corporation is not influenced by leverage levels. therefore the value of a corporation that uses debt is the same as a corporation without debt. assuming with tax counting, mm states that the value of a corporation will increase with the increase of debt equity ratio because of the effect of tax saving (corporate tax shield). this is caused because in a perfect market situation and tax is present, generally interests that are paid as a cause of debt usage is able to be used for decreasing salary that has tax or in other words is tax deductible. because saving tax paying is a benefit for corporations, the value of corporations that use debt will be the influence of ownership structure and specific characteristics to capital structure in public banks in indonesia 58 larger than the value of corporations that do not use dept. yet the opinion of mm that shows that corporations are able to increase their values if using debt as much as possible (in a tax situation) this invites critics and objections from practitioners. this is caused because the assumption that is used by modigliani-miller in their analysis, which the capital market is perfect. while in the imperfect capital market condition, there is a chance that there will be bankruptcy costs, agency costs or the presence of asymmetrical information so the use of debt that is extreme is able to decrease corporate value (brigham, 2005, peirson, 2006). b. trade-off thory this theory explains that corporations will choose the optimal capital structure based on the presence of balance (trade-off) between benefits and costs that is obtained from debt usage. this is in accordance with what is stated by peirson (2006:394) which is : trade-off theory is theory which proposes that companies have an optimal capital structure based on a trade-off between the benefits and costs of using debt. trade-off theory is almost the same with balancing theory. the capital structure model in thebalancing theories environment that is expressed by myers (1984) is known as balancing theory which is balancing one’s own debt and capital composition. this theory basically balances between benefit and sacrifice that rises as a cause of debt usage, as far as the benefit is still large, debt will be added. but if the sacrifice because of using debt is larger, debt is no longer added. the mentioned sacrifice because of using debt is able to be in the form of bankruptcy cost and agency cost. c. pecking order theory perison (2006 : 396) states that “pecking order theory is theory which proposes that companies follow a hierarchy of financing sources in which internal funds are prefered and, if external funds are needed, borrowing is preferred to issuing riskier securities”. pecking order theory explains that corporations will determine hierarchy form their sources of funds where internal financing is more prioritized than sources of external financing. if corporations use funds from outside loans are more prioritized than funds with additional capital than in the publication of new shares (external equity) in parallel with the opinion of myers & majluf (1984) that pecking order theory is a theory that determines a sequence of funding where the managers for the first time will choose retained earning then debt, and external equity as a last choice. this theory is based on the argument that the use of retained earning has a cheaper cost than external sources of funds. the use of external sources of funds through debt is only used if investment needs are higher than the internal source in pecking order theory, if external funding will still be implemented, what is chosen is the form debt than the publication of equity/new shares. this is caused by the consideration of bond emission costs that will be lower than the costs of new shares emissions. with the presence of the publication of new shares it is feared that the price of old shares will decrease, because the publication of new shares is deciphered as a bad signal by the investors. the presence of asymmetric information between the management party (insider) with the capital owner (outsider) is also able to cause a decrease in share prices. because the management party owns more information about the prospect of the corporation than the owning party (shareholders). hypothesis the hypothesis in this research is defined as the following: the influence of ownership structure and specific characteristics to capital structure in public banks in indonesia 59 hypothesis 1 hypothesis 2 : : bank specific structure influences significantly to the bank’s capital structure. bank specific characteristics influences significantly to the bank’s capital structure. 3. research method variable operationalization in this research the variables that are studied are : table 1 variable operationalization variable indicator formula scale type of data capital structure (y) total debt (deposit, sub ordinated debt) equity 𝐷𝐸𝑅 = 𝐷𝑒𝑏𝑡 𝐸𝑞𝑢𝑖𝑡𝑦 ratio secondary ownership structure government ownership (x1) number of shares % 𝑔𝑜𝑣𝑒𝑟𝑛𝑚𝑒𝑛𝑡 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒 % 𝑡𝑜𝑡𝑎𝑙 𝑠ℎ𝑎𝑟𝑒𝑠 ratio secondary domestic private ownership (x2) number of shares % 𝑑𝑜𝑚𝑒𝑠𝑡𝑖𝑐 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒 % 𝑡𝑜𝑡𝑎𝑙 𝑠ℎ𝑎𝑟𝑒𝑠 ratio secondary mixed ownership (x3) number of shares % 𝑚𝑖𝑥𝑒𝑑 𝑜𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒 % 𝑡𝑜𝑡𝑎𝑙 𝑠ℎ𝑎𝑟𝑒𝑠 ratio secondary foreign private ownership (x4) number of shares % 𝑓𝑜𝑟𝑒𝑖𝑔𝑛 𝑝𝑟𝑖𝑣𝑎𝑡𝑒 𝑜𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝 𝑠ℎ𝑎𝑟𝑒 % 𝑡𝑜𝑡𝑎𝑙 𝑠ℎ𝑎𝑟𝑒𝑠 ratio secondary bank specific characteristics profitability (x5) net income total assets 𝑃𝑟𝑜𝑓𝑖𝑡𝑎𝑏𝑖𝑙𝑖𝑡𝑦 = 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 ratio secondary size (x6) total assets 𝑆𝑖𝑧𝑒 = 𝐿𝑛 𝑎𝑠𝑠𝑒𝑡 ratio secondary credit risk (x7) credit risk total credit 𝑁𝑃𝐿 = 𝑐𝑟𝑒𝑑𝑖𝑡 𝑟𝑖𝑠𝑘 𝑇𝑜𝑡𝑎𝑙 𝑐𝑟𝑒𝑑𝑖𝑡 ratio secondary expenses management (x8) total cost asset 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 𝑚𝑎𝑛𝑎𝑔𝑒𝑚𝑒𝑛𝑡 = 𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡 ratio secondary sources and methods of determining data data that is used in this research is quantitative data that is the result of observation in a certain period that is stated in numbers and show the value to size or variable that it represents. the type of data that is used is secondary data which is data that is already available and published in the form of balance and income statements from banks that go public from the years 2009-2012 and data of ownership proportions of bank shares. in this research the method of data gathering that is used is purposive sampling with criteria as the following : 1. conventional public banks that operate in indonesia in the years 2009-2012 and provide financial reports within the period of observation. 2. within the period of observation, the mentioned banks periodically release yearly financial reports from the years 2009-2012 and have data comprehensiveness as long as the period of observation. the population that is chosen for this research is all of the public banks (conventional). so a total sample is obtained that is used in this research are as many the influence of ownership structure and specific characteristics to capital structure in public banks in indonesia 60 as 72 public banks that consists of government owned banks as many as 15 (state owned banks and regional development banks), private banks as many as 35 (general private national foreign exchange banks and non foreign exchange) and foreign as many as 22 (mixed banks and foreign banks). data accumulation technique in the effort of obtaining data that is needed in this research, a data accumulation technique is implemented that is obtained by library research, which is research by reading and studying literature such as books, journals, and several other kinds of written sources that is related with the researched problem. data analysis technique and hypothesis test a. data analysis technique the analysis technique that is used is the double regression linear analysis. the regression analysis is used for knowing the influence of independent variables which are ownership structure and specific characteristics to the capital structure. the equation model that is used is: 𝑌 = 𝑎 + 𝑏1𝑋1 + 𝑏2𝑋2 + 𝑏3𝑋3 + ⋯ + 𝑏8𝑋8 + 𝜀 (1) keterangan: y = struktur modal b1, b2, b3, …, b8 = koefisien regresi x1, x2, x3, …, x8 x1 = struktur kepemilikan pemerintah x2 = struktur kepemilikan domestik x3 = struktur kepemilikan asing x4 = struktur kepemilikan campuran x5 = profitability x6 = size x7 = credit risk x8 = expense management a = konstanta e = residual persamaan regresi 4. results and discussion descriptive analysis such as mentioned in chapter iii that the sample pickup technique is implemented with purposive sampling, so the samples that are used in this research is as many as 72 public banks that are in indonesia. as for the data that are picked up are the majority ownership structure held by one shareholder which is >51.00% ownership from the total shares in a row as long as the observation period from the year 2009 until the year 2012. the following is a development of public bank assets in indonesia in the 20092012 period. table 2 development of public bank assets perkembangan aset bank umum (dalam miliar rupiah) no kelompok bank 2009 2010 2011 2012 1 bank persero 979.078 1.115.519 1.328.168 1.264.866 2 busn devisa 958.549 1.203.370 1.464.007 1.459.221 3 busn non devisa 55.762 78.485 107.085 106.740 the influence of ownership structure and specific characteristics to capital structure in public banks in indonesia 61 perkembangan aset bank umum 4 bpd 200.542 239.141 304.003 307.452 5 bank campuran 135.675 149.990 181.088 185.475 6 bank asing 204.502 222.347 268.482 274.961 total aset 2.534.108 3.008.852 3.652.833 3.598.715 from table 2 it is able to be seen that asset developments from the year 2009 until 2011 always experiences an increase, this is caused by funds that are distributed by banks to society that increases more and more, in other words the compilation of funds from society also increases. yet in 2012 a decrease occurred, this is caused by the decrease of funds that are distributed by banks to society, in other words the compilation of funds from the society also decreases (nurshadrina, 2013). double regression linear analysis before implementing a regression model, an assumption test is implemented before so the model that is formed provide an estimate that is blue (best, linear, unbiased, estimator). (gujarati, 2011). a. best. in the meaning that the regression line is a good estimate or forecast from a data distribution. a regression line is a way to understand relation patterns between two or more data series. the regression line is best if the line produces the smallest error. error itself is the difference between the observation value and the value that is forecasted by the regression line. if best is accompanied by an unbiased characteristic, the regression estimator is known as efficient. b. linear. estimator β is known as linear if that estimator is a linear function from a sample. average   n xxx n x n x   ............. 11 21 (2) is a linear estimator because it is a linear function from x values. ols (ordinary least square) values are also linear estimators. c. unbiased. an estimator is said to be unbiased if the expectation value from estimator β is the same as the correct value from β (average β = β) this assumption test consists of four tests, which are the normality test, multicolinearity test, heteroscedacity test, and autocorrelation test. the influence of government ownership (x1),profitability (x5), size (x6), credit risk (npl) (x7) and expenses management (x8) to der (y) normality data test figure 1 p-p plot normality data test the influence of ownership structure and specific characteristics to capital structure in public banks in indonesia 62 figure 2 scatterplot heteroscedacity test table 3 vif value multicolinearity test table 4 autocorrelation test figure 3 autocorrelation test double regression linear equation analysis after all the assumptions are fulfilled, then a double regression linear analysis will be implemented (multiple linear regression). this analysis is meant for knowing the presence of influence between government ownership (x1), profitability (x5), size (x6), credit risk (npl) (x7) and expenses management (x8) to der (y). its purpose is for forecasting or estimating the value of dependent variables in a cause-effect relation to the value of other variables. the double regression model that will be formed is as the following: tidak terdapat autokorelasi ragu-ragu autokorelasi positif dl = 1,38 4-dl = 2,62 d = 1,926 du = 1,77 4-du = 2,23 autokorelasi negatif ragu-ragu the influence of ownership structure and specific characteristics to capital structure in public banks in indonesia 63 y =  + b1x1 + b5x5 + + b6x6+ b7x7+ b8x8 + e (3) table 5 output of regression coefficient based on the output above a constant value and regression coefficient is obtained so a regression linear equation is able to be formed as the following: y = 0,341 + 0,801 x1+ 0,506 x5 + 0,870 x6 + 1,151 x7 + 0,924 x8 table 6 output correlation coefficient and determination analysis from the analysis above it is able to be known that the coefficient value (r) is as large as 0.435. the mentioned value is then interpreted based on objective criteria as the following: table 7 the estimated correlation coefficient interval koefisien tingkat hubungan 0,00 0,199 0,20 0,399 0,40 – 0,599 0,60 – 0,799 0,80 – 1,000 sangat rendah rendah sedang kuat sangat kuat based on the interpretation table of the correlation coefficient provided above, the correlation coefficient as large as 0.435 shows the presence of a moderate relation between independent variables simultaneously with dependent variables. after the r value as large as 0.435 is known, then a determination coefficient is able to be counted by using the equation as the following: kd = r2 × 100% = (0.435)2 × 100% = 18.9% the determination coefficient as large as 18.9% shows that simultaneously, government ownership (x1), profitability (x5), size (x6), credit risk (npl) (x7) and expenses management (x8) provide influence as many as 1.3% to der (y). while coefficientsa ,341 1,045 ,326 ,746 ,801 ,735 ,167 1,089 ,282 ,506 ,526 ,206 ,962 ,341 ,870 ,655 ,222 1,329 ,190 1,151 ,920 ,200 1,251 ,217 ,924 ,365 ,517 2,531 ,015 (cons tant) kepemilikan pemerintah (x1) profitability (x5) size (x6) credit risk (npl) (x7) expenses management (x8) model 1 b std. error unstandardiz ed coefficients beta standardized coefficients t sig. dependent variable: der (y)a. m odel summaryb ,376a ,141 ,110 3,22050 model 1 r r square adjusted r square std. error of the estimate predictors: (cons tant), expenses management (x8), credit risk (npl) (x7), kepemilikan asing (x4), size (x6), profitability (x5) a. dependent variable: der (y)b. the influence of ownership structure and specific characteristics to capital structure in public banks in indonesia 64 the rest as large as 81.1% are influenced by other variables that are not studied in this research. the percentage size of influence is partially able to be known by multiplying the beta coefficient value with the zero order coefficient value as the following: table 8 the beta coefficient and the zero order coefficient value table 9 simulant hypothesis test (f test) based on the output above, an f count value as large as 2.144 is obtained. this value will then be compared with the f value in the f distribution table. for α=5%, db1 (free degree) = k = 5 and db2 = n – kl – 1 = 52 -5 – 1 = 46 an f table value as large as 2.417 is obtained. the influence of domestic ownership (x2),profitability (x5), size (x6), credit risk (npl) (x7) and expenses management (x8) to der (y) double regression linear equation analysis after all the assumptions are fulfilled, then a double regression linear analysis will be implemented (multiple linear regression). this analysis is meant for knowing the presence of influence between domestic ownership (x2), profitability (x5), size (x6), credit risk (npl) (x7) and expenses management (x8) to der (y) its purpose is for forecasting or estimating the value of dependent variables in a cause-effect relation to the value of other variables. the double regression model that will be formed is as the following: y =  + b2x2 + b5x5 + + b6x6+ b7x7+ b8x8 + e (4) coefficientsa ,167 ,210 ,206 -,215 ,222 ,119 ,200 -,055 ,517 ,353 kepemilikan pemerintah (x1) profitability (x5) size (x6) credit risk (npl) (x7) expenses management (x8) model 1 beta standardized coefficients zero-order correlatio ns dependent variable: der (y)a. anovab 9,150 5 1,830 2,144 ,077a 39,260 46 ,853 48,411 51 regression residual total model 1 sum of squares df mean square f sig. predictors : (constant), expenses management (x8), size (x6), kepemilikan pemerintah (x1), credit risk (npl) (x7), profitability (x5) a. dependent variable: der (y)b. the influence of ownership structure and specific characteristics to capital structure in public banks in indonesia 65 table 10 output of regression coefficient based on the output above a constant value and regression coefficient is obtained so a regression linear equation is able to be formed as the following: y = -0,827 + 1,086 x2+ 0,620 x5 + 1,086 x6 + 1,592 x7 + 0,495 x8 table 11 correlation coefficient and determination analysis after the r value as large as 0.472 is known, then a determination coefficient is able to be counted by using the equation as the following: kd = r2 × 100% = (0.472)2 × 100% = 22.3% the determination coefficient as large as 22.3% shows that simultaneously, domestic ownership (x2), profitability (x5), size (x6), credit risk (npl) (x7) and expenses management (x8) provide influence as large as 1.3% to der (y) while the rest as large as 73.7% are influenced by other variables that are not studied in this research. the percentage size of influence is partially able to be known by multiplying the beta coefficient value with the zero order coefficient value as the following: table 12 the beta coefficient and the zero order coefficient value coefficientsa -,827 ,689 -1,199 ,232 1,086 ,344 ,207 3,160 ,002 ,620 ,917 ,047 ,676 ,500 1,086 ,350 ,200 3,107 ,002 1,592 ,347 ,317 4,585 ,000 ,495 ,229 ,162 2,162 ,032 (cons tant) kepemilikan domestik (x2) profitability (x5) size (x6) credit risk (npl) (x7) expenses management (x8) model 1 b std. error unstandardiz ed coefficients beta standardized coefficients t sig. dependent variable: der (y)a. m odel summaryb ,472a ,223 ,204 1,72702 model 1 r r square adjusted r square std. error of the estimate predictors: (cons tant), expenses management (x8), size (x6), kepemilikan domestik (x2), credit risk (npl) (x7), profitability (x5) a. dependent variable: der (y)b. coefficientsa ,207 ,187 ,047 ,051 ,200 ,107 ,317 ,355 ,162 ,297 kepemilikan domestik (x2) profitability (x5) size (x6) credit risk (npl) (x7) expenses management (x8) model 1 beta standardized coefficients zero-order correlatio ns dependent variable: der (y)a. the influence of ownership structure and specific characteristics to capital structure in public banks in indonesia 66 the influence of mixed ownership (x3),profitability (x5), size (x6), credit risk (npl) (x7) and expenses management (x8) to der (y) double regression linear equation analysis after all the assumptions are fulfilled, then a double regression linear analysis will be implemented (multiple linear regression). this analysis is meant for knowing the presence of influence between mixed ownership (x3),profitability (x5), size (x6), credit risk (npl) (x7) and expenses management (x8) to der (y) its purpose is for forecasting or estimating the value of dependent variables in a cause-effect relation to the value of other variables. the double regression model that will be formed is as the following: y =  + b3x3 + b5x5 + + b6x6+ b7x7+ b8x8 + e (5) table 13 output regression coefficient based on the output above a constant value and regression coefficient is obtained so a regression linear equation is able to be formed as the following: y = 1,357 + 0,974 x3+ 1,098 x5 + 0,953 x6 + 1,096 x7 + 0,947 x8 table 14 correlation coefficient after the r value as large as 0.438 is known, then a determination coefficient is able to be counted by using the equation as the following: kd = r2 × 100% = (0.438)2 × 100% = 19.1% the determination coefficient as large as 19.1% shows that simultaneously, mixed ownership (x3), profitability (x5), size (x6), credit risk (npl) (x7) and expenses management (x8) provide influence as large as 19.1% to der (y) while the rest as large as 80,9% are influenced by other variables that are not studied in this research. the percentage size of influence is partially able to be known by multiplying the beta coefficient value with the zero order coefficient value as the following: coefficientsa 1,357 1,022 1,327 ,187 ,974 1,023 ,079 ,953 ,343 1,098 ,981 ,097 1,119 ,265 ,953 1,361 ,056 ,700 ,485 1,096 ,304 ,336 3,601 ,000 ,947 ,554 ,160 1,709 ,090 (cons tant) kepemilikan campuran (x3) profitability (x5) size (x6) credit risk (npl) (x7) expenses management (x8) model 1 b std. error unstandardiz ed coefficients beta standardized coefficients t sig. dependent variable: der (y)a. m odel summaryb ,438a ,191 ,159 2,01131 model 1 r r square adjusted r square std. error of the estimate predictors: (cons tant), expenses management (x8), size (x6), kepemilikan campuran (x3), profitability (x5), credit risk (npl) (x7) a. dependent variable: der (y)b. the influence of ownership structure and specific characteristics to capital structure in public banks in indonesia 67 table 15 the beta coefficient value with the zero order coefficient value the influence of foreign ownership (x4),profitability (x5), size (x6), credit risk (npl) (x7) and expenses management (x8) to der (y) double regression linear equation analysis after all the assumptions are fulfilled, then a double regression linear analysis will be implemented (multiple linear regression). this analysis is meant for knowing the presence of influence between foreign ownership (x4),profitability (x5), size (x6), credit risk (npl) (x7) and expenses management (x8) to der (y) its purpose is for forecasting or estimating the value of dependent variables in a cause-effect relation to the value of other variables. the double regression model that will be formed is as the following: y =  + b4x4 + b5x5 + + b6x6+ b7x7+ b8x8 +e (6) table 16 output regression coefficient based on the output above a constant value and regression coefficient is obtained so a regression linear equation is able to be formed as the following: y = 0,964 + 1,108 x4+ 1,099 x5 + 0,904 x6 + 0,945 x7 + 0,956 x8 table 17 correlation coefficient after the r value as large as 0.376 is known, then a determination coefficient is able to be counted by using the equation as the following: kd = r2 × 100% = (0.376)2 × 100% = 14.1% coefficientsa ,079 ,065 ,097 ,055 ,056 ,052 ,336 ,385 ,160 ,303 kepemilikan campuran (x3) profitability (x5) size (x6) credit risk (npl) (x7) expenses management (x8) model 1 beta standardized coefficients zero-order correlatio ns dependent variable: der (y)a. coefficientsa ,964 2,655 ,363 ,717 1,108 ,667 ,136 1,662 ,099 1,099 ,678 ,141 1,621 ,107 ,904 ,518 ,147 1,746 ,083 ,945 ,345 ,227 2,736 ,007 ,956 ,406 ,208 2,355 ,020 (constant) kepemilikan asing (x4) profitability (x5) size (x6) credit risk (npl) (x7) expenses management (x8) model 1 b std. error unstandardized coefficients beta standardized coefficients t sig. dependent variable: der (y)a. m odel summaryb ,376a ,141 ,110 3,22050 model 1 r r square adjusted r square std. error of the estimate predictors: (cons tant), expenses management (x8), credit risk (npl) (x7), kepemilikan asing (x4), size (x6), profitability (x5) a. dependent variable: der (y)b. the influence of ownership structure and specific characteristics to capital structure in public banks in indonesia 68 the determination coefficient as large as 14.1% shows that simultaneously, mixed ownership (x3), profitability (x5), size (x6), credit risk (npl) (x7) and expenses management (x8) provide influence as large as 14.1% to der (y) while the rest as large as 85.9% are influenced by other variables that are not studied in this research. the percentage size of influence is partially able to be known by multiplying the beta coefficient value with the zero order coefficient value as the following: table 18 the beta coefficient value with the zero order coefficient value 5. conclusion and suggestion from the analysis above it is able to be summarized that partially ownership structure does not significantly have an influence to capital structure. this shows that the level of composition of corporate ownership does not influence the amount of debt taken by corporations. it is seen from previous data that although from year to year debt levels are more and more high yet the ownership structure of corporations tend to be stable in accordance with research results (haruman, 2008). profitability does not influence significantly to capital structure. this is in accordance with the results of research by krishnan (1996), badhuri (2002), moh’d (1998) and majumdar (1999) (in yuke and hadri, 2005) that shows that the higher the profit obtained by corporations means that the lower the need for external funds (debt) so the capital structure from the mentioned corporations are also lower. the size of corporations does not influence significantly to capital structure this is in accordance with the research results of rista and bambang (2011) and heruman (2008) shows that the size of the allocation for each asset component, neither current assets nor fixed assets still is unable to influence capital structure. credit risk does not have an influence to capital structure in accordance with the research results of haruman (2008), this shows that the size of risks that corporations have is very diverse. yet the tendency to use debt is still high. while management load has a significant influence to capital structure in accordance with the research results of siringoringo (2012), this shows that the management load variable increases with the increase of total cost that are owned by corporations, so simultaneously there is a tendency that the bank leverage ratio increases more and more. based on the summary of the research results above, so the suggestions that are able to be proposed are as the following : a. in the following research bank ownership that have already go public have to be emphasized with the ones that have not yet gone public so the obtained analysis results are able to represent it. b. in determining credit, every bank ownership policy needs to be inspected again. the influence of ownership structure and specific characteristics to capital structure in public banks in indonesia 69 references athanasoglou, p.p., brissmis, s.n., & delis, m.d. 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(2011). menentukan struktur modal perusahaan manufaktur di bei. dinamika keuangan dan perbankan, nopember 2011, 172182. the influence of ownership structure and specific characteristics to capital structure in public banks in indonesia 70 saunders, a., & garnett m. millon. (2008). financial institutions management : a riskmanagement approach (6th edition). new york: mc graw-hill international edition. siamat, d. (1999). bank dan lembaga keuangan lainnya. depok:fakultas ekonomi universitas indonesia. sugeng, b. (2009). pengaruh struktur kepemilikan dan struktur modal terhadap kebijakan inisiasi dividen di indonesia. jurnal ekonomi bisnis, 14(1). taswan. (2010). manajemen perbankan : konsep, teknik, dan aplikasi (edisi kedua). yogyakarta:upp stim ykpn. www.bi.go.id/direktoriperbankanindonesia www.bi.go.id/statistikperbankanindonesia http://www.bi.go.id/direktoriperbankanindonesia http://www.bi.go.id/statistikperbankanindonesia the impact of non-food commodity inflation on changes of household welfare in aceh province 56 the impact of non-food commodity inflation on changes of household welfare in aceh province yasrizal 51* 1 universitas teuku umar, meulaboh, indonesia abstract the relations of inflation and poverty can be seen from the contribution commodities of poverty contributor. increasing prices on the commodity of poverty contributor leads to declining real incomes and income loss in households causing poverty. the commodity of poverty contributor is dominated by fuel and lpg commodities. the aids model is a development of the engel curve and marshall equations derived from the theory of satisfaction maximization. this model uses the budget share of household on a selected commodity to represent demand variables. this study is an empirical study. the data used are primary and secondary data obtained from field research and literature. the study is located in banda aceh and meulaboh. by using an almost ideal model of demand or an aids model, it will be seen that household behavior responds to changes in the price of the commodity of poverty contributor. from observation, inflation rate of non food commodity has a big effect on the welfare of aceh province community, both for banda aceh and meulaboh households. the non-food commodity inflation has a huge influence to reduce household welfare in meulaboh. jel classification: d10, d11, d12 keywords: aids model, elasticity, inflation, non-food commodity of poverty contributor. 1. introduction poverty is a problem that is often faced in developing countries. the main cause of poverty is the degree of difference in a region's economic resources. the areas with limited economic resources are identical with relatively slow economic growth and high poverty rates. on the other hand, the regions with abundant natural wealth, with supportive human capital can achieve high levels of economic growth and impact on low levels of poverty. a country's poverty rate is measured through its per capita income. household expenditure can be an appropriate approach to see the amount of income per capita society. based on the concept, the poor are residents with average per capita spending per month below the poverty line. the level of poverty will increase especially when inflation occurs, namely the increase in prices of goods/services that cause the decline in real incomes of society (bps 2014). the seen from the comparison between regions, aceh province is one of the provinces that have low welfare, this can be seen from the poverty rate is high enough. the poverty in aceh mostly occurs in rural areas, as evidenced by the large percentage of rural poverty compared to urban areas. table 1 showed that the poverty rate in aceh is well above the national average. * corresponding author. email address: yasrizal@utu.ac.id mailto:yasrizal@utu.ac.id afebi economic and finance review (aefr) vol.03 no.01, june 2018 57 table 1 the rural and urban poverty rates in aceh province year rural urban rural+urban total percent total percent total percent mar-15 157,57 11,13 694,01 19,44 851,59 17,08 sep-15 155,81 10,92 703,6 19,56 859,41 17,11 mar-16 159,5 10,82 688,94 19,11 848,44 16,73 sep-16 163,02 10,79 678,29 18,8 841,31 16,43 mar-17 172,35 11,11 700,26 19,37 872,61 16,89 source: bps aceh 2017 the condition of poverty has an impact on the economy of aceh, considering aceh is still has dependence on other areas in the fulfillment of food. in september 2016 and march 2017 there was an increase in poverty, this is in line with the policy of revoking fuel subsidies and policy of rising prices of household fuels by the government. this so-called administered price policy leads increased inflation in various commodities and leads to an increase in household poverty rates, especially in urban areas. there is a close relationship between inflation and poverty. according to wood et al. (2012), food inflation will lower the economic welfare of low-income households in both urban and rural areas, where the percentage of household expenditure on food will increase. rising prices will lead to income loss in households. in line with that, skoufias et al. (2011) argue that rising prices will have the direct impact on rising poverty. the relations of inflation and poverty can be seen from the contribution commodities of poverty contributor. the commodity of poverty contributor is a household basic commodity which is consumptive. increasing prices on the commodity of poverty contributor leads to declining real incomes and income loss in households causing the poverty. the commodity of poverty contributor is dominated by the food commodities. based on the data from central bureau of statistics of aceh province in 2017 is contained on table 2. table 2 the list of commodities on contributing greatly to poverty line and its contribution (%) in aceh province, march 2017 type of commodity urban type of commodity rural -1 -2 -3 -4 not food 27,92 22,19 housing 6,76 housing 5,13 fuel 3,69 fuel 3,27 electricity 2,54 electricity 1,51 education 2,25 education 1,4 adult men's clothing 1,58 adult men's clothing 1,24 adult women's clothing 1,53 adult women's clothing 1,2 source: bps aceh 2017 the non-food ingredients provide the highest poverty contribution in urban households when compared to rural households in aceh province, the government policy to provide home subsidies with five percent interest installment has not been the impact of non-food commodity inflation on changes of household welfare in aceh province 58 able to reduce the poverty rate in urban and rural communities in aceh province, further reductions in premium fuels and the transfer to other types of fuel also contributed to poverty due to substitution to non-premium types of higher prices and ever-increasing price changes. from the problems that occur above, then the problem in this study is any nonfood commodities that affect the welfare of households in aceh province and how changes in household welfare due to price changes. research purposes this study aims to examine the changes in household welfare in aceh province which is seen from the coefficients of each variable, namely the non-food commodity of poverty contributor, price and income elasticity, and elasticity of social demographic variables. the change in the coefficient and the value of elasticity can see how changes in the level of household welfare due to rising prices the commodity of poverty contributor and changes in other variables included in the model of demand for the commodity of poverty contributor. 2. literature review demand theory and almost ideal demand system (aids) model the demand theory explains the nature of buyer demand on a commodity (goods and services) and also explains the relationship between the quantity demanded and the price and the formation of the demand curve. the proportion of spending as a proxy of demand was developed by deaton and muelbauer (1980), known as the almost ideal demand system (aids) model . this model develops a demand function by including revenue and prices together. commodity demand is the share of commodity expenditure under study in the model of total expenditure of all commodities in the system. according to pusposari (2012), the advantages of this model is that it can include other variables representing real household conditions, such as demographic social variables, among others; level of education, number of family members, income class, and others. price elasticity of demand and measure of welfare the relations between inflation, income and welfare can be seen from skoufias et. al. (2011), namely; inflation will have a direct impact on rising poverty. in the short run, rising prices will be a serious problem where the poor will spend more money to buy food. the rising prices will lower their real income so they get poorer. on the other hand, producers do not have time to increase their production as response from the price changes. in the long run, the rising prices will lower the welfare of middle-class households. price elasticity of demand is an indicator that measures consumer welfare, namely how much the number of demands is changing as the price changes. the measurement of price elasticity of demand is by looking at the percentage change in the number of requests divided by price percentage changes. the income elasticity is a measure of the magnitude of the response to the amount of demand for an item to the change in consumer income, which is calculated as the percentage change in the number of demand divided by the percentage of income change (kelana et al., 2005) afebi economic and finance review (aefr) vol.03 no.01, june 2018 59 the inflation and commodity of poverty contributor the inflation is an increase in the prices of goods in general and constantly in a certain period. inflation in general can be clarified into two types, namely demandpull inflation and cost-push inflation. to calculate the inflation rate is usually the basis of calculation is the consumer price index (cpi). there are two patterns of the inflation calculation in indonesia, first, the calculation of inflation groups on seven types of expenditures, namely; foodstuffs, finished food, beverage and tobacco, housing, clothing, health, education and sports, and transport and communications groups. the commodities of poverty contributor is entered to the seven expenditure groups. there is even a close relationship, where the commodity of poverty contributor is also included in the commodity of inflation contributor. 3. research method analysis of the data almost ideal demand system (aids) of model the commodities of poverty contributor in this research is the commodity that causes the highest poverty. the commodities consist of four commodities, namely: fuel, electricity, education, and health service. using the stone price index, the equation becomes linear and easy to estimate. the general model is then modified with demographic social variables such as the number of family members, and the level of education. the following aids of model used in this study. . ....(1) there are : wi : share of commodity expenditure i to total of commodity expenditure j i = j : 1,2...6 (6 the commodities of overty contributor) logpj : commodity prices of j (where j=1,2...7) log (x/p*) : log total of income that is deflated by a stone index log family : the number of family members in the household i log edu : the education level of the head of household i : error term furthermore, this model is elaborated into a new equation equation 1: w_smoke = c(1) + c(2)*logp_smoke + c(3)*logp_electricity + c(4)*log7/p_l/pg equation 2: w_electricity = c(1) + c(2)*logp_electricity + c(3)*logp_lpg + c(4)*logyperp_electricity equation 3: w_lpg = c(1) + c(2)*logp_lpg + c(3)*logp_smoke + c(4)*logp_electricity + c(5)*logyperp_lpg the impact of non-food commodity inflation on changes of household welfare in aceh province 60 two step of heckman model the problem of selectivity bias occurs because there are sample households that do not consume any of the particular commodities studied, for example, there are households that do not consume cigarettes. the model to overcome the problem is a two step estimation model from heckman, which adds imr free variable (inverse mills ratio) to the main model. the value of imr is obtained by performing logistic regression to estimate household chances in consuming each commodity (pusposari, 2012). the first stage, the model is regressioned with logistics, and then from the estimation results will get imr value. .....(2) there are: : the opportunity of consumption, 0 = not consuming, dan 1=consume the calculation of elasticity to see welfare from the estimation results of the aids demand model, it will then be used to calculate the elasticity. this elasticity calculation uses the budget share of average of the commodity group i. here is the elasticity calculation formula based on the estimation results of aids model (seftarita et al., 2013): 1. own price of elasticity : eii = 1 2. cross price of elasticity : eij = 3. income of elasticity : eiy = + 1 4. demography social of elasticity : eik = 4. results and discussion the relations number of income and number of responsibilities to energy consumption the consumption is a function of income, as high as income is high consumption and savings, further demand is a function of the price of goods when the price of goods is rises then the demand for goods will change negatively delivered according to the demand curve. human needs consist of primary and secondary needs. primary needs consist of food needs and non-food needs for human survival. the following table 3. below is the consumption of non-food in aceh taken from 100 respondents. afebi economic and finance review (aefr) vol.03 no.01, june 2018 61 table 3 total of income, dependency on non-food consumption in aceh income/month nr fm electricity municipal waterworks fuel cost cost liter cost < 1000000 40 3 68.850 35.000 13 103.650 1000000 2000000 40 4 136.050 35.000 18 138.463 2000000 3000000 12 3 223.583 37.500 16 125.750 3000000 4000000 2 6 285.000 40.000 15 127.500 4000000 5000000 3 3 206.667 50.000 32 258.333 > 5000000 3 3 316.667 66.667 19 153.333 source: primary data processed in 2017 explanation: nr : number of respondents fm : family members from table 3 showed that expenditure of household for non-food affects the income level of the population as high as income levels, so as much as non-food commodity consumption, the number of dependents affects the consumption of nonfood commodities. as at the time of income below 1 million idr, the average amount of electricity consumption 68.850 idr, water consumption 35.000 idr, fuel consumption 103,650 idr and cigarette consumption amounted to 242,250 idr. furthermore, on the level of community income amounted to more 5 million idr then the average consumption amount of electricity 316,667 idr, total of water consumption 66.667 idr, the amount of fuel consumption 153,333 idr, and total of cigarette consumption 666.667 idr. the commodity of inflation contributors table 4 showed that the expenditures of household for non-food basic commodities. the highest expenditure of basic commodities occurred to households in banda aceh. the amount of expenditure on electric commodities will reduce the expenditure of other basic commodities. this condition is very different when compared to households in meulaboh, generally below the average spending of banda aceh, the households in meulaboh are assumed to be rural household areas and banda aceh is an urban household. the expenditures of education and health are low, not only in meulaboh but also on households in banda aceh. this condition showed that the level of welfare is still low in this province. furthermore, can be seen in the table below: table 4 the commodity of inflation contributors in aceh (banda aceh, meulaboh) the commodity group of expenditure section meulaboh banda aceh electricity lpg educational services health services 0,190 0,064 0,115 0,016 0,201 0,109 0,201 0,021 the impact of non-food commodity inflation on changes of household welfare in aceh province 62 the changes of public welfare generally seen from the demand of non-food commodities, the elasticity value for households in meulaboh is higher than the households in banda aceh. this indicates that non-food inflation has a major impact on the decrease in welfare for households in meulaboh. this condition is mainly due to several factors, firstly: the rural households have lower incomes compared to the urban households so that the price changes such as electricity, lpg will affect the level of consumption by the rural households in aceh province. further described in the table below: table 5 the elasticity changes of non-food commodity demand in aceh province 2017 commodity region march april may june july electricity meulaboh -0.979 -0.843 -1.677 -1.250 -1.210 banda aceh 0.353 -0.805 -1017 -0.855 -0.812 lpg meulaboh -0.703 -1.414 -3.088 -1.173 -1.174 banda aceh 2.914 -0.692 -0.925 -1.138 -1.102 educational services meulaboh -2.068 -1.369 -0.980 -1.800 -0.738 banda aceh 0.763 -1.339 -1.320 -1.105 -1.102 health services meulaboh -4.133 -5.903 -5.449 -3.635 -1.467 banda aceh -0.771 -3.738 -1.026 -0.034 -2.430 source: results of the model of aids regression figure 1 the changes elasticity of electricity price demand during march-july 2017 -2 -1.806 -1.5 -0.853 -0.8 -1.006 -1.261 -1.205 -0.983 -1 -0.801 -0.5 elasticity of electricity price village 2009 2010 2011 2012 2013 0.342 0.5 afebi economic and finance review (aefr) vol.03 no.01, june 2018 63 figure 2 the changes elasticity of lpg price demand during march-july 2017 pictures 1 and 2 showed the elasticity value of the goods itself for electricity and lpg. the price elasticity of the electricity and lpg demand on household in meulaboh is higher than the households in banda aceh. the reason is that households in banda aceh routinely to consume electricity and lpg for their daily household needs; so that the budget share on these commodities is high in banda aceh area. the household income in banda aceh is higher, spent on electricity and lpg. consequently, the rise in electricity tariffs and lpg prices has an effect on the welfare of households in banda aceh. this is seen from the average characteristic of changes in the level of elasticity. this condition differs from the households in meulaboh, where increases in electricity tariffs and lpg prices have caused the households in meulaboh to limit their electricity and lpg consumption, suggesting that increases in electricity tariffs and lpg prices have a major effect on reducing the household welfare in meulaboh. figure 3 the changes elasticity of health services prices demand during marchjuly 2017 -4 -3.088 -2 -3 -1.138 -1.102 -1.414 2013 2010-0.6922011-0.9252012 2009 -1 meulab oh banda aceh 2.914 -2.5 -2.068 -1.8 -2 banda -1.102 -1.105 -0.98 -1.32 -1.369 -1 2013 -0.738 2012 2011 2010 2009 -0.5 meul 0.763 the impact of non-food commodity inflation on changes of household welfare in aceh province 64 figure 4 the changes elasticity of health services prices demand during marchjuly 2017 pictures 3 and 4 showed that the shift in price elasticity of the goods themselves for education and health services. the price elasticity value of the goods itself for both regions is very elastic. this suggests that inflation has a major effect on the declining levels of health and education public, especially the households in meulaboh. the price elasticity value of the goods itself for commodities of the health care and education in the households in meulaboh is higher than the households in banda aceh. in the period from march to july, the price elasticity value of the goods itself has decreased, cause the household welfare on both of the cities is better. in july, the price elasticity value of the goods itself for health services is more elasticity, in meulaboh was lower than banda aceh. 5. conclusion from observation, the inflation level of non-food commodity has great effect on the public welfare in aceh province, both for the households in banda aceh and meulaboh. the non-food commodity inflation has great effect to reduce the household welfare in meulaboh. the differences in income levels caused the households in meulaboh to be very sensitive to rising inflation. the cost of education services in aceh province is still very low, in this case indicates that the welfare occurring in public in aceh province is still very low compared to other provinces. therefore, the government should regulate the smooth distribution of each commodity for the vital needs of the community, including lpg. because the different prices between regions are caused by the poor distribution references [bps] badan pusat statistik. 2017. http://www.bps.go.id/. 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(2014). kebijakan ekonomi makro dan siklus bisnis: kajian teori dan studi empiris. banda aceh: syiah kuala university press. susenas. 2008-2012. pengeluaran untuk konsumsi penduduk indonesia per provinsi. skoufias, e., tiwari, s . , & zaman, h. (2011). crises, food prices and the income elasticity of micronutrients: estimates from indonesia. world bank economic review. the impact of non-food commodity inflation on changes of household welfare in aceh province 66 tash, m. n. s., shahraki, j . , & jangi, s. n. ( 2012). estimating the almost ideal demand system model for rural households in iran, international journal of academic research in business and sosial sciences, 2(8), 344-355. www.bps.go.id. 2017. http://www.bps.go.id/ impact of road infrastructure, education, health and foreign direct investment towards indonesia’s economic growth: level of 33 provinces 35 impact of road infrastructure, education, health and foreign direct investment towards indonesia’s economic growth: level of 33 provinces muryani31* and agna amalia2 1, 2 universitas airlangga, indonesia abstract economic growth is the most important factor to gain successful long-term development. the economy growth factors are road infrastructure, education, health, and foreign direct investment. this study analyzes the influence of road infrastructure, education, health and foreign direct investment on economic growth of 33 provinces in indonesia in 2010-2016. this study uses panel data regression method and uses stata 14 software. the regression estimation results showed that simultaneously road infrastructure, education, health, and foreign direct investment had an effect on economic growth of 33 provinces in indonesia, while partially (individually) foreign direct investment doesn’t have significant effect. jel classdification: h51, h52, h54 keywords: economic growth, education, foreign direct investment, health, road infrastructure 1. introduction economic growth is an indicator to find out how far the development has been realized by government. indonesia's economic growth showed a decline from 2011 to 2015. starting in 2011 indonesia's economic growth of 6.17 percent continued decline to 4.79 percent in 2015. the economic decline is basis for identifying the factors influence of economic growth. referring to solow's economic growth model which is the development of harrod-domar's model states the factors that influence economic growth include capital stock, labor growth, and technological development. while the harrod-domar model shows investment relations and economic growth. based on the two models of economic growth, the road infrastructure and foreign direct investment variables used as investments in economic growth factors. furthermore, referring to new (endogenous) growth theory that emphasizes the quality of human capital, the variables of education and labor are used as human capital in economic growth factors. infrastructure is a country need in to carrying out activities. good infrastructure development will push ahead the economic growth.infrastructure development in economic growth will have a direct or indirect impact. infrastructure is considered as one of the important conditions for the development of other sectors and as a means of connecting. empowering resources in infrastructure development will increase economic and social multiplication. the road infrastructure in indonesia continues to expand from 2010 to 2016 consists of paved roads and non-paved roads. paved roads in 2010 were 277,775 km, to 326,629 km in 2016. non-paved roads fluctuations, which initially an expansion from 2010 to 2013 to become narrower in 2014 to 2016. this is because some of the roads have been converted into paved road. education is an investment in human capital. the higher education is seen as a source of innovation that will encourage the increased of productivity. the expansion of education is considered as an attractive government policy because of its impact on economic growth. the level of quality education of a country will make the level of living better and will improve the quality of the workforce. in developing countries, education pushing ahead of economic growth. educationin indonesia there is a gap between villages and cities. the level of education using the average length of * corresponding author. email address: muryani2008@yahoo.co.id afebi economic and finance review (aefr) vol.03 no.02, december 2018 36 schooling (rls) shows that in rural areas it is only 7.52 while in cities education can reach 9.87 in 2016. health is considered as a contribution in a country's economic growth. ahh itself is the number of years of life of a person that is still living. the benefit of ahh is to know the level of prosperity of the population in an area. with increasing life expectancy at birth provides an interpretation that the level of health has improved. health conditions in indonesia have increased over the past six years as measured by life expectancy at birth. in 2011 ahh amounted to 70.01 and continued increase, although not as large as 70.9 in 2016. health can have implications for people's welfare evenly. one of indonesia's development financing sources, there is foreign direct investment (fdi). fdi is a very important source of economic growth, especially for developing countries. this allows the country to overcome domestic deficiencies in the capital, technology and expertise, and has a strong and long-lasting effect on growth, through direct and spillover channels. fdi conditions in indonesia are currently fluctuations from 2011-2016. in 2014 had decline then in 2015 again an increase, and in 2016 a decline again. 2. literature review harrod-domar's growth theory harrod-domar's growth theory is an extension of keynes's analysis of national economic activities and labor problems. harrod-domar analyzed the economic requirements to develop and grow in the long run. this theory seeks to show what the economy needs in order to grow and develop steadily (steady growth). harrod-domar stated that the gdp growth rate is jointly determined by the savings ratio and capital-output ratio. national income that growth will directly and affect the savings ratio, without intervention from the government (that is, if the gdp component of the economy is saved and invested more, then gdp growth will be greater), but inversely proportional to the capital-output ratio (if the ratio of capital to national output is greater, the gdp growth rate will be lower). solow growth theory the solow neoclassical growth model is a development of harrod-domar's theory includes the second factor, labor, and the third factor is technology into the equation of economic growth. unlike the harrod-domar model assumes a constant return to scale, solow's neoclassical growth model shows a decreasing or constant result of labor and capital factors. technological progress becomes a residual factor in long-term growth, and the growth rate according to the solow assumption is determined exogenously means that it is free from the influence of factors other than in the model (todaro, 2011: 157). the solow neoclassical growth model using aggregate functions is: 𝑌 = 𝐾𝛼 (𝐴𝐿)1−𝛼 ... (1) the notation y in equation (1) is the gross domestic product, k is the capital stock, a is labor productivity, l is labor, and is the output elasticity of capital. new economic growth theory new (endogenous) economic growth theory explains differences in growth rates between countries and factors that give greater proportions to unexplained growth processes and are determined experimentally in the solow neoclassical growth equation. in this theory, assuming that public and private investments in human capital produce external economies and increased productivity that offset the natural tendency of diminishing returns, endogenous theories attempt to explain the existence of increasing scale of returns and different long-term growth patterns in various countries. exogenous technological changes in this model are no longer needed to explain longterm growth (todaro, 2010: 183). according to romer, there are three basic elements of economic growth. first, the changes in technology produced are endogenous through a process of accumulating knowledge. second, the creation of new ideas and the third impact of road infrastructure, education, health and foreign direct investment towards indonesia’s economic growth: level of 33 provinces 37 production of consumer goods produced by the factors of scientific production will grow indefinitely (arsyad, 2010: 92). in simple terms endogenous growth is described as follows: y = a.k ... (2) the notation y represents output, k represents the supply of capital (physical capital and human capital), a represents the factors that influence technology. equation (2) concludes that the accumulation of physical capital and human capital determines economic growth / output. this shows that economic growth is influenced by human capital (quality) characterized by the development of modern technology in the production process (agenor and montiel, 2015: 608). previous research infrastructure facilities (except railways) more productive to increase aggregate output from other physical capital (zhang and ji, 2018). infrastructure can allow for additional capacity production, reduce input costs in production and transaction costs (palei, 2015). road infrastructure and total roads are significant to economic growth (ma'ruf, 2014). the development of human resources consisting of education and health has a positive impact on economic growth (azam and ahmed, 2018; hanushek, 2016; kowal and roztocki, 2013). economic growth by human capital is translated into behavior, attitudes as human capital, and education (abdullah, 2015). gdp per capita growth, gini index and health expenditures have significant to the health index (lopez and soley, 2014). human capital development which consists of education and health which has a positive impact on economic growth (azam and ahmed, 2015). households that use computers, the average length of school, the level of innovation, and life expectancy are good factors for economic growth and national products (kowal and roztocki, 2013). in hansen's and lonstrup's (2015) study showing that countries with high ahh growth, gdp per capita growth rates were lower at the end of the 20th century. negative growth in population growth rates was only an effect of mortality shock on countries post demographic modification. most fdi relations with economic growth are significantly positive, but in some cases negative zero (almfraji and almsafir, 2014). fdi to be less connective in encouraging economic growth due to various factors, price instability in the form of inflation and excessive government roles (azam and ahmed, 2015). 3. research methods and techniques the initial stage in roaddata method collection is determining variables. the variables in this study come from theory, previous research and several references. after determining the variables, the next step collect data, secondary data derived from the central statistics agency (bps) and the investment coordinating board (bkpm). variables in this study are pbrb, road infrastructure, education, health, and foreign direct investment. the data is data of 33 provinces in indonesia and the period used is 2010-2016. the analysis technique in this study is panel data regression method, pooled least square (pls), fixed effect model (fem), random effect model (rem). the analysis model used in this study is as follows: 𝑙𝑛𝑒𝑔𝑖𝑡 = 0 + 1𝑙𝑛𝑟𝑜𝑎𝑑𝑖𝑡 + 2𝑙𝑛𝑒𝑑𝑢𝑖𝑡 + 3𝑙𝑛ℎ𝑒𝑎𝑙𝑡ℎ𝑖𝑡 + 4𝑙𝑛𝑓𝑑𝑖𝑖𝑡 + 𝑒𝑖𝑡 .. (3) the data used in this study are panel data, namely combined time series data and cross section data. the dependent variable in this study is the economic growth of 33 provinces in indonesia. independent variables in this study are road length (km), life expectancy (ahh), average school duration (rls) and foreign direct investment (fdi).where𝑙𝑛𝑒𝑔 is a product domestic regional bruto in constant where the indicator is used to determine the extent of development that has been realized by the government.𝑙𝑛𝑟𝑜𝑎𝑑is a road in kilometers, a study proves that there is a positive correlation between economic growth and five public works infrastructure variables, one of which is the length of the road.𝑙𝑛𝑒𝑑𝑢is an education with proxy life expectancy afebi economic and finance review (aefr) vol.03 no.02, december 2018 38 rate, education itself is an investment in human capital. in state development, education is a trigger for economic growth. there are still a gap in the state of education in indonesia between villages and cities,the higher someone education will generate higher income so that it has an impact on productivity and better economic growth.𝑙𝑛ℎ𝑒𝑎𝑙𝑡ℎis a health with proxy average school length, health as a form of contribution in the economic growth of a country. the health situation in indonesia has increased from year to year over the past six years which has increased using life expectancy at birth, an increase in life expectancy is an important determinant in the economic growth of developed countries today.𝑙𝑛𝑓𝑑𝑖is foreign direct investment,  0 is an intercept,  1 ,  2 ,  3 ,  4 is a regression coefficient, iis a cross section unit, t is a time series unit, and 𝑒 is an error. estimation a. before robust table 1 fem panel data regression estimation results fixed effect model var.independen coef. stand. error p-value lnroad 0.118743 0.0602439 0.050 lnedu 0.7251612 0.1712381 0.000 lnhealth 18.79687 0.8462114 0.000 lnfdi 0.0058533 0.004312 0.176 _cons -63.63486 3.343438 0.000 obs 231 prob>f 0.0000 r-squared 0.4163 source: stata regression results table 1 shows the estimated results of panel data regressions using the fem model, the lnroad(name of the variable length of the highway) variable p value is significant for the 10% significance point because the p-value value is smaller than the 10% significance point of 0.05 (5%), the lnedu (name of variable life expectancy) variable p value is significant to the 1% significance point because the p-value is smaller than the 1 percent significance point which is equal to 0,000, the lnhealth (name of proxy health variable average school length) variable p value is significant to the 1% significance point because the p-value value is smaller than the 1 percent significance point of 0,000, lnfdi(name of variable foreign direct investment) variable p value is not significant to the 10% significance point because the p-value value is greater than the 1 percent significance point which is equal to 0.176 (1.7%) b. after robust table 2 gls regression results on fem lneg coef. stand. error p>|𝑧| lnroad 0.118743 0.0552087 0.031 lnedu 0.7251612 0.1569261 0.000 lnhealth 18.79687 0.7754856 0.000 lnfdi 0.0058533 0.0039516 0.139 wald chi2 (36) 180109.23 n 231 prob>chi2 0.000 source: stata regression results table 2 shows the estimated gls regression using the fem model, the lnroad(name of the variable length of the highway) variable p value is significant for the 5% significance point because the p-value value is smaller than the 5% significance point of 0.03 (3%), the lnedu (name of variable education) variable p value is impact of road infrastructure, education, health and foreign direct investment towards indonesia’s economic growth: level of 33 provinces 39 significant to the 1% significance point because the p-value is smaller than the 1 percent significance point which is equal to 0,000, the lnhealth (name of proxy health variable average school length) variable p value is significant to the 1% significance point because the p-value value is smaller than the 1 percent significance point of 0,000, lnfdi(name of foreign direct investment) variable p value is significant for the 10% significance point because the p-value value is smaller than the 1 percent significance point which is equal to 0.139 ( 1.3%). 4. results based on data at the central bureau of statistics shows that the rate of economic growth in indonesia in 2010-2016 continued to decline, except in 2016 showed an increase. economic growth becomes a benchmark for economic performance and economic development in a country has been going well or not. in another sense economic growth is a process of changing a country's economy towards a better state. economic growth can also be interpreted as a process of increasing the production capacity of an economy which is realized in the form of rising national income. fixed effect model estimation results in this study stated that simultaneously (together) variables of road infrastructure, education, health, and foreign direct investment had a positive and significant impact on the economic growth of 33 provinces in indonesia. but simultaneously only foreign direct investment variables have no significant effect. table 3 gls regression results on fem lneg coef. stand. error p>|𝑧| lnroad 0.118743 0.0552087 0.031 lnedu 0.7251612 0.1569261 0.000 lnhealth 18.79687 0.7754856 0.000 lnfdi 0.0058533 0.0039516 0.139 wald chi2 (36) 180109.23 n 231 prob>chi2 0.000 source: stata regression results based on the regression results in table 3, it can be explained: 1) effect of road infrastructure on economic growth road infrastructure has a statistically significant positive relationship to economic growth. the results explained that any improvement in road infrastructure would increase indonesia's economic growth. this is because road infrastructure is a physical infrastructure that functions to connect various centers of activity both economically and socially. so, with the availability of road infrastructure all activities will run more effectively and efficiently which will affect the future economic growth.if road infrastructure rises by one percent, economic growth increase by 0.11 percent. this is because road infrastructure is a physical infrastructure that serves to connect various centers of activities both economic and social. so, with the availability of road infrastructure all activities will run more effectively and efficiently which will affect the future economic growth. from the general description of the length of roads in 33 provinces in indonesia, the length of roads has continued to expand over the past 6 years. especially in the sumatra province, the expansion of the road is used to build toll roads, where building toll roads is a development so that the mobility of goods and services is easier and has an impact on economic growth. the estimation results accordance with the research conducted by palei (2015) explaining the influence of infrastructure on global competitiveness. the result is national competitiveness basically influenced by institutional developments and seven other factors, including road quality infrastructure. infrastructure increases worker productivity then impacts on economic growth achieved by the initial period of construction workers. afebi economic and finance review (aefr) vol.03 no.02, december 2018 40 2) effect of education on economic growth education has an important role to improve the ability of the country to develop and absorb modern technology and develop capacity for the realization of further growth and development. statistical results show that education using rls has a positive relationship to economic growth in indonesia. if education rises one percent, economic growth rise by 0.72 percent. education has an important role to enhance the country ability to develop and absorb modern technology and develop capacity for further growth and development (todaro, 2011: 446). statistical results show that education using rls has a positive relationship to economic growth in indonesia. bps data shows that the rls in 33 indonesian provinces during 2010-2106 touched a number above 6 years, which means the average length of schooling for indonesian citizens to complete primary school. according to data provided by bps, indonesian rls continues to increase year by year. this indicates that educational programs launched by the government to support the country's economy such as school operational assistance (bos), poor student assistance, smart indonesia cards, bidikmisi, and lpdp show positive developments. the estimation results are supported by research azam and ahmed (2015) which shows that human capital education has a positive impact on economic growth, because education is a stimulus for economic growth. then, abdullah (2014) conducted a study on the implications of increasing human capital to economic growth. in his research explained that education and training of human resources have a central role in increasing economic growth. as a background for improving the quality of human resources, there is a need for early education, because it has a significant influence on national output. 3) health influence on economic growth the estimation results show that there is a positive relationship between health and economic growth in indonesia. as previously explained, health measured using life expectancy (ahh) in indonesia from year to year continues to increase. this reflects that indonesian health degrees, both from facilities and infrastructure, access, to the quality of health indicate an improvement in the quality of health.if health rises by one percent, economic growth to increase by 18 percent. health measured using life expectancy (ahh) in indonesia from year to year continues to increase. this reflects that indonesia's health status, both from facilities and infrastructure, access, to the quality of health shows an improvement in quality of health. equity needs to be considered by the government, because each province has a different and quite sharp ahh according to bps data. the low level of ahh in certain provinces is due to the fact that the baby's penology is still low and access to treatment to be difficult to reach, especially in rural areas. the estimation results are different from the research conducted by hansen and lønstrup (2015) which, precisely if ahh is high, the gdp growth rate per capita is low, this is due to the effects of mortality shock on transition countries. but supported a study by azam and ahmed (2015) that investment is needed in education and health. improved education and health must be directed simultaneously to stimulate economic growth. by using a proxy for life expectancy, health has a positive effect on economic growth. 4) effect of foreign direct investment on economic growth the estimation results statistically prove that foreign direct investment has a negative relationship to indonesia's economic growth. this explains that an increase in fdi will reduce economic growth. foreign direct investment (fdi) can be negative or positive towards the host country. it is negative if the import growth is greater than the export growth due to itself, which results in a trade balance / export-import balance deficit.if foreign direct investment rises by one percent, economic growth rise by 0.005 percent. the p-value indicates foreign direct investment has no significant effect on the growth of indonesian economy. foreign direct investment (fdi) can be negative or positive towards the host country. negative if import growth greater than export growth impact of road infrastructure, education, health and foreign direct investment towards indonesia’s economic growth: level of 33 provinces 41 caused by industry itself, and caused export-import balance deficit. in 2012 to 2014 indonesia's trade balance a deficit which caused by decreasing economic growth, because one component of state revenue was net exports. another factor is inflation in indonesia increase in 2013 to 2014. high inflation caused foreign investors to be less interested in investing in indonesia. the estimation results are supported by research conducted by azam and ahmed (2015) that fdi is less conclusive in driving economic growth due to various factors, price instability in the form of inflation. the fdi effect is weak to the economic growth of newly independent countries. and studies conducted by almfraji and almsafir (2014) state that most fdi relations with economic growth have a positive relationship, but in some cases the relationship is negative. in its application, there are several factors that influence fdi with economic growth, adequate human capital, a well-developed money market, investment relations within the country and abroad, and an open trade regime. 5. conclusion simultaneously the regression results show that the variables of road infrastructure, education (rls), health (ahh) and foreign direct investment (fdi) have a positive and significant effect on economic growth in indonesia for 2010 to 2016. the regression results partially show that the roadinfrastructure variable, education (rls) and health (ahh) have a positive and significant effect on economic growth in indonesia for 2010 to 2016. while fdi variable has no significant effect. this is because import growth greater than export growth caused by the industry itself, which results in a trade balance/export-import deficit. in 2012 to 2014 indonesia's trade balance deficit caused by decreasing economic growth, because one component of state revenue was net exports. another factor is inflation in indonesia increase in 2013 to 2014. high inflation caused foreign investors to be less interested in investing in indonesia. references almfraji, m. a., &almsafir, m. k. (2014).foreign direct investment and economic growth literature review from 1994 to 2012. procedia-social and behavioral sciences, 129, 206-213. abdullah, h. (2015). realokasi kebijakan fiskal: implikasi peningkatan human capital dan pembangunan infrastruktur terhadap pertumbuhan ekonomi dan kesejahteraan masyarakat. jurnal bina praja: journal of home affairs governance, 6(2), 117-128. agénor, p. r., &montiel, p. j. (2015). development macroeconomics. princeton university press. arsyad, l. (2010). pembangunan ekonomi. edisi kelima.yogyakarta: upp stim ykpn. azam, m., & ahmed, a. m. (2015). role of human capital and foreign direct investment in promoting economic growth: evidence from commonwealth of independent states. international journal of social economics, 42(2), 98-111. kowal, j., &roztocki, n. (2013).information and communication technology management for global competitiveness and economic growth in emerging economies.the electronic journal of information systems in developing countries, 57(1), 1-12. afebi economic and finance review (aefr) vol.03 no.02, december 2018 42 lópez-casasnovas, g., &soley-bori, m. (2014). the socioeconomic determinants of health: economic growth and health in the oecd countries during the last three decades. international journal of environmental research and public health, 11(1), 815-829. ma’ruf, y. p. (2014). pengaruh investasi infrastruktur jalan terhadap pertumbuhan ekonomi wilayah di kabupaten pesisir selatan provinsi sumatera barat. jurnaltekniksipil usu, 2(3). palei, t. (2015). assessing the impact of infrastructure on economic growth and global competitiveness. procedia economics and finance, 23(2015), 168-175. todaro, m. p., & smith, s. c. (2010).pembangunan ekonomi edisi kesebelas. (agus dharma). jakarta: penerbiterlangga. todaro, m. p., & smith, s. c. (2011).pembangunan ekonomi edisi keduaebelas. (agus dharma). jakarta: penerbiterlangga. zhang, y. f., & ji, s. (2018). does infrastructure have a transitory or longer-term impact? evidence from china. economic modelling. effect of consumption on acceptance of value added taxes (vat ) in indonesia during 1984-2016 67 effect of consumption on acceptance of value added taxes ( vat ) in indonesia during 1984-2016 indri arrafi juliannisa 61* 1 universitas pembangunan nasional “veteran” jakarta, jakarta, indonesia abstract vat is a tax component that contributes the most to total tax revenue, this study analyzed the relationship of consumption to vat receipts, but there are other free control variables such as; the money supply, population, and industrial sector revenues. this study refers to previous research that has been carried out by harju, kosonen, and skans (2018) , entitled about “firm types, pricesetting strategies, and consumption-tax incidence”. this study uses a time series model, that is : is a forecast of future values based on past values of a variable and past mistakes. time series models are usually use for forecasting. the research method used is quantitative descriptive, by using the eviews test tool. because at the beginning of testing this research experienced problems on the classical assumption test, then to overcome the problem of classical assumption test, the test continues using estimation method newey-west hac regression model (heteroscedasticity and autocorrelation consistent) standard error or more often called newey-west hac. the results of the study show that consumption as the main independent variable has a significant effect, and the control variable that has influence is the money supply and the industrial sector. the increasing amount of consumption each year can stimulate vat revenues and economic growth in indonesia. jel classification: h20, h25, h26 keywords: consumption, industrial sector money supply, vat 1. introduction based on law number 17 of 2003 concerning state finance, income / state revenue is defined as the right of the central government to be recognized as an addition to the value of net assets and consists of domestic income derived from tax revenues and non-tax state revenues, and grants obtained from other governments and other government levels. revenues derived from loans are sourced from loans that will later need to be returned (irawan & suparmoko, 2008). indonesia's main revenue is through the taxation sector, there are several sub-sectors that contribute to tax revenue, namely ; income tax, value-added tax, property tax, customs obligation for land and building rights, and international taxes. of the five sub-sectors, value-added tax is a tax with the largest revenue growth category during the 33 years of research, its from 19842016 (djpk, 2018). * corresponding author. email address: arrafi.juliannisa@gmail.com mailto:arrafi.juliannisa@gmail.com afebi economic and finance review (aefr) vol.03 no.01, june 2018 68 vat is a type of indirect tax to be paid by another part who is not a tax guarantor. the basic principle is a tax that must be imposed on every production and distribution process, but the amount of tax owed is charged to the end consumers who use the product (wijayanti, 2015). figure 1 total percentage of personal income tax, corporate income tax and added value itax to total tax revenue in indonesia years 1984-2016 (in percent) source: national income spending budget (1984-2016) based on figure 1, it can be seen that the one with the largest share of total tax revenue is vat, with an average annual percentage of 34%, while the corporate income tax has an average number of percent per year of 17.39% and personal income tax of 9.49%. in 1998 the amount of income tax, value-added tax, property tax was experienced a drastic decline, this is due to the economic crisis that hit indonesia. at that time a lot of fiscal risks occurred including the sensitive risks of the state budget. on the state income side, economic growth during the crisis greatly affected tax revenues, especiallyincome tax and vat, but the situation recovered over time until 2016. vat receipts reached 191 trillion or increased by 26.25 from 2015 (djpk, 2018). the size of the vat receipt is very dependent on the size of the vat basis, which is in the form of economic transactions, ultimately depends on the level of domestic consumption and the overall economy. seeing that vat growth in indonesia is increasing every year, so actually the potential of vat in indonesia is still large, because if you look at increasing economic growth in indonesia every year which will ultimately increase the level of consumption, if the increasing consumption rate in indonesia will support the increase in vat tax revenues, because the consumption sector is a sector that is very easy to be taxed. consumption is expenditure on goods and services carried out by households with the aim of meeting the needs of the person who made the expenditure, with the increase in the consumption sector, it will be easier to become the object of new value added tax, especially for food and beverage consumption (sihotang & amachi , 2013). 0 5 10 15 20 25 30 35 40 45 1984198619881990199219941996199820002002200420062008201020122014 pphp pphb ppn effect of consumption on acceptance of value added taxes (vat ) in indonesia during 1984-2016 69 figure 2 number of household consumption in indonesia in 1984-2016 (in billion rupiah) source: gdp by expenditure (1984-2016) based on figure 2 it can be seen that most of the consumption sector in indonesia has increased, its since the beginning of 1984 the amount of consumption amounted to 443,000 billion rupiah, and continues to increase until 2016 to amount to 223,200 billion rupiah, even though there was a decline due to the crisis that hit the indonesian economy in 1997, and recovered in 2000. in this study consumption variable is the main independent variables that is thought to affect tax revenue, and other control independent variables are money supple (m2), total population (pop), and total industrial sector revenue (mnf). the reason why researchers use these variables as free control variables are in quantity theory of money, according to this theory the amount of money available in the economy determines the value of money and the growth of the amount of money circulating in the hands of the people, so that the increasing amount of money in circulation will foster a sense of consumerity and willingness to pay more for services received (mankiw, 2010). in addition, the population in indonesia continues to increase every year, an increase in population is one thing that is needed and not a problem, but as an important element that can spur development and economic growth, and then an increase in population has the potential to increase new tax objects (basyir & supardi, 2014). not only the money supply and the population as other control independent variables, rather, the industrial sector's acceptance variable in this study is also suspected to be the factor that influences the receipt of vat, until 2017 the industrial sector is the largest sector that contributes to gdp revenues. according to data from the directorate general of indonesian taxation in 2018, the industrial sector is a sector that grows double digits, the sector grow 16.72 percent or higher than the same period last year which grew 8.30 percent and become one of the largest sectors of tax revenue in indonesia (djpk, 218). so based on the description before, this study entitled "the effect of consumption on value added tax (ppn) receipts in indonesia in 1984 2016". 0 500000 1000000 1500000 2000000 2500000 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 consumption afebi economic and finance review (aefr) vol.03 no.01, june 2018 70 2. literature study 2.1. tax theory tax is the contribution of the people to the national treasury based on acts (which is able to be forced) by not obtaining return service (contraachievement), which is able to be shown and used for paying general spending (waluyo, 2011). rosen (2010) explained in his book titled public finance that a person which is responsible for paying tax is called a statutory incidence which is an indicate who is legally responsible for a tax. the presence of a tax incident which depends on the tax revenue deposition is caused by the presence of balance budget incidence which is counting the combined effect from tax collecting and government financial spending and tax revenue which is usually not allocated for certain spending, so from this problem the term differential tax incidence is known because differential tax incidence is able to see the size of change in tax revenue and how when one type of tax is replaced with another. in tax collecting there are foundations of tax collecting according to waluyo (2011), which are : 1) equality 2) certainty 3) convenience of payment 4) economic of collections a hypothesis explained by rosen (2010), that assumed other taxes is a lump sum tax, that is the tax imposed on a person with a constant amount and there is no difference in the amount of tax burden on each person. the tax collection system may turn into progressive tax, which is the tax collection rate with a percentage that increases with the increasing amount used as the basis for tax imposition. according to rosen (2010) there are types of taxes, such as; 1. proporsional. 2. progresif 3. regresif in economic science, the excess of tax burden, also known as dead weight cost or dead weight loss of taxation, is an economic loss which the people suffer as a cause of tax or subsidies. a figure 3 excess burden of taxation y b c effect of consumption on acceptance of value added taxes (vat ) in indonesia during 1984-2016 71 when tax occurs, there will be a decrease of income which is shown as a parallel movement from the budget obstacle and with a vertical range between a and c. the range between b & c is a decrease of dead weight loss (dwl). dwl is the difference between what is paid for tax and equal with income decrease. so for minimizing excess burden, the tax rate has to be arranged in such a way so the percentage decrease of demanded goods have to be the same (rosen, 2010). in tax collecting several systems are known which are: official assessment system, self assessment system, and with holding system. the tax collecting system in indonesia is the self assessment system. the self assessment system as the tax determining system in indonesia is already applied since the tax reform of 1983. the self assessment system is a tax collecting system which provides trust, and responsibility to taxpayers for counting, estimating, paying, and report themselves of the tax amount which has to be paid (waluyo, 2011). 2.2. value added tax (vat) value added tax is a substitute for sales tax, this is because the sales tax is no longer sufficient to accommodate community activities and has not reached the target of development needs, among others to increase state revenues, encourage exports, even distribution of tax charges and of course value added tax is a tax imposed on consumption in the country (customs area) (supramono, 2010). sales tax has weaknesses, that’s (supramono, 2010) : a. there is a double tax. b. types of tariffs, causing difficulties. c. does not encourage exports. d. can not overcome smuggling. value added tax (vat) has advantages, that’s (supramono, 2010) : a. eliminate double tax. b. use a single tariff so it's easy to implement. c. neutral in domestic competition, national trade. neutral consumption patterns and encourage exports the legal basis for vat is law no. 42 of 2009 concerning the third amendment to law no. 8 of 1983 then changed to law no. 11 of 1994, and the last was changed again by law no. 18 of 2000 concerning value added tax (vat) on goods and services and sales tax on luxury goods. the last implementation rule is regulated in law no. 42 of 2009, with law no. 8 of 1983 was collected value added tax and sales of luxury goods. the main difference in value added tax from circulation and sales tax is the absence of double taxation. in the law it was found that the vat act was enacted july 1, afebi economic and finance review (aefr) vol.03 no.01, june 2018 72 1984, with government regulations in lieu of law (perpu) no. 1 of 1984 (supramono, 2010). 2.3. hypothetesis consumption, money supply, population and industrial sector have a positive and significant relationship that can increase value added tax revenue. 3. research methodology this study uses a time series model, that is : is a forecast of future values based on past values of a variable and past mistakes. time series models are usually use for forecasting. the research method used is quantitative descriptive, by using the eviews test tool. this study refers to previous research that has been done, by harju, kosonen, and skans (2018); in this research analyze the price responses to large restaurant vat rate reductions in two different european countries. our results show that responses in the short and medium run were clustered around two focal points of zero pass-through and full pass-through. differences between independent restaurants and chains is the key explanation for this pattern. while nearly all independent restaurants effectively ignored the tax reductions and left consumer prices unchanged, a substantial fraction of restaurants belonging to chains chose a rapid and complete pass-through. in the longer run, prices converged, but primarily through a price reversion among chain restaurants. the stark difference in price responses does not appear to arise because of different market characteristics such as location, initial price levels, meal types and restaurant segment. in this study the consumption variable is the main independent variable which is thought to influence the value added tax (vat) revenue, and there are other control independent variables such as the money supply (m2), population (pop), and the amount of industrial sector revenue. so the model in this research is: vat = β0+β1csmt + β2m2t + β3 pop t +β4 mnft + e t explanation : vat : value added tax csm : consumption m2 : money supply pop : population mnf : industrial sector revenue (harju, kosonen, and skans , 2018) this study was analyzed and estimated using ordinary least square method (ols), which is one of the methods that can be used to estimate parameters in regression analysis. the working principle of ols is to minimize the sum of squares error, data must be normally distributed, there is no problem multicollinearity, heteroscedasticity, and autocorrelation. if all assumptions are met then the estimation result with ols is said to meet the best linear unbiased estimator properties (blue) (gujarati, 2003). effect of consumption on acceptance of value added taxes (vat ) in indonesia during 1984-2016 73 because at the beginning of testing this research experienced problems on the classical assumption test, then to overcome the problem of classical assumption test, the test continues using estimation method newey-west hac regression model (heteroscedasticity and autocorrelation consistent) standard error or more often called newey-west hac. newey-west hac is not only for large samples, but also can be used for small samples (gujarati, 2003). in the estimation of this study, it no longer contains problems of heteroscedasticity and autocorrelation, so no further testing of classical assumptions is required, but can still perform hypothesis testing based on the distribution of t or f. as previous research has been done by rachmawati and sumarminingsih (2014). 4. results and discussion value added tax (vat) revenue is much higher than other taxes, because all people who enjoy goods and services will be subject to vat, as it is known that almost all of the living goods of the indonesian people are the products of vat, even though someone does not have a taxpayer's principal number (npwp) but indirectly the person is still subject to vat, and the vat can be delegated to others its mean allowing everyone to be taxed (sihotang & amachi , 2013). table 1 results of time series regression using hac method variable coefficient std. error t-statistic prob. c 1933.79 4033.430 0.828732 0.4151 csm 0.26336 0.004937 4.439876 0.0000 m2 0.12001 0.044807 2.712928 0.0367 pop -0.00421 0.000628 -0.925244 0.3637 mnf 0.22178 0.037457 2.665671 0.0324 the consumption variable used as the main independent variable in this study has a positive and significant influence on the revenue of vat, as evidenced by the prob value. the consumption variable is 0.0000 and the positive coefficient number is 0.26, this means that when consumption increases by 1%, vat will increase by 0.26%, of course this is the same as previous studies belonging to harju, kosonen, and skans (2018), in his research explained that goods that were subjected to vat or restaurants that applied vat did not experience a decline in sales, this means that the level of consumption of a person is not affected by the amount of tax when someone has felt comfortable about consumption of the item. with the real situation in indonesia, the household consumption sector continues to experience an increase that can stimulate the indonesian economy. based on data from the central statistics agency, gross domestic product (gdp) household consumption expenditure at current prices in the first quarter of 2018 reached rp 1,991.1 trillion. this figure is higher than the first quarter in 2017 of rp 1,838.6 trillion and in the fourth quarter in 2017 of rp 1,962.4 trillion ( bps, 2018). r-squared 0.964809 afebi economic and finance review (aefr) vol.03 no.01, june 2018 74 for the control independent variable that influences vat receipts is the money supply as evidenced by the prob value. the variable money supply is 0.36 and the positive coefficient number is 0.12. this means that when the money supply increases by 1%, vat will increase by 0.12%, of course this is the same as previous studies by mahdavi (2008) : the increasing amount of money supply could stimulate the economy and signify the willingness of the people to set aside their money to pay taxes. beside the money supply, other control independent variables that influence vat revenue is industrial sector revenue variables with a probability value of 0.32 and a coefficient value of 0.22. this means that when industrial sector revenues increase by 1%, vat will increase by 0.22%. of course it is same as the research conducted by castro and camarillo (2014) : industry is a field of livelihood that uses work skills and perseverance and the use of tools in the field of processing of agricultural products and their distribution as a basis. industrial output is not only in the form of goods, but also in the form of services, indonesia is a country that makes the industrial sector the livelihood of most of its population, its evidenced by the many industries that use technology that is good enough so that not a few industrial sectors in indonesia can penetrate foreign markets. through a high-quality industrial sector with high selling power, will require many employees, so it can absorb jobs, so that will be easy for the government to absorb tax potential (castro & camarillo , 2014). for population variables do not have a positive and significant effect on vat revenue, this is evidenced by a probability value, it’s 0.36 and a coefficient, it’s -0.00421. population is not significant because not all of the population that should be registered as taxpayers are willing to pay their tax obligations. in fact, taxpayer compliance is one of the keys to ensuring the success of the government in collecting tax revenues so it can be used to support development financing, one of the most serious problems for economic policy makers is to encourage the level of taxpayer compliance. tax compliance that does not increase will threaten the government's efforts to realize public welfare. in this case due to the level of tax compliance indirectly affecting the availability of income for spending (indriyani & sukartha, 2014). the r-square value shown in table 1 is 0,96 , this means that between the independent variable and the dependent variable there is a connection, and explain that overall dependent variable can influence independent variable equal to 96% in this research model. this study has used the newey-west hac method,so there is no need for testing classical assumptions. the next test are t test and f test, below are the results of the two tests : table 2 t test results independent variabel coefficient tstatistics t-table probability information csm 0.26336 4.439876 2.05559 0.0000 significant m2 0.12001 2.712928 2.05559 0.0367 significant pop -0.00421 -0.925244 2.05559 0.3637 not significant mnf 0.22178 2.665671 2.05559 0.0324 significant effect of consumption on acceptance of value added taxes (vat ) in indonesia during 1984-2016 75 based on table 2 it can be seen that the independent variables that have a t-statistic value greater than t-table and which has a significant influence on total tax revenue are variable csm, m2, and mnf. table 3 f test results dependent variabel f-calculate value f-table value information total tax 1196,73 0.2217 significant based on table 3 by comparing the f-count with the f-table value, it is known that in this research model, f-count> f-table, thus indicating that all independent variables have a significant effect on the fixed variable. 5. conclusion in this study the consumption variable which is used as the main independent variable has a significant positive effect, which means the commodity value of the consumption sector in indonesia is very stimulating by helping to increase vat receipts and economic growth. a person will still have a desire to consume even if the goods or services consumed are recognized by the vat rate. therefore, the government should support the consumption of people from the lower middle class to the upper middle class. the increasing money supply in the community so far can be controlled so that there is no indication of inflation, the money supply supports the community to continue their consume and they are not reluctant to pay vat. the industrial sector which is the largest sector that contributes to the increase in gdp also has a positive and significant impact on vat revenue. in this case, some of the goods consumed by the community are goods produced by the processing industry, so this is like mutualism symbiosis, when the goods are subject to tax and remain sold among the community, it will directly encourage the growth of vat. references badan pusat statistik. (2018). laporan awal tahun . jakarta: badan pusat statistik. basyir , a., & supardi. (2014). analisis tax income ratio, tax coverage ratio income, cost of tax income collection penerimaan pajak penghasilan terhadap pendapatan nasional tahun 2009-2012. issn‐1411 – 3880 . castro , g. á., & camarillo , d. b. (2014). determinants of tax revenue in oecd countries over the period 2001-2011. fecha de aceptación: 26.05.2014 . d. j. (2018). laporan keuangan direktorat jendral pajak . jakarta: direktorat jendral pajak. gujarati, d. (2003). ekonometrika dasar. jakarta: erlangga. harju, j., kosonen, t., & skans, o. n. (2018). firm types, price-setting strategies, and consumption-tax incidence. journal of public economics, volume 165, pages 48-72. afebi economic and finance review (aefr) vol.03 no.01, june 2018 76 indriyani, p. a., & sukartha, i. m. (2014). tanggungjawab moral, kesadaran wajib pajak, sanksi perpajakan dan kualitas pelayanan pada kepatuhan pelaporan wajib pajak badan. e-jurnal akuntansi universitas udayana, issn: 2302-8556, 431-443. irawan., & suparmoko, m. (2008). ekonomika pembangunan. yogyakarta. mahdavi, s. (2008). the level and composition of tax revenue in developing countries evidence from unbalance panel data. international review of economics and finance , 607-617. mankiw, n. g. (2010). principles of economics, pengantar ekonomi makro. jakarta: salemba empat . rachmawati, d., & sumarminingsih, e. (2014). metode standard error newey west untuk mengatasi heteroskedastisitas dan autokorelasi pada analisis regresi linier berganda. jurnal ilmu ekonomi , vol 2, no. 1, pp. 65-68. rosen, h. (2010). public finance. new york: mc-grawhill book. sihotang, d. m., & amachi , t. c. (2013). kajian penghitungan potensi penerimaan pajak pertambahan nilai (ppn) dengan pendekatan konsumsi menggunakan tabel input-ouput kurun waktu 2008 – 2012. jurnal fakultas ekonomi dan bisnis universitas indonesia , 50-65. supramono. (2010). perpajakan indonesia, . jogjakarta: cv andi offset. determinants of labor demand; empirical evidence from east kalimantan 59 determinants of labor demand; empirical evidence from east kalimantan syaiful anwar 51* 1 universitas borneo tarakan, indonesia abstract this study aims to examine the impact of revenue sharing of natural resource, capital expenditure realization from the government, gross fixed capital formation and length of roads on population 15 years of age and over who worked as proxy labor in east kalimantan period 2001-2013. this study found that revenue-sharing funds have a positive and significant impact on the increase in the number of workers. the effect of capital expenditure on the rise of manpower indicates a positive sign and significant on grwoth of labor. the effects of investment on labor improvement shows a positive and significant sign of direction. the influence of road infrastructure on the rise of manpower indicates the direction of the sign which is also positive and significant. jel classification: j20, j23, j24 keywords: capital expenditure, labor, east kalimantan, revenue sharing of natural resource 1. introduction east kalimantan's economy has been largely contributed by the non-renewable resource-based activities (mining-based and oil and gas-oriented processing industries). different conditions occur in the small agricultural sector whose role is only 6.1 percent of the formation of gross regional domestic product (grdp). the important phenomenon here is whether the "dominant" sector has major implications and magnitude in creating jobs. if we look at the performance of the gross regional domestic product and the employment performance, it shows that the mining and quarrying sectors, as well as the oil and gas processing industry sector, provide substantial economic benefits to the gross regional domestic product of east kalimantan. however, in terms of employment is not the same result. if we compare the two sectors, namely the mining and quarrying sector which controls the share of east kalimantan grdp and the agricultural sector which contributes very low to east kalimantan grdp, the mining sector's dominance is only able to absorb one-fourth of the ability of the agricultural sector to absorb labor. this means there has been an imbalance of economic structure in east kalimantan. the average working population in the mining and energy sector is only 4.63 percent. while in industrial sector also only equal to 8,22 percent (data bps kaltim, 2010, based on result of national labor force survey). in addition, the agricultural sector accommodates the highest proportion of workers with an average of 34.36 percent. it is also followed by trade and services sectors which absorb an average of 20 percent and 16 percent of the work force in east kalimantan. inequality in the output of this economic sector is a problem in addition to the income inequality previously described. in one side, the mining sector and the oil and gas sector control the structure of the economy, but on the other hand the sector has the lowest ability to absorb its workforce. there is an anomaly in the east kalimantan economy, that the economic sector that determines the east kalimantan grdp is not very big in its role in increasing the number of workers, on the contrary the sector whose role is less determinant of grdp actually increases the number of manpower in significant amount. wijaya (2012) found that the agricultural sector does absorb high labor but has no high effect on increasing household income. * corresponding author. email address: syaiful.borneotarakan@gmail.com afebi economic and finance review (aefr) vol.03 no.02, december 2018 60 in the case of agriculture in east kalimantan, the large number of workers and the low level of education of the workforce resulted in lower labor productivity in the agricultural sector than the productivity of other sectors. this will affect the income level of the workforce, especially the average wage. while one of the strategic issues in medium term development plan (rpjm) of east kalimantan 2009 2013 is the quality and productivity of workers is still low, because the background of job seeker education in 2009 about 44.7 percent is high school. so the paradox is that on the one hand the dominant sector in east kalimantan is capital intensive, but on the other hand the supply of labor is filled by unskilled and low-educated characteristics of labor (lowskilled and low-educated). the large number of workers dependent on the agricultural sector in a broad sense is one of the reasons for the need to improve the performance of the agricultural sector in east kalimantan. ideally how the performance of the agricultural sector is linked to industrial activities, thus impacting increased employment and income that will affect their welfare. it is also relevant to regional development priorities that place the agricultural sector as a second pillar and embodied in east kalimantan's development mission, which is also supported by development in other sectors simultaneously.. this study aims to examine the impact of revenue sharing of natural resource, capital expenditure realization from the government, gross fixed capital formation and length of roads on population 15 years of age and over who worked as proxy labor in east kalimantan period 2001-2013. this study contributes in looking at the role of fiscal decentralization for the improvement of manpower in east kalimantan. 2. literature study clark & fisher's theory also explains the relationship between production structure and labor structure by sector. according to this theory, the higher the income of a region the lower the role of the agricultural sector in absorbing labor. in contrast, the ability of the industrial sector is increasingly vital as a container for labor. this situation occurs because the population is able to buy (purchasing power) or make a final demand (consumption), so that in the end will lead to changes in production structure in accordance with the shift in demand. that is the shift of employment opportunities and the allocation of funds from the primary sector to the secondary and finally to the tertiary. the demand-side transmission pattern that affects economic transformation refers to engel's law regarding the elasticity of demand for food on income changes. the law of engel says the elasticity of demand for food is less than the elasticity of demand for non-food. this behavior has had a major impact on the acceleration of economic transformation. chenery and syrquin (1975) agree with clark-fisher, that per capita income plays an important role in the process of structural transformation in a country. chenery-syrquin shows quantitative analysis results between per capita income relationships and percentage contribution of economic and industrial sectors. initial structural transformation occurs from demand-side changes due to per capita income and the prevalence of income distribution. transformation of demand leads to changes in the structure of gdp (production) and trade. it will ultimately lead to changes in the structure of the returning workforce resulting in increased incomes and changes in income distribution. in addition to per capita income, things that also reflect the economic transformation are changes in the structure of domestic demand, production structure, trade structure (export-import), demographic process and income distribution. because generally speaking the ideal conditions, the theory of clark-fisher and chenery-syrquin is tested by several studies in southeast asia, especially indonesia. research sitanggang and nachrowi (2004) found that the agricultural sector in determinants of labor demand; empirical evidence from east kalimantan 61 indonesia works best in absorbing labor even though wages in these sectors tend to be low. their research also found a trend of sector transformation, from agriculture to industry and trade services in several major provinces in indonesiaa. the characteristic of the economic sector in indonesia does appear to be shifting from traditional agriculture-based sectors to modern manufacturing industries in urban areas. sudihartono and muhyiddin (2008) studied during the years 1984-2004, indonesia has been toward the era of semi-industrialization. this is suspected to be stronger, since the period 1990-2004, where there is a massive movement of labor from the agricultural sector to the manufacturing industry. their research proves that demand-side effects on the output of the economic sector (agriculture and industry) increase employment in both sectors. the wage variable has no significant effect on the absorption of labor in both sectors. tran and doan (2010) prove the circumstances in which there is a relationship between the composition of the economic sector and its changes to employment. his research in vietnam presents the effects of industrialization on the sectors of the economy and employment during the economic transition in vietnam. although vietnam has made significant progress in changing the output performance of the economic sector in which the share of agricultural contribution in gdp has declined drastically over the last two decades, the labor structure has not rapidly changed as its economic structure. as a result, most of the labor force is still in the agricultural sector. economic reform is less effective to shift workers from the agricultural sector because most state investment has been allocated to capital-intensive industries. these results are relevant to those studied by sitanggang and nachrowi (2004) and sudihartono and muhyiddin (2008) in indonesia. 2.1. revenue sharing of natural resource on labor growth the revenue share fund consists of tax-sharing and non-tax sharing. tax sharing funds are part of regions derived from taxes on land and buildings, land and building tax charges, income tax articles 25 and 29 indebted personal taxpayers and income tax article 21. according to prasetya (2011), many countries use a tax-sharing system by distributing a fixed percentage of certain national taxes, such as income tax or valueadded tax to local government. to increase the regional income in the framework of financing the implementation of the functions under its authority is done with the revenue sharing pattern of tax and non-tax (natural resource) between the central and regional. the allocation of profit sharing funds is carried out in line with the implementation of regional autonomy since the existence of law no. 25 of 1999 on central and regional financial balance as amended by law number 33 year 2004 regarding financial balance between the central government and local government. research from sinaga, et al (2005) in indonesia found a positive effect of profitsharing funds on employment performance. this result is in line with findings from faridi, et al. (2012) which reveals the positive effect of fiscal decentralization by employment in its study in pakistan. then pujiati (2010) proves the positive influence of profit-sharing funds on economic growth and employment. 2.2. impact capital on labor growth bagdigen and centitas (2003) in his research in turkey to test the effect of public expenditure using the data panel regression found no evidence of causality that occurs either public spending to the economy (proxyed by gdp growth). in the case of indonesia, aritenang (2009) found the effect of government spending on the case of indonesia negatively affect the absorption of labor. this is because spending is spent on regular financing such as salaries. meanwhile, setiyawati and hamzah (2007), also in indonesia, using the path analysis approach, found that development spending had afebi economic and finance review (aefr) vol.03 no.02, december 2018 62 a positive effect on the indirect employment through economic growth. furthermore, economic growth negatively affects unemployment and povertyn. 2.3. impact investment on labor growth jayaraman and singh (2007) by taking cases in the fijidan islands countries using foreign direct investment variables also strengthened dasgupta and shimamora's findings which he found that through fdi not only covers the effects arising from job creation in the sectors of the economy, sectors attracting overseas investors, but also additional employment opportunities in support sectors, especially all productionoriented activities in the economy. this is also reinforced by research from carmen, et al. (2007) with data of 70 thousand companies in 107 countries whose research shows the strong composition effect of foreign investment on employment. banerjee (2006) in a case in china concluded there was a positive and tangible influence of foreign investment on the economy in china. further studies from deepak (2012) in the special economic zone (kek) in indiamengungkap that investment from domestic and abroad have a positive impact on job creation opportunities. especially if followed by an increase in infrastructure facilities with an emphasis on generating additional economic activity. meng wen, et al. (2013) china fdi investment panel regression does not find any evidence that fdi in china contributes to employment and skill enhancement to the parent company. waldkirch, et al. (2009) mexico fdi investment regression is a real positive impact in employment, especially in the manufacturing sector. rizvi and nishat (2009) in the asian region, sampled fdi investments from three countries namely pakistan, india and china to find that fdi has no impact on job creation in pakistan, india and china. 2.4. impact length of roads on labor growth dalenberg, et al. (1998) in his research on the impact of public capital on good economic circumstances often focuses on estimates of production functions, but such approaches face some important economic relations. their research presents estimates designed to measure the impact of public capital on labor. the results found a positive spillover impact. where the simulation results showed an effect to the increase in employment. maisonnave, et al. (2013) conducted research in south africa and found that an increase in investment spending financed by tax increases has contrasted implications on unemployment. in the long run, unemployment declined for all types of workers under one of the scenarios. in the short term, only basic occupation workers benefit from the decrease in unemployment, as the rest, unemployment increases. findings have direct policy implications in various areas of policy modeling. jiwattanakulpaisarn, et al. (2012) found a positive but not tangible toll road infrastructure link to employment in north carolina, usa. unlike the case with pollin's findings, et al. (2009) who also conducted research in the united states found that the development of infrastructure is beneficial for the absorption of manpower in the country. these findings are consistent with the gibbons study, et al. (2012) stating that road infrastructure improvements positively impact employment through private / corporate sector transmissions. their findings were conducted in the countries of britain during 1998-2007. 3. research methods 3.1. research design this research uses explanatory approach. according to sekaran and bougie (2009), explanatory research is a study that aims to test the revelation (hypothesis) of a theory or empirical model ever used in research to strengthen or reject the hypothesis. testing of this hypothesis refers to the relationship of revenue sharing of natural resource, capital expenditure realization from the government, gross fixed capital determinants of labor demand; empirical evidence from east kalimantan 63 formation and length of roads which are all independent variables (determined outside the model) in this study. while the dependent variable is population 15 years of age and over who worked as proxy labor in east kalimantan period 2001-2013.. 3.2. location and time of study the location of this research is in east kalimantan province, indonesia. researchers analyzed the districts and municipalities consisting of 13 districts and cities (excluding tana tidung regency and also mahakam ulu regency area since it was only split in 2014). 3.3. types and data sources the type of data used in this study is secondary time-shaped data (time series) yearly from 2001-2013 in each district / city (as many as 13 districts / cities). the data to be analyzed comes from the majority of the world bank / world bank through indonesia database for policy and economic research (indo dapoer). indodapoer data is actually a world bank compilation of central bureau of statistics of indonesia data at district and city levels. some of the data required in this study will refer to the variables formed in the model: 1. data on realization of revenue sharing of natural resources (in billions of rupiah); 2. data on capital expenditure realization from the government (in billions of rupiah); 2. investment data (proxyed using gross fixed capital formation) 3. /pmtb) in billions of rupiah p; 4. length of roads by regence/municipality (km); 5. data of population 15 years of age and over who worked as proxy labor (person) 3.4. analysis tool multiple regression analysis is a tool used to analyze the closeness of the relationship between variables quantitatively. multiple regression analysis using ordinary last squar method which will produce a model that will be used to know the relation between independent variable to depedent variable. before making the model / equation as a guide in estimating the variables, the model must be validated first based on the accuracy, accuracy, and validity of the model according to yudaruddin (2014: 121). the research equation as follows: labor = β0 + β1rsnr + β2inv + β3 capital + β4 lor+ e where: labor = population 15 years of age and over who worked rsnr = data on realization of revenue sharing of natural resources capital = capital expenditure realization from the government inv = gross fixed capital formation lor = length of roads β = intercept β0… β4 = regression coefficient e = error the coefficient of determination indicates the percentage of the predicted truth level of the regression model. the value of the coefficient of determination (r2) states how large the independent variable can explain the dependent variable in the regression model. while the rest (100% -r2) can be explained by other causes other than independent variables outside of the study. f test is used to test the influence of independent variable to the dependent variable. hypothesis testing used in this research is t-test. t test is called partial regression test is done to know the significance of each independent variable to dependent variable. this classical assumption test aims to determine whether in the regression model really shows a significant and representative afebi economic and finance review (aefr) vol.03 no.02, december 2018 64 relationship, then the model must meet the following classical assumptions: normal distribution, no multicollinearity, heteokedaktasity, and autocorrelation. 4. research results descriptions of all the variables are listed in table 1. overall the mean values of all the variables are smaller than the standard deviation such as revenue sharing of natural resource, capital expenditure realization from the government, gross fixed capital formation, length of road and labor. this dinding provides information that the mean value of each variable still represents of each variable analyzed. overall, the variable is a normal distribution variable. table 1 descriptive statistics table 2 correlation matrix for the explanatory variables dba inv capital inf rsnr 1.0000 inv 0.733** 1.0000 capital 0.226** 0.173* 1.0000 lor 0.166* 0.253** 0-.097 1.0000 **. correlation is significant at the 0.01 level (2-tailed). *. correlation is significant at the 0.05 level (2-tailed). the relationship between the independent variables showed multicolinearity on the model. table 2 provides information on the correlation between the independent variables. the matrix shows that in general the correlation between the explanatory variables is not strong, suggesting that multicollinearity problem is not severe. the model of multiple linear regression equation in this research to see the effect of dependent variable with independent variable by using f test and t test to know the significance of the influence of independent variable to dependent variable. based on the results of multiple regression analysis obtained results as listed in table 3 below: the value of r is 0.538 this indicates that the relationship of independent variables collectively to the dependent variable indicates the degree of the relationship being. in addition r square is 0.289, it shows that 28.9% variation of dependent variable can be explained by independent variable, while the rest 71.1% is explained by other variable not included in this research model. variable mean std. dev minimum maximum obs. labor 737.9566 680.89333 28.4 4549.34 169 rsnr 444.4047 354.03787 63.53 1944.77 169 inv 0.0026702 0.00272568 0.00011 0.01282 169 capital 134.568 102.22732 2 620 169 lor 98046.3669 75880.55991 17760 325613 169 determinants of labor demand; empirical evidence from east kalimantan 65 table 3 regression results variable coefficients std. error t sig. note constan 41503.535 10635.378 3.902 .000 rsnr 41.134 10.905 3.772 .000 sig inv 9.399 21.166 .444 .658 not sig capital 7645660.454 1901752.961 4.020 .000 sig. lor 11.850 51.079 .232 .817 not sig r 0.538 r square 0.289 adjust r square 0.272 f-hitung 16.664 f signifikan 0.000 table 3 shows that the f value is 16.664 and this result is greater than f table with probability 0.000. because the probability is smaller than 0.05, the regression model can be used to predict the labor variable or in other words that of the four independent variables rsnr, inv, capital and lor simultaneously or simultaneously have an effect on labor and have shown goodness of fit model. natural resource outcomes to income inequality through the performance of the primary economic sector and the increase in workforce are positive. this means that through the primary sector effect and the increase of manpower has a positive impact on income inequality in east kalimantan. this result comes from the direct positive effects of revenue sharing funds to the primary sector, which in turn the primary sector negatively affects labor absorption, although in the end the increase in labor has a negative impact on income inequality in accordance with the hypothesis. these findings indicate that the indirect effects of fiscal decentralization through the primary sector and the increase in manpower do not potentially reduce income inequality, it is likely to increase the income inequality that occurs. the effect of capital expenditure on the increase of manpower indicates a positive sign and significant on grwoth of labor. these results support with the hypothesis that accelerated fiscal decentralization of capital expenditure actually improves the performance of the economy in the aspect of increasing the workforce created. this negative direction does not support previous studies by sodik et al (2007), setiyawati and hamzah (2007), aladejare (2013) find a positive relationship between the two variables. the effect of investment on labor improvement shows a positive and significant sign of direction. this shows that the size of investment will greatly affect the absorption of labor. in this case the results support the hypothesis that the accelerated fiscal decentralization of investment will improve the performance of the increased labor force created. these results support eg empirical studies from banerjee (2006) in cases in china, jayaraman and singh (2007), waldkirch, et al. (2009), deepak (2012) in the special economic zone (kek) in india. on the other hand it does not support those found by rizvi and nishat (2009) in the asian region the influence of road infrastructure on the increase of manpower indicates the direction of the sign which is also positive and significant. this shows that improved road infrastructure in east kalimantan will improve employment performance. infrastructure development is usually a multi-stakeholder development and dependent on human labor (labor-intensive). of course this has a positive implication on employment. the conclusion of the results of this analysis means supporting the hypothesis that infrastructure improves employment. roads as a public capital afebi economic and finance review (aefr) vol.03 no.02, december 2018 66 existence is determined by how much government spending to increase the length and improvement of road conditions government spending in the field of road infrastructure development will affect the economy, government spending on road infrastructure is an investment that can create and increase economic activity where the existence of investment will creating new production factors, which will create new jobs. 5. conclusions and recommendations conclusion this study aims to examine the impact of revenue sharing of natural resource, capital expenditure realization from the government, gross fixed capital formation and length of roads on population 15 years of age and over who worked as proxy labor in east kalimantan period 2001-2013. the location of this research is in east kalimantan province, indonesia. researchers analyzed the districts and municipalities consisting of 13 districts and cities. multiple regression analysis is a tool used to analyze the closeness of the relationship between variables quantitatively. this study found that revenue-sharing funds have a positive and significant impact on the increase in the number of workers. the effect of capital expenditure on the rise of manpower indicates a positive sign and significant on grwoth of labor. the effects of investment on labor improvement shows a positive and significant sign of direction. the influence of road infrastructure on the rise of manpower indicates the direction of the sign which is also positive and significant. recomendation local governments should make more transparent schemes in spending public funds, encourage inclusive use of public funds through the empowerment of the people's business sector (micro, small and medium enterprises), and build an inclusive industrial base that can be accessed by all communities in east kalimantan in order to grow labor. references aladejare, s. a. 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(2014). statistik ekonomi aplikasi dengan program spss versi 20. interpena. yogyakarta poverty in daerah istimewa yogyakarta (diy): policies and efforts to solve it (data year of 2010-2016) 18 poverty in daerah istimewa yogyakarta (diy): policies and efforts to solve it (data year of 20102016) muhammad findi alexandi 2¹ ⃰ and edi victara tinambunan 2 1,2 ipb university, bogor, indonesia abstract this research analyze some factors that influence of poverty level and some formulation policies to solve poverty in daerah istimewa yogyakarta (diy). by 2017 province of diy becomes the highest poverty rate in java island. the percentage of poor people in province of diy is also above the average percentage level of poverty in indonesia. therefore our research is conducted on what are the factors of affect poverty and what can be implemented to solve it. this research used panel data and calculated with ms excel and software of eviews 9. the range period of this research from year of 2010 to 2016 with five districts/cities in province of diy. the result of the estimation in this research showed that economic growth has positively affect to poverty, while the health facilities, educational facilities and the number of labor agricultural sector have negatively affect to poverty level in province of diy. jel classification: i30, i32, i38 keywords: economic growth, educational facilities, health facilities, labor of agricultural sector, poverty 1. introduction development is a process towards change that is continuously pursued to improve the welfare of the community. the goals of development are to increase economic growth, create employment, and reduce poverty (todaro and smith 2006). one of the problems that must be overcome to achieve successful development is poverty alleviation. poverty is an economic problem that still exists in all countries, especially developing countries, including indonesia. economically, poverty can be seen from a lack of resources that can be used to meet the life necessities and improve the welfare of a group of people. the poverty term arises when a person or group of people are unable to meet the level of economic prosperity, which is considered as a minimum requirement of a certain standard of living. if the government cannot overcome this poverty problem, it will affect public trust in the government. poverty is one of the government responsibilities, including the regional government, and this problem has not been resolved until today. one of the objectives in the regional autonomy policy is to bring prosperity by reducing poverty and unemployment. on the other hand, the central and regional governments are trying to reduce poverty through poverty reduction policies. funds in trillions of rupiah have been spent by the indonesian government to implement various policy programs in reducing poverty. daerah istimewa yogyakarta (d.i. yogyakarta) is a province in indonesia which still bears from the poverty problem. in 2017 d.i. yogyakarta province became the poorest province on java. figure 1 shows the percentage of people living in poverty on java island and indonesia. the province with the lowest percentage of poverty is dki jakarta province at 3.75 percent in 2016 and 3.77 percent in 2017. the poverty rate in diy province is 13.22 percent and then decreases in the following year to 12.69 percent. there is a significant gap between poverty in dki * corresponding author. email address: muhammadfindi73@yahoo.com mailto:muhammadfindi73@yahoo.com afebi economic and finance review (aefr) vol.04 no.01, june 2019 19 jakarta and d.i. yogyakarta. when compared to other provinces in java, d.i. yogyakarta province has the smallest area after dki jakarta. when compared with the average percentage of poverty in indonesia in 2016 and 2017, the diy province is still higher. figure 1 percentage of people living in poverty in java island and indonesia in 2016-2017 source: statistics indonesia, 2018. in 2017 province d.i. yogyakarta is a province with the highest average percentage of poverty on java island. the poverty in this province is also higher than the average national poverty rate. during 2012 until 2016 there was a decreasing trend in poverty level except in 2014 and 2015. the high poverty percentage demonstrates that poverty reduction program by the regional government is not optimal. table 1 number and percentage of people living in poverty in the d.i yogyakarta the high level of poverty that exists in yogyakarta is caused by many factors that are interconnected with each other, in accordance with the theory of the poverty circle according to kuncoro (2000) who argues that poverty is not only caused by the absence of development in the past but also caused by development constraints in future. development of human resources through the development of physical infrastructure and human resources. in accordance with research conducted by suryandari (2017) which shows that improving the quality of human resources through education significantly influences the level of poverty in the province of diy. figure 2 shows a graph of the poverty percentage in d.i. yogyakarta province. there is a downward trend from 2010 to 2016, except from september 2014 to march 2015. in september 2014 the percentage increased from 14.55 percent to 14.91 percent in march 2015. the increase does not only occur in d.i. yogyakarta province but almost in all provinces in indonesia. this happened because of an increase in inflation province year population living in poverty in d.i. yogyakarta percentage of population living in poverty special region of yogyakarta 2012 562.100 15.88 percent 2013 541.900 15.03 percent 2014 532.590 14.55 percent 2015 550.230 14.91 percent 2016 494.940 13.34 persen 3.75 5.39 8.86 13.23 13.22 11.95 10.78 3.775 5.52 8.27 12.62 12.69 11.485 10.38 0 2 4 6 8 10 12 14 dki jakarta banten jawa barat jawa tengah di yogyakarta jawa timur indonesia 2016 2017 poverty in daerah istimewa yogyakarta (diy): policies and efforts to solve it (data year of 2010-2016) 20 caused by adjustments to the policy of subsidized fuel in indonesia between september 2014 and march 2015. this caused the inflation rate in indonesia to accumulate to 7.26 percent (bi, 2014). figure 2 percentage of people living in poverty in the province of d.i. yogyakarta in 2010-2016 source: statistic indonesia diy 2018 (processed) poverty levels in indonesia appear to be low and show a decline, but do not reflect an increase in people's welfare. this is because most indonesian people still face several problems, including low levels of education and skills (mansur 2012). the poverty per district/city in the province of d.i. yogyakarta from 2012 to 2016 is quite varied. the region with the lowest poverty rates is in the jogjakarta city, while the highest poverty rate alternately from 2012 to 2016 are in gunung kidul and bantul district. the poverty rate in the yogyakarta city is low due to several factors such as high economic growth and better education and health facilities. it is reasonable because jogjakarta city is the capital of the d.i. yogyakarta province. the high number of poor people in gunung kidul and bantul districts is partly due to the fact that most of the population living in the area work as small farmers, according to the theory of suselo and tarsidin (2008) in their research concluding that the agriculture, plantation and fisheries sectors are not alone is the business sector with the highest poverty level, but also has the highest poverty elasticity of economic growth. table 2 percentage of people living in poverty according to city and district the regional government in collaboration with the national team for the acceleration of poverty reduction had implemented a poverty reduction program. the program was divided into 3 main programs, namely: (1) family-based integrated social assistance program; (2) community empowerment-based poverty reduction programs; (3) poverty reduction programs based on the empowerment of micro and small economic enterprises (smes) (tnp2k 2018). this program should reduce poverty in the province of d.i. yogyakarta, but in reality, the poverty rate in the province is still quite high. based on the description above, the problems in this study are: district/city 2012 2013 2014 2015 2016 kulon progo distrct bantul distrct gunung kidul distrct sleman distrct jogjakarta city 23.31 21.39 20.64 21.4 20.3 16.97 16.48 15.89 16.33 14.55 22.71 21.7 20.83 21.73 19.34 10.44 9.68 9.5 9.46 8.21 9.38 8.82 8.67 8.75 7.7 16.83 16.14 15.88 15.03 14.55 14.91 13.34 2010 (maret) 2011 (september) 2012 (september) 2013 (september) 2014 (september) 2015 (maret) 2016 (maret) persentase penduduk miskin afebi economic and finance review (aefr) vol.04 no.01, june 2019 21 1. what factors influence the level of poverty in the d.i yogyakarta province? 2. what policies can be implemented to reduce poverty in the d.i yogyakarta province? research purposes 1. analyze the factors that influence the poverty level in the d.i yogyakarta province. 2. formulate policies for the government in an effort to reduce the poverty level in the d.i yogyakarta province. 2. research methods data types and sources secondary data consisted of the number of people living in poverty, the unemployment rate, economic growth, the number of people working in the agricultural sector, dependency ratio, health facilities, and the average education level in the d.i. yogyakarta province. supporting data were obtained from statistics indonesia (bps) and the ipb library, while other information came from scientific journals and textbooks. secondary data used was the time series for the period 20122016 and cross-section data covering 5 districts/cities in the d.i yogyakarta province. data analysis the analysis consisted of descriptive and quantitative analysis. descriptive analysis was used to describe and facilitate data interpretation using tables or graphs. the analytical method was used to analyze the current conditions in poverty and develop a more effective policy strategy to reduce poverty in the d.i. yogyakarta province. the quantitative analysis used was data panel analysis, in the form of a cross section with 5 districts/cities in the d.i. yogyakarta province and time series from 2012 to 2016. the quantitative analysis method of panel data was used to analyze the factors that influence poverty rates in the d.i. yogyakarta province in 2012-2016. panel data was processed using ms. software, excel and eviews 9. lnpovertyit = β0 + β1 growthit + β2 lnkesit + β3 tptit + β4 lntktaniit + β5 rkit + β6 lnpenit + εit in the above equation, lnpoverty is the natural logarithm of poverty; growth is economic growth; lnkes is the natural logarithm of health facilities; tpt is open unemployment rate; lntktani is natural logarithm of labor in the agricultural sector; rk is dependency ratio; lnpen is logarithm of average length of school. 3. results and discussion gujarati (2005) explains that panel data (pooled data) is a combination of time series data and cross section. data panel analysis method can use three models, namely pooled least square (pls), fixed effect model (fem), and random effect model (rem). the best model was chosen based on the chow test and the hausman test. in the chow test, the probability value (p-value) was 0.0000, meaning that the best model between pls and fem is fem because the probability value of chi-square was less than the confident level of 5 percent. the hausman test was not performed on panel data processing because the cross-section data in this study was less than the variable so that the output of the estimated random effect model (rem) was not produced. poverty in daerah istimewa yogyakarta (diy): policies and efforts to solve it (data year of 2010-2016) 22 table 3 chow test results effects test statistic d.f. prob. cross-section f 86.093217 (4,24) 0.0000 cross-section chisquare 95.586464 4 0.0000 table 4 estimated results of the best model fixed effect model dependent variabel: ln_vol independent variabel coefficient probability growth 0.031114 0.0167* lnkes -0.321695 0.0138* tpt 0.015124 0.1670 lntktani -0.005299 0.0000* rk 0.003306 0.2060 lnpen -0.778219 0.0375* c 14.71893 0.0000 weighted statistics r-squared 0.995342 sum squared resid 0.043414 prob(f-statistic) 0.046618 durbin-watson stat 2.014267 unweighted statistics r-squared 0.995342 mean dependent var 11.47366 sum squared resid 0.046618 durbin-watson stat 1.965733 description: * significant to the confident level of 5% ** significant at the cofiesent level of 10% there are four classic assumption tests, namely multicollinearity, heteroscedasticity, autocorrelation, and normality test. the multicollinearity test showed that the variable of dependency ratio and labor force working in the agricultural sector was above 0.8, namely 0.911438. according to klein's test, forasmuch as the largest correlation between the independent variables is smaller than the r-squared of the model, the indications of multicollinearity can be neglected so that the model used is considered to have no multicollinearity problems. the heteroscedasticity test showed that the sum square residual weighted statistic was 0.043414, smaller than the sum square unweighted statistic of 0.046618, and it has been weighted gls on the model, meaning that there was no problem of heteroscedasticity. the autocorrelation test can be detected by looking at the durbin – watson statistic (dw) value. a model is clear from the autocorrelation problem if the dw value is between 1.55 to 2.46 (juanda, 2009). in this study, the dw statistic model value was 2.078212, meaning that the model is free from the autocorrelation problem. the results of the normality test can be seen from the value of jarque-bera (jb). the model analyzed had a jb value of 2.629735 and a probability value of 0.268510. both values are higher than 5%, meaning the poverty model in d.i. yogyakarta province has a normal spread of the error term. the coefficient of determination in the model was 0.994116. it means that 99.4116 percent of the dependent variable diversity can be explained by independent variables and the remainder by other variables outside the model. based on the estimation results, the following equations were obtained: lnpovertyit = 14.71893 α0 + β1 0.031114 growthit β2 0.321695 lnkesit + β3 0.015124 tptit β4 0.005299 lntktaniit β5 0.003306 rkit β6 0.778219 lnpenit in this study, the economic growth has a significant positive effect on poverty in the d.i. yogyakarta province. an increase of 1 percent in economic growth will increase the poverty rate by 0.031114 percent, ceteris paribus. in yogyakarta, increased economic growth led to an increase in poverty. it is alleged because the economy is afebi economic and finance review (aefr) vol.04 no.01, june 2019 23 dominated by the industrial sector with large capital so that it is only enjoyed by a handful of large entrepreneurs, while the majority of workers and small entrepreneurs are less well-paid. economic growth actually increases poverty in the province of diy, this is in accordance with research conducted by safitri (2015) in his research showing that economic growth has a positive effect on poverty levels in indonesia in 2010 to 2013.health facilities have a significant negative effect on poverty levels in d.i. yogyakarta province. it means that if there is an increase in health facilities by one percent, it will reduce the poverty rate by 0.321695 percent, assuming ceteris paribus. the results of this study are consistent with research conducted by hapsari (2019) which shows that life expectancy that illustrates health facilities reduces poverty levels in indonesia from 2010 to 2017. research conducted by afriyanti (2016) which shows that improved health facilities affect the level of poverty in bengkulu province. the variable of open unemployment rate did not significantly affect poverty rates in the d.i. yogyakarta province. the number of people working in the agricultural sector showed a significant negative effect on the poverty level in d.i. yogyakarta province. the increase in the workforce working in the agricultural sector by 1 percent will reduce the poverty rate by 0.005299 percent. this research is also in accordance with the results of marlita's research (2017) which examines the analysis of factors affecting labor productivity and its impact on poverty in indonesia where labor in the agricultural sector has a negative effect on poverty. the variable dependency ratio in this study did not affect the poverty level in d.i. yogyakarta province. education level or average length of school in this study showed a significant negative effect on poverty in d.i. yogyakarta province. the increase in the average length of school by 1 percent will reduce poverty by 0.778219 percent, assuming ceteris paribus. alternative policies to reduce poverty in d.i. yogyakarta province the central government, in coordination with the regional government, must be able to achieve economic equality where economic growth is not only enjoyed by the middle to upper-income levels. equitable distribution of income is very important, considering d.i. yogyakarta is the province with the highest inequality or gini ratio in java island at the end of 2017 (statistics indonesia, 2018). it shows that economic equality must continue to be pursued by the government through various policy programs such as infrastructure development in remote areas; continue to strive to procure progressive taxes; opening new jobs especially in labor-intensive sectors and in locations with high numbers of poor people such as in the agricultural sector. regional governments and the central government have to coordinate in carrying out the existing educational program and increasing the quantity and quality of education in the province. increasing the health facilities quantity should be accompanied by guarantees of ease of access for the poor. the government can also increase the awareness of the poor to live a healthy lives with direct socialization. 4. conclusions and suggestions conclusions based on the results and discussion presented earlier, it can be concluded: 1. factors that cause poverty in d.i. yogyakarta province is economic growth rates, the average length of the school, workers who work in the agricultural sector, and the number of health facilities. 2. interventions from the central government are needed to reduce poverty, such as: increasing employment, especially in labor-intensive sectors and where many poor people work; increase the productivity of productive age population by providing soft skills training and incentives for smes; and improve health and education facilities in d.i. yogyakarta province. poverty in daerah istimewa yogyakarta (diy): policies and efforts to solve it (data year of 2010-2016) 24 suggestions 1. the unemployment rate affects the poverty level in d. i. yogyakarta province. the solution offered is to increase employment especially in labor-intensive sectors; carry out training; and providing stimulus to the smes such as the ease of building a business, facilitating loan from financial institutions so that labor absorption increases. 2. the government must also increase the quantity and quality of education in d.i. yogyakarta province. increase the number of educational facilities such as schools; the addition of new educators must be accompanied by a guarantee that the poor can enjoy existing facilities without paying an expensive fee/free fees. the 12-year compulsory education program from the central government must continue to be carried out to improve the quality of human resources in d.i. yogyakarta province. 3. the central government must be able to increase the number of health facilities in d.i. yogyakarta province, improving health facilities evenly to the remote areas. improving health facilities must also be followed by ease of access for the poor. references afriyenti, a. f. (2016). factors affecting poverty levels in bengkulu province and alternative policies to reduce skripsi. bogor (id): bogor agricultural university [bi] bank indonesia. (2018). tingkat inflasi indonesia (indonesian inflation rate). jakarta (id): bank indonesia [internet] [download on 2018 may 11]. available at [https://www.bi.go.id/id/moneter/inflasi/data/default.aspx]. [bps] badan pusat statistik (statistics indonesia). (2018). persentase penduduk miskin pulau jawa dan indonesia 2016-2017 (percentage of people living in poverty in java island and indonesia 2016-2017). jakarta (id): badan pusat statistik (statistics indonesia) [internet] [download on 2018 february 17]. available at [http://bps.go.id/]. [bps] badan pusat statistik (statistics indonesia). (2018). provinsi daerah istimewa yogyakarta dalam angka 2013 (the province of d.i. yogyakarta in figures in 2013). daerah istimewa yogyakarta (id): badan pusat statistik d.i. yogyakarta (statistics of d.i. yogyakarta) [internet] [download on 2018 march 5] available at [https://yogyakarta.bps.go.id/]. [bps] badan pusat statistik (statistics indonesia). (2018). provinsi daerah istimewa yogyakarta dalam angka 2014 (the province of d.i. yogyakarta in figures in 2014). daerah istimewa yogyakarta (id): badan pusat statistik d.i. yogyakarta (statistics of d.i. yogyakarta) [internet] [download on 2018 march 5] available at [https://yogyakarta.bps.go.id/]. [bps] badan pusat statistik (statistics indonesia). (2018). provinsi daerah istimewa yogyakarta dalam angka 2015 (the province of d.i. yogyakarta in figures in 2015). daerah istimewa yogyakarta (id): badan pusat statistik d.i. yogyakarta (statistics of d.i. yogyakarta) [internet] [download on 2018 march 5] available at [https://yogyakarta.bps.go.id/]. [bps] badan pusat statistik (statistics indonesia). (2018). provinsi daerah istimewa yogyakarta dalam angka 2016 (the province of d.i. yogyakarta in figures in 2016). daerah istimewa yogyakarta (id): badan pusat statistik d.i. yogyakarta (statistics of d.i. yogyakarta) [internet] [download on 2018 march 5] available at [https://yogyakarta.bps.go.id/]. afebi economic and finance review (aefr) vol.04 no.01, june 2019 25 [bps] badan pusat statistik (statistics indonesia). (2018). provinsi daerah istimewa yogyakarta dalam angka 2017 (the province of d.i. yogyakarta in figures in 2017). daerah istimewa yogyakarta (id): badan pusat statistik d.i. yogyakarta (statistics of d.i. yogyakarta) [internet] [download on 2018 march 5] available at [https://yogyakarta.bps.go.id/]. [bps] badan pusat statistik (statistics indonesia). (2018). statistik daerah istimewa yogyakarta 2018 (the province of d.i. yogyakarta in figures in 2018). daerah istimewa yogyakarta (id): badan pusat statistik d.i. yogyakarta (statistics of d.i. yogyakarta) [internet] [download on 2018 march 5] available at [https://yogyakarta.bps.go.id/]. gujarati. (2005). basic econometrics fourt edition. new york (usa): mcgraw-hill. hapsari, d. (2019). factors affecting poverty rate in indonesia. [skripsi]. bogor (id): bogor agricultural university. hidayat, n. (2008). analisis hubungan komponen indeks pembangunan manusia dengan kemiskinan di propinsi jawa barat (relationship analysis of components of the human development index with poverty in west java province). [thesis]. bogor (id): ipb university. juanda, b. (2009). ekonometrika: permodelan dan pendugaan (econometrics: modeling and estimation). bogor (id): ipb press kuncoro, m. (2000). development economics theories, problems and policies 1st edition. yogyakarta (id): upp amp ykpn. mansur, a. (2012). settlement of trawl use conflicts in relation to poverty alleviation in meureubo, west aceh district. nangroe aceh darussalam (id) marlita. (2017). analysis of factors affecting labor productivity and its impact on poverty in indonesia. [skripsi]. bogor (id): bogor agricultural university. safitri. (2015). economic growth, inequality of income and poverty: analysis of province data in indonesia 2010-2013. [skripsi]. bogor (id): bogor agricultural university. suselo, s. l., & tarsidin. (2008). poverty in indonesia: effects of growth and changes in economic structure. journal of development economics, pp. 180-181. suryandari, a. n. (2017). the effect of economic growth, education and health on poverty levels in the special province of yogyakarta in 2004-2014. [essay]. diy (id): yogyakarta state university todaro., & smith. (2006). third world economic development. fourth edition volume 1. jakarta (id): erlangga yogyakarta publisher. [tnp2k] tim nasional percepatan penanggulangan kemiskinan (the national team for the acceleration of poverty reduction). 2018. program pemerintah dalam menurunkan kemiskinan (government programs in reducing poverty) [internet] [download on 2018 february 18] available at [http: //www.tnp2k.go.id.] the effect of non performing financing, financing to deposit ratio and operating expense to operating income ratio (bopo) to profitability (case study in bank of sharia listed in indonesia stock exchange period 2014-2016) 69 the effect of non performing financing, financing to deposit ratio and operating expense to operating income ratio (bopo) to profitability (case study in bank of sharia listed in indonesia stock exchange period 2014-2016) sri suartini61*, hari sulistiyo2, and wahyuni indrianti3 1,2 universitas singaperbangsa, indonesia abstract the issues raised in this study are: to determine, explain and analyze profitability, non perfroming loan, financing to deposit ratio and operating expense to operating income in bank of sharia and the partial effect and simultaneous of npf, fdr and operating expense to operating income ratio to profitability bank of sharia period 2014 -2016. the number of samples taken 12 bank of sharia in the study period with saturated sampling technique. this research expected to contribute and to the development of the field of accounting, especially financial accounting. the research methods used by the author in this study, using descriptive and verification, the results showed conclusions are: npf has no effect on profitability because of the results of calculations performed tcount smaller than ttabel. fdr has not effect on profitability because of the results of calculations performed tcount smaller than ttabel. partially operating expense to operating income has significant negative effect on profitability. operating expense to operating income is the most influential variable among other variables on profitability. the effect of simultaneous npf, fdr and operating expense to operating income on profitability of 75.8% while the remaining 24.2% is the influence of other factors not examined. we can conclude that npf, fdr and roa simultaneously positive and significant impact on profitability bank of sharia in the study period. jel classification: g10, g12, g21 keywords: fdr, npf, profitability, roa 1. introduction the world of banking is one of the indicators supporting world economic growth, including in indonesia. banking is one of the financial institutions that are necessary in a country's economy, particularly in the area of financing. banking sector to perform its functions based on the precautionary principle. this is because banks have primary business and channel funds back to the community in the form of credit in order to improve the standard of living of the people. one of the indicators used to determine the profitability is return on assets (roa). roa is important for banks because of roa is used to measure the effectiveness of the company in generating profits by exploiting its assets. roa is the ratio between profit after tax to total assets. the greater the roa shows the better performance of the company, since the level of return (return) increases. the greater return on assets (roa) of a bank, the greater the level of profit that the bank achieved, and the better the position of the bank in terms of asset utilization. (mawadah, 2014). in this below figure 1 presented empirical data on the development of return on assets (roa) bank of sharia from 2014 to 2016: * corresponding author. email address: srisuartini_daw@yahoo.com afebi economic and finance review (aefr) vol.03 no.02, december 2018 70 2014 2015 2016 roa 0.41 0.49 0.63 growth of roa non perfoming financing 4.95 4.84 4.42 2014 2015 2016 figure 1 return on assets (roa) source: statistics indonesia bank of sharia (processed 2018) according to niode (2016) in his study stated that npf significant negative effect on roa bank of sharia, in line with research conducted by pratama (2012) stated that the npf and significant negative effect on roa bank of sharia. in contrast to the results of research conducted by sari (2013) which states that the npf positive and significant impact on roa bank of sharia. in figure 2 show an empirical data nonperfoming financing at bank of syaria year of 2014-2016 are presented below: figure 2 non performing financing (npf) source: statistics indonesia bank of sharia (processed 2018) low profitability is also suspected due to fluctuation financing to deposit ratio (fdr). in the research by pratama (2012), argued that fdr positive and significant impact on the return on assets, this is supported by research sari (2013) fdr positive and significant impact on roa bank of sharia. then riyadi and yulianto (2014) in they research claimed that the positive effect on roa bank of sharia. in contrast with the results of harianto (2018) stated that fdr had no effect on roa bank of sharia. this is supported research by wardana (2015) stated that fdr had no effect on roa bank of sharia. in figure 3 show an empirical data financing to deposit ratio (fdr) at bank syaria years 2014 to 2016 are presented below: the effect of non performing financing, financing to deposit ratio and operating expense to operating income ratio (bopo) to profitability (case study in bank of sharia listed in indonesia stock exchange period 2014-2016) 71 finacing to deposit ratio 86.66 88.03 85.99 2014 2015 2016 biaya operasional terhadap pendapatan operasional (bopo) 96.97 97.01 96.23 2016 2015 2014 figure 3 graph financing to deposit ratio (fdr) source: statistics indonesia bank of sharia (processed 2018) another factors which resulted in lower profitability bank of sharia in the study period, allegedly because of the high operating expenses to operating income of the bank of sharia. niode, (2016) the research suggests that operating expenses to operating income significant negative effect on roa bank of sharia. then amplified research by wardana (2015) states that operating expenses to operating income has significant negative effect on roa, then the results of research by hakim and rafsanjani (2016) suggested that partial operating expenses to operating income has significant negative effect on roa. in line with research conducted by wibowo and syaichu (2013) states that operating expenses to operating income has significant negative effect on roa. in fugure 4 show the empirical data operating expenses to operating income (roa) at bank of syaria years 2014 to 2016 are presented below: figure 4 operating expenses operating income source: statistics indonesia bank of sharia (processed 2018) based on the description of the background as mentioned above and see the phenomenon ratios return on assets (roa), non-perfoming financing (npf), financing to deposit ratio (fdr), and operating expenses to operating income were erratic during the period 2014 until 2016, it is necessary to put forward the research to analyze whether there is an effect of the non perfoming financing (npf), financing to deposit ratio (fdr) and operational expenses to operating income to profitability proxied by return on assets (roa), the data obtained will be processed and analyzed, and then will be made in the form of research statement. this research will be the theme afebi economic and finance review (aefr) vol.03 no.02, december 2018 72 or reserach titled "the effects of non-performing financing, financing to deposit ratio and operational expenses to operating income (bopo) to profitability bank of sharia period 2014-2016” 2. literature study/hypotheses development profitability according to prawironegoro (2009: 55), profitability management is the ability to earn a return. from the second opinion of experts concluded that the profitability is the ability of management companies obtain profits through the sale of assets and equity. profitability or commonly called an aspect that reflects the profitability of each company's ability to generate profits hasibuan, (2008: 104). according harahap (2011: 304) describes the profitability of the company's ability to profit through all existing capabilities and resources such as sales activities, cash , capital, number of employees, number of branches and so on. according to dendawijaya (2009: 118) states that "roa is used to measure the bank's ability to obtain an overall profit of the total assets owned. the formula can be used in calculating the ratio of return on assets (roa) as follows: while the predicate of the bank based on roa is presented in the table 1 below: table 1 predicate bank by roa no. ratios predbundle 1 2% <roa sangat healthy 2 1.25% <roa ≤ 2% sehat 3 0.5% <roa ≤ 1.25% fit 4 0% <roa ≤ 0.5% unwell 5 roa ≤ 0% not healthy source: se. bi no. 13/24 / dpnp / 2011 non-perfoming finance according to abdullah (2012: 98) "some of the actions that can be performed in a credit monitoring is to conduct a credit restructure, held rescheduling, consider new loans and liquidate collateral". according to ismail (2015: 224) "npf is a condition in which the customer is not able to pay some or all obligations to the bank as it has been agreed. each bank must be able to manage their credit well in providing credit to the community as well as the return of credit in accordance with the terms and conditions so as to avoid non-performing loans ". according to ismail (2015: 226) "npf (non performing finance) are loans in arrears exceeding 90 days. where npf divided into credit substandard, doubtful and loss ". the formula used to determine the amount of non perfoming finance (npf) as follows: equation…… (1) while the bank based on the predicate of non-performing health finance are as follows: roa = profit before tax average total assets npf = funding problems total financing the effect of non performing financing, financing to deposit ratio and operating expense to operating income ratio (bopo) to profitability (case study in bank of sharia listed in indonesia stock exchange period 2014-2016) 73 table 2 predicate non performing finance no ratios ranked 1 npl <2% very healthy 2 ≤ 2% npl <5% healthy 3 ≤ 5% npl <8% fit 4 8% ≤ 12% npls unwell 5 npl ≥ 12% not healthy source: se. bi no. 13/24 / dpnp / 2011 financing to deposit ratio according kamaludin (2011: 41) "the liquidity ratio indicates the level of the relative ease of an asset to be converted into cash quickly with little or no impairment, as well as the level of certainty about the amount of cash that can be obtained".dendawijaya (2009: 116) stating that "loan to deposit ratio (ldr) is the ratio between the total number of bank loans with funds received by the bank". taswan (2010: 63) the calculation of loan to deposit ratio (ldr) divide loans granted to third parties (excluding loans to other banks) with third-party funds include checking, savings, deposits (excluding demand deposits and interbank deposits). the formula used to determine the amount of the loan to deposit ratio (ldr) is as follows: equation…… (2) while the predicate of the health of banks based loan to deposit ratio is as follows table 3 predicate financing to deposit ratio no. ratios predbundle 1 50% <fdr ≤ 75% sangat good 2 75% <fdr ≤ 85% baik 3 85% <fdr ≤ 100% pretty good 4 100% <fdr ≤ 120% not good 5 fdr> 120% not good source: se. bi no. 13/24 / dpnp / 2011 operational expenses to operating income (bopo) according dendawijaya (2009: 123) roa "is the ratio of operating expenses are used to measure the efficiency and ability of banks to carry out operations". according taswan (2010: 167) "roa indicates the operational efficiency of the bank". the efficiency of the banking industry may be viewed from the standpoint of both micro and macro. according to bank indonesia letter financial services authority circular no. 11 / seojk.03 / 2015 operating expenses to operating income is the operating expense to operating income from the numbers calculated per position (not annualized). the formula can be used to calculate roa ratios are as follows: equation…… (3) fdr = total financing third-party funds roa = total operating expenses total operating income afebi economic and finance review (aefr) vol.03 no.02, december 2018 74 while predicate bank soundness based bopo are presented in the table below: table 4 predicate bopo ratios ranked bopo ≤ 94% very healthy 94% <bopo ≤ 95% healthy 95% <bopo ≤ 96% fit 96% <bopo ≤ 97% unwell roa> 97% not healthy source: circular letter no. 6/23 / dpnp 2004 research hypothesis based on the description of the theoretical basis of research results and the framework above, then the hypothesis are: there is the influence of non performing financing to profitability, there is influence of financing to deposit ratio of profitability, there is influence of operating expense to operating income to profitability, there are the influence of non performing financing, financing to deposit ratio and operating expense to operating income to profitability. 3. research methodology according sugiyono (2011: 2), the research method is defined as: "a scientific way to obtain data for the purpose and usefulness. how meaningful scientific research activities are based on traits of science, that is, rational, empirical and systematic". in this research using descriptive method and verification. descriptive method used to describe the formulation of the problem to one, two, three and so on. the required data is data corresponding to the existing problems and in accordance with the purpose of research, so that the data will be collected, analyzed and processed further in accordance with the theories that have been studied, so the data will be concluded. meanwhile, according mashuri (2009: 45) definition of verification method is as follows: "method of verification is to check whether if it is described to test a way with or without improvements that have been implemented in other places with similar problems with life". the study was meant to test the hypothesis by using statistical calculations. this research was used to test the influence of variable x₁, x2 and x ₃ against y researched. verification means test the theory with testing a hypothesis of what is accepted or rejected. therefore, this method is used to answer the problems regarding profitability as measured through the npf, bopo and fdr. population according to sugiyono (2011:80), population is a generalization of the object or the subject has certain qualities and characteristics set by the researchers to learn and then drawn the conclusion. the population in this study used is the entire banks of sharia listed on the indonesia stock exchange publishes its report in full to the indonesia stock exchange and the financial services authority. total public bank of syaria in the research period as many as thirteen (13) but which meet the criteria as much as twelve (12) banks. sample this study uses secondary data. data that has been collected by the collecting agency data and published to the public user data. secondary data in the form of annual financial reports (annual report) published the bank. sampling method using saturated from ten banks with the largest asset, because populations are examined less than 30. then the entire population can be as a sample (riduan 2010:21). so in this study the samples are twelve (12) banks. for more details can be seen in table 5 below. the effect of non performing financing, financing to deposit ratio and operating expense to operating income ratio (bopo) to profitability (case study in bank of sharia listed in indonesia stock exchange period 2014-2016) 75 table 5 list of sample research no name of bank 1 pt. bank muamalat indonesia 2 pt. bank victoria syariah 3 pt. bank bri syariah 4 pt. bank jabar banten syariah 5 pt. bank bni syariah 6 pt. bank syariah mandiri 7 pt. bank mega syariah 8 pt. maybank syariah indonesia 9 pt. bank tabungan pensiunan nasional syariah 10 pt. bank panin syariah 11 pt. bank syariah bukopin 12 pt. bca syariah source: statistics of sharia banking. www.ojk.go.id. (processed 2018) figure 5 multiple linear regression analysis equations : y = α+b₁x₁+b₂x₂+b₃x₃+ ἐ descriptions: y = profitability (roa) α = konstanta x₁ = non performing financing (npf) x₂ = financing to deposit ratio (fdr) x₃ = bopo b₁ b3 = coefficient of determination ἐ = standard error of the estimate 4. results test validity of data normality test normality tests are used to determine whether a data follow a normal distribution or not. testing is already done using methods of kolmogorov-smirnov. with the provisions when the variable has a value of α calculate these variables then 0.05 > distributed normally. b4x4 non performing financing (npf) x₁ profitabilitas (roa) y b₂x2 financing to deposit ratio (fdr)x₂ bopo x₃ b₃x3 ɛ b₁x1 afebi economic and finance review (aefr) vol.03 no.02, december 2018 76 table 6 result of normality test source: spss 24 (processed 2018) from the table above it can be known that value of significance is 0,182 greater than 0.05, so it can be concluded that the tested data distributed normally. multicollinearity test test for multicollinearity a good correlation model shouldn't happen correlation between independent variables. if the independent variables are correlated each other then this variable is not ontogonal. the variable ontogonal is the value of the independent variable correlation between fellow independent variable is equal to zero. to detect the presence of multikolonieritas by making a hypothesis: a. tolerance value < 0,10 atau vif > 10 : going multicollinearity b. tolerance value > 0,10 atau vif < 10 : not happening multicollinearity table 7 multikolinearity test collinearity statistics tolerance vif ,772 1,296 ,904 1,106 ,750 1,333 source: spss 24 (processed 2018) based on the table above can be drawn the conclusion that the value of tolerance and the vif be seen that there is no tolerance value below 0.10 and the value of the vif is not in the top 10, this is the fourth independent variable means that there is no relationship multikolinearity so it can be used to predict the profitability of the proxied with the return on asset (roa) during the research period i.e. 2014 up to 2016. heteroscedasticity test heteroscedasticity is the state where a variant of residual inequalities occur for all observations in regression models. the regression models in the pre-requisite is the absence of heteroscedasticity problems. heteroscedasticity test aimed at testing one-sample kolmogorov-smirnov test unstand ardized residual n 36 normal parametersa,b mean ,000000 0 std. deviation 2,26034 652 most extreme differences absolut e ,182 positive ,182 negativ e -,159 test statistic ,182 asymp. sig. (2-tailed) ,004c the effect of non performing financing, financing to deposit ratio and operating expense to operating income ratio (bopo) to profitability (case study in bank of sharia listed in indonesia stock exchange period 2014-2016) 77 whether in regression models of the residual variance inequality occurs one observation to observation of the other testing on this research using a scatterplot graph between the value of the dependent variable prediction that is zpred with residue sresid. heteroscedasticity does not occur when there is no clear pattern, as well as the points spread above and below the 0 on the y axis. figure 4 result of heteroscedasticity test source: spss 24 (processed 2018) based on figure 4 above it’s known that the data can be shown through the dots do not gather in one place and do not form a specific pattern, but evenly spread above and below the zero line so it can be inferred this regression test that there are no problems heteroscedasticity. autocorrelation test a. autocorrelation is the state in which the occurrence of residual correlation between observations at one with other observations in the regression model. method of testing uses test durbin-watson (test dw) with the following conditions: a. if d is smaller than dl or greater than 4-dl, then the zero hypothesis was rejected, which means there is autocorrelation. b. if d lies between du and 4-du, then the zero hypothesis is accepted which means no autocorrelation. c. if d is located between dl and du or du-4 and 4-dl, then it does not produce definitive conclusions. table 8 autocorrelation test results model summaryb change statistics sig. f change durbin-watson , 000 2.245 source: spss 24 (processed 2018) based on the output data above can be seen that the value of dw of 2.245, then this value is compared with the value of the table (table durbin watson) the significance of 5%, where the amount of sample (n = 36) and the number of independent variables (k = 3) the obtained value du 1,654. dw value 2.245 is greater than the upper limit du namely 1,654 and less than (4-du) 4-1.654 = 2.346. it can be concluded that there is no autocorrelation. afebi economic and finance review (aefr) vol.03 no.02, december 2018 78 5. discussion multiple linear regression analysis based on the results of data processing by multiple linear regression using spss 24, coefficient for each variable non performing financing (x1), financing to deposit ratio (x2), and operating expenses to operating income (x₃) to profitability (y). the results of the analysis can be seen in the table 9 below: table 9 the results of multiple linear regression test coefficients model coefficients unstandardized standardized coefficients t sig. b std. error beta 1 (constant) 16.113 2,853 5.648 , 000 npf -, 386 , 280 -, 137 -1.381 , 177 fdr -, 001 , 029 -, 002 -, 020 , 985 bopo -, 150 .019 -, 798 -7.952 , 000 source: spss 24 (data processed 2018) analysis multiple linear regression was used to test the effect of two or more independent variables on the dependent variable. the regression equation can be seen from the test results table coefficients. in the table of coefficients that is read is the value in column b, the first line shows the constant (a) and the next row shows the independent variables constant. according to the table above, the regression model used is as follows: y = 16,113-0,386x₁ 0,001x₂ 0,150x₃ + ԑ based on the regression model and the table above, the results of multiple regression can be explained as follows: a linear regression equation compounds known to have constants of 16.113 with positive direction. so the magnitude of constants indicate that if the independent variables (npf, fdr, and bopo) is assumed to be constant, then the dependent variable is profitability (roa) going up by 16.113%. the variable coefficients npf = 0.386 with negative direction, means any increase in npf 1% will cause a decline in profitability (roa) of 0.386%. coefficient of fdr = 0.001 with the direction of the negative meaning if fdr suffered a rise of 1% then the profitability (roa) will decrease of 0.001%. the variable coefficients bopo = 0.150 negative directions meaning if bopo increase by 1%, then the profitability (roa) declined by 0.150%. coefficient of determination in the correlation analysis there is a number called the coefficient of determination or who is often called the coefficient determinant, because magnitude is the square of the correlation coefficient (r²), so that the coefficient is useful to determine the influence of variable x to variable y. table 10 coefficient of determination model summaryb model r r square adjusted r square std. error of the estimate change statistics r square change f change 1 , 871a , 758 , 735 2.36393 , 758 33.428 source: spss 24 (data processed 2018) a. predictors: (constant), npf, fdr, bopo b. dependent variable: roa the effect of non performing financing, financing to deposit ratio and operating expense to operating income ratio (bopo) to profitability (case study in bank of sharia listed in indonesia stock exchange period 2014-2016) 79 according to the table 10 above, shows that the coefficient of determination (r2) of 0.758 or 75.8%, then the variable profitability is proxied by the roa (y) can be explained by the variable npf (x₁), fdr (x₂) and roa (x₃) or can npf means (x₁), fdr (x₂), and roa (x₃) effect on profitability is proxied by the roa (y) amounted to 75.8% while the remaining 24.2% is the influence of other factors not examined. npf influence on profitability npf influence on profitability can be determined via statistical hypothesis testing as follows: h0: npf no effect on profitability ha: npf effect on profitability based on t test tcount -1.381 values obtained further the value will be compared with the value ttable . ttable with a significance level (0.05) and degree of freedom (df) = (n-2) = 36-2 = 34 obtained table = 1.691, becauset (1,381) <ttable (1,691) with sig. (0.177)> α (0.05), then ho is accepted. it can be concluded that the partial non performing financing does not affect the profitability. fdr influence on profitability fdr influence on profitability can be determined via statistical hypothesis testing as follows: h0: fdr had no effect on profitability ha: fdr effect on profitability based on t test tcount -0020 values obtained further the value will be compared with the value ttable . ttable with a significance level (0.05) anddegree of freedom (df) = (n-2) = 36-2 = 34, becauset (0,020) <ttable (1,691) with sig. (0.985)> α (0.05), then ho is accepted. it can be concluded that the partial financing to deposit ratio does not affect the profitability. bopo influence on profitability bopo influence on profitability can be determined via statistical hypothesis testing as follows: h0: bopo no effect on profitability ha: bopo effect on profitability based on t test tcount -7.952 values obtained further the value will be compared with the value ttable . ttable with a significance level (0.05) anddegree of freedom (df) = (n-2) = 36-2 = 34, becauset (7.952)> t table (1,691) with sig. (0,000) <α (0.05), then ho is rejected. it can be concluded that the partial bopo significant negative effect on profitability variables test (test f) f test (f-test) is aimed to determine the effect of independent variables (credit risk, liquidity risk, operational risk and market risk) simultaneously (together) to profitability (roa) of banks listed on the indonesia stock exchange period 2014 2016. statistical hypothesis: h0: npf, fdr, and roa simultaneously has no effect on profitability ha: npf, fdr, and roa simultaneously affect the profitability with the test criteria as follows: h0 rejected if sig <or with a significance level of 5%, significant testing or no real effect on the individual, or at least on the dependent variable y.αfhitung ≥ ftabel x1x2x3 h0 received sig> or with a significance level of 5%, the test is not significant or no real effect on the individualαfhitung < ftabel x1and x2x3 the dependent variable y. the test results simultaneously with spss 24 presented in the table 11 below: afebi economic and finance review (aefr) vol.03 no.02, december 2018 80 table 11 f test results anovaa model sum of squares df mean square f sig. 1 regression 560.402 3 186.801 33.428 , 000b residual 178.821 32 5.588 total 739.223 35 source: spss 24 (data processed 2018) based on table 12 above, shows that f count =33.428 sig. 0,000. effect of x₁, x₂ and x₃ simultaneously to y are shown in the table below 4:11 this: table 12 influence together npf (x1), fdr (x2) and bopo ((x3) to profitability (y) structural sig. α fhitung ftabel conclusion ɓx1, x2, x3 0,000 0.05 33.428 2,641 ho rejected source: spss 24 (data processed 2018) test table f shows that sig (0.000) <α (0.05)="" and="" fhitung="" (33.428)="">ftabel (2.641) then the ho is rejected. thus it can be concluded that nonperforming financing, financing to deposit ratio and bopo simultaneously positive and significant effect against the profitability (roa) banking on the research period. 6. conclusion based on the results of the analysis and discussion that had been featured in previous chapter, then the conclusion can be drawn as follows: the npf did not affect to profitability because of the results of the calculations are the value of tcount is less than ttable. this means that the higher the risk of credit then it will not affect profitability (roa) of the bank. fdr did not affect to profitability because of the results of calculations performed tcount(t hitung) smaller than ttable . it means that the higher the liquidity of the banking then it will not affect profitability (roa) of the bank. bopo influence on profitability is 7.952% with a negative direction. that is partially bopo significant negative effect on profitability (roa). this means that the greater the risk of a loan the bank profitability would be lower. roa is the most influential variable among other variables on profitability. the simultaneous effect npf, fdr and bopo on profitability (roa) of 75.8% while the remaining 24.2% is the influence of other factors not examined. thus we can conclude that npf, fdr and bopo simultaneously positive and significant impact on profitability (roa) banking in the study period. 7. suggestion based on the results of the above conclusions, it could be suggestions that are beneficial to the company, among others: it is expected that bank of sharias continue to maintain its npf not to be too high by means of the principle of prudence in lending to customers, even though the results do not affect the bank's profitability but this npf is one indicator of the rating of the bank. it is expected that bank of sharias continued to keep fdr because by keeping the liquidity level of the bank will be able to cover its obligations in both the short term and long term so that the bank's operations can run smoothly as well as risks relating to liquidity can be anticipated by the banks. it is expected that bank of sharias able to suppress bopo minimum because of the results of research conducted bopo bank of shariaing is still too high, it indicates that the bank of shariaing in the study period less attention to the level of efficiency in conducting its operational activities that have an impact on the profitability of these banks. bank of sharias are expected to continue to maintain npf, fdr and bopo so the effect of non performing financing, financing to deposit ratio and operating expense to operating income ratio (bopo) to profitability (case study in bank of sharia listed in indonesia stock exchange period 2014-2016) 81 the banks in the study period in conducting its operational activities get the expected profit as well as the health of banks can be properly maintained. references abdullah. 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measures on indonesia’s trade performances of environmental goods: a gravity model 61 impacts of import tariffs and nontariff measures on indonesia’s trade performances of environmental goods: a gravity model made satriawan mahendra61 and akhmad solikin 2* 1 fiscal policy agency, ministry of finance, indonesia 2 polytechnic of state finance stan, ministry of finance, indonesia abstract in 2011 leaders of asia-pacific economic cooperation (apec) members pledged to reduce tariffs and nontariff barriers on goods and services related to environmental goods, known as apec environmental goods list. in 2012 it was agreed that the member countries will reduce import tariff for the environmental goods to be maximum of 5% by 2015. the commitment is controversial since it is agreed as apec commitment and hence nonbinding. however, since the tariffs are applied under most favored nation principle, by definition the tariffs apply to all countries. this article aims at analyzing impacts of import tariffs and nontariff barriers for the environmental goods on indonesia’s trade performances. in this study, the environmental goods include apec environmental goods list and wto environmental goods core. the gravity model is used to explain variations in indonesia’s exports and imports of 54 environmental goods to 18 trading partners. data included in the analysis were obtained from secondary sources and were analyzed using fixed effect panel data regression. the results show that import tariffs do not affect import, while they affect export negatively. the nontariff measures affect positively to both import and export performances. other variables, namely the gross domestic product and distance are significant and have influence as predicted by theory. jel classification: f10, f13, f14 keywords: apec environmental goods list, gravity model, import tariffs, nontariff barriers, trade performance, wto environmental goods core list 1. background/objectives and goals when global economic cooperation under wto regime stalled, many countries looked at regional economic integration, i.e. cooperation between countries within a geographical area to decrease and/or abolish tariff and nontariff barriers for free trade of goods, services, and factors of production (hill et al., 2012). in general, regional economic integration aims at strengthening country’s economic position in international trade. one of regional economic cooperation in which indonesia takes part is asia-pacific economic cooperation (apec), i.e. international cooperation in asia-pacific region whose aim is to support economic growth and prosperity in the region. until 2016, apec members are 21 economies (not countries). a unique feature of apec is that it is non-binding, meaning that its decision is built on consensus and is based on voluntary principle. however, apec’s decisions usually get attentions since economic potentials of the region. as documented by apec policy support unit (apec-psu, 2016), economic growth in apec region in 2015 was 2.7% and expected to be 2.8% in 20172018. therefore, indonesia should monitor closely apec decisions, including agreements in international trade, and use it to formulate indonesia’s policy especially in international trade. * corresponding author. email address: akhsol@pknstan.ac.id afebi economic and finance review (aefr) vol.04 no.01, june 2019 62 apec forum have discussed several initiatives to decrease trade barriers, either tariffs or nontariff barriers related to environmental goods and services. elimination of trade barriers will reduce costs along supply chain and boost international trade in environmental goods and services (vossenaar, 2016). the aim is to support sustainable economic development, achieve green growth, and tackle climate change. the initiative was realized by negotiating apec list of environmental goods (apec egs) started in 2011. amid current apec crisis of identity (dang, 2017), tariff reduction in environmental goods ahead of wto negotiation is one of apec successes (dang, 2017; vossenaar, 2016). apec egs consist of 54 goods as declared in by 21 apec leaders in vladivostok, russia. the 54 product categories represent 54 different hs (harmonized system) subheadings. a complete list of apec egs could be accessed at annex c apec economic leaders’ declaration 2012 (apec secretariat, 2012). table 1 offers summary of environmental categories in the apec egs. including in the environmental protection category is solid and hazardous waste, waste-water management and air pollution control. table 1 environmental categories in apec egs categories of main environmental protection number of subheadings renewable energy 15 environmental monitoring, analysis and assessment equipment 17 environmental protection 21 environmentally preferable products (multi-layered bamboo flooring panels) 1 total 54 source: sugathan (2013), vossenaar (2013) negotiations on apec egs were done with commitment that products included in apec eg list would have import tariff maximum 5% in 2015. agreement in apec forum does not influence rights, position, and negotiation in world trade organization (wto) since it is applied under apec principles of non-binding, voluntary, consensus and taking into account economic condition of each member. under these apec’s principles, agreement regarding apec egs will be legally non-binding. however, the agreement will be applied based on most favored nation (mfn) principle (united nations, 1978). using import tariff based on mfn principle caused that bilateral or regional trade agreements could be effectively implemented globally. therefore, it means that reduced import tariffs for apec egs can be used for international trade not only between apec members but also between apec members with other countries. apec leaders agreed to reduce import tariff for the apec egs to maximum 5% at the end of 2015. however, until february 2016 several apec members including indonesia, vietnam, china-taipei, russia, papua new guinea and thailand had not fully reduced their import tariffs according to the apec agreement (apec psu, 2016). as for indonesia, until november 2015 there were 13 out of 54 apec egs with import tariff more than 15% which represented 7 products under hs 6 digits. in the meantime, indonesia decided to reduce tariff gradually up to 2021, as stipulated in minister of finance regulation number 134/pmk.010/2016 as the fifth amendment of minister of finance regulation number 213/pmk.011/2011 on good classification and import tariff. in addition to apec egs, there are other classifications of egs, including wto environmental goods core list which were submitted by wto members’ in accordance to the doha round negotiations (sugathan, 2013). there are 26 hs 6 digit in wto egs, which can be grouped into: (1) solid and hazardous waste management, (2) air pollution control, (3) wastewater management and water treatment, noise and impacts of import tariffs and nontariff measures on indonesia’s trade performances of environmental goods: a gravity model 63 vibration abatement, (4) environmental remediation and clean-up, (5) cleaner and renewable energy, (6) energy efficiency, (7) environmental monitoring analysis and assessment, (8) resource efficiency, and (9) environmentally preferable products. import tariff reduction and/or tariff assignation are government interventions which may alter trade performance. furthermore, change in trade performance will affect macro economy as well as the micro economy, especially sectoral economy where the international trade occurred. indonesia’s export and import of environmental goods for 18 trading partners are small as shown in figure 1, i.e. 2.3% of total import value and 1.06% of total export value in 2000 to 2015. however, small value of import and export in the period of observation may change in the future since apec list of environmental goods could be used by non apec member countries/economies. moreover, wto egs core list would cater larger number of countries. therefore, this research aims to inquire about impact of import tariff and nontariff barriers on indonesia’s trade performances. figure 1 indonesia’s export and import of environmental goods to 18 countries source: wits (processed by authors) previous studies investigated about egs in case of indonesia include pkkpi (2014) and salam and nugroho (2016). this study differs from previous study in two ways. first, it includes wto egs core list in addition to apec egs. second, it includes nontariff barriers in addition to import tariff as independent variable. 2. methods 2.1 model studies on international trade generally use computable general equilibrium (cge) or gravity model (piermartini and teh, 2005). cge is widely used to simulate liberalization or regional integration scenarios by altering some exogenous economic indicators. cge is capable to capture effects of trade policy on macro economy and social welfare. however, simulating effects of altering import tariff for merely 54 products is a challenge for cge since it is suitable for simulating macro-economic shock. as for gravity model, it was first developed by tinbergen (1962) to inquire bilateral trade flows affected by gross national product and distance between countries. the gravity model can be categorized as an ex-post analysis method (bacchetta et al., 2015). it is called as gravity model since it resembles newton’s gravity model in which interaction between two objects depends on their mass and inversely related to distance between them. in the basic form, the gravity model stipulates that trade volume is function of the size of trading partners and the distance separating them (ranjan and tobias, 2007). afebi economic and finance review (aefr) vol.04 no.01, june 2019 64 gravity model used in this study is based on model developed by center for international trade cooperation policy, ministry of trade of indonesia (pkkpi, 2014) with adding ntm variable. the empirical model for impact of import tariff and ntm to import performance is shown equation (1) while for export performance is specified equation (2) as follow: ln mjt = α + β1 ln gdpt + β2 ln disj + β3 tarit + β4 ntmt + εjt, (1) ln xjt = α + β5 ln gdpjt + β6 ln disj + β7 tarjt + β8 ntmjt + εjt, (2) where ln mjt = log of import value of indonesia’s eg products with partner country j in period t, ln xjt = log of export value of indonesia’s eg products with partner country j in period t, ln gdpt = indonesia’s gdp constant value at period t, ln gdpjt = partner country j’s gdp constant value at period t, ln disj = log distance between indonesia and partner country j, tarit = average import tariff of apec eg products at period t, ntmt = number of ntm applied by indonesia for eg products at period t, ntmjt = number of ntm applied by partner country j for eg products at period t. 2.2 data this article uses secondary data gathered through data providers such as trade map, world trade integration solution (wits), cepii distance database, world development indicator database of the world bank, and bps of indonesia. the analysis covers period of 2000 to 2015. however, trade data in wits missing for period of 2002-2008. furthermore, due to data difficulty, among 27 countries participated with indonesia’s international trade related to the egs, only 18 countries are further included in the analysis, i.e. australia (aus), brunei darussalam (brn), canada (can), chile (chl), china (chn), costa rica (cri), hong kong (hkg), japan (jpn), mexico (mex), malaysia (mys), new zealand (nzl), peru (per), philippine (phl), singapore (sgp), thailand (tha), turkey (tur), united states of america (usa), and vietnam (vnm). analysis of trade performance was carried out in terms of total trade, and not in terms of each 54 product categories. alternative approach, i.e. analysis per 6-digit hs number (e.g. pkkpi, 2014; salam and nugroho, 2016) could only use general variables and do not allow to use ntm variable. in my research, nontariff barriers measures (ntm) variable represents number of ntm applied for egs trade by importer countries. due to data unavailability, only ntm category a (sanitary and phytosanitary measures) and category b (technical barriers to trade) are used in the analysis. this study does not use alternative approach to measure ntm, such as difference between overall tariff restrictiveness index (otri) and tariff trade restrictiveness index (ttri) (hoekman and nicita, 2011) due to data incompleteness. 2.3 data analysis panel data analysis was used to analyses the data. to choose regression approach, i.e. whether panel least square, fixed effect model, or random effect model, chow test and hausman test were used (gujarati, 2003). test results indicate that the most appropriate model is fixed effect for import model and random effect for export model. further tests for autocorrelation, multicollinearity, and heteroscedasticity were done to fulfill basic econometric assumptions (nachrowi and usman, 2006). the test results indicate that for model 1 there exists of autocorrelation and heteroscedasticity, but no existence of multicollinearity. to curb the problems, model 1 is amended to split ntm to ntma and ntmb in which ntmb is first differenced to curb autocorrelation problem (d1ntmb). in addition, to curb heteroscedasticity problem, model 1 is regressed using the period weight (gujarati, 2003). impacts of import tariffs and nontariff measures on indonesia’s trade performances of environmental goods: a gravity model 65 3. results indonesia’s environmental goods are mainly imported from china, japan, and usa; while exported mostly to singapore, usa, and japan. these countries represent the largest trading partners, while other trading partners contribute negligible values. as for indonesia’s ntm, majority is in terms of tbt (i.e. ntmb) rather than sps (i.e. ntma) and it can be observed that number of ntm is increasing. for example, in 2002 to 2007 it is only 5, increase to 79 in 2010 and 2011, and then above 90s in 20122015. similar pattern could also be observed in number of ntm among 18 of indonesia’s trading counterparts, i.e. more ntmb rather than ntma. for example, 13 countries have zero ntmas and most ntms are observed in usa (104 ntmas), vietnam (44 ntmas), and australia (41 ntmas). in contrast, usa, canada, china, singapore and japan have 546, 231, 214, 130, and 121 ntmbs, respectively. 3.1 gravity model for import and export performance table 2 shows that model 1 and model 2 are both significant at 1%. model 1 can explain about 41.46% of variations in import performance; while model 2 explains about 55% of variations in export performance. in model 1, variables of logarithm of distance, number of non-tariff barrier a (i.e. sts) and first difference of number of non-tariff barrier b (i.e. tbt) are significant at 1% level. it means that indonesia’s import performance regarding environmental goods is influenced by distance between indonesia and the trading partners and also affected by number of nontariff barriers implemented by indonesia. in model 2, almost all of independent variables are significant at 1%, except number of nontariff barriers in terms of sanitary and phytosanitary measures (sps). it means that indonesia’s export of environmental goods is influenced by gdp size of trading partners, distance between indonesia and the trading partners, average custom tariff, and number of nontariff barriers in terms of technical barrier to trade (tbt). almost all of independent variables in model 2 have coefficient signs which are consistent with theory, except for ntmb which is contrary to expectation. in model 2, import tariff affects negatively on indonesia’s exports of environmental goods. on average, when trading partners increase average custom tariff by 1% it reduces indonesia environmental goods by 25.86%. impact of import tariff policy of indonesia’s trading partners is important to determine indonesia’s export performance of environmental goods. conversely, indonesia’s import tariff does not influence import performance. table 2 estimation of gravity models for import and export performances variable model 1 dependent variable: ln import model 2 dependent variable: ln export coefficient standard error coefficient standard error α -29.9245 35.6989 19.4079*** 1.6176 ln gdp 1.4417 0.9980 0.0459*** 0.0459 ln dis -0.8089*** 0.2119 -1.4039*** 0.1322 tar -0.1092 0.1970 -0.2389*** 0.0398 ntma 0.3808*** 0.0912 0.0075 0.0079 d1ntmb 0.0143*** 0.0032 -- ntmb --0.0095*** 0.0016 observation 185 254 r-squared 0.4750 0.5606 adjusted r-squared 0.4146 0.5512 f statistic 7.8586 63.2855 prob. (f-statistic) 0.0000 0.0000 *** = significance at 1% afebi economic and finance review (aefr) vol.04 no.01, june 2019 66 3.2 discussion as presented previously, gdp growth variable significantly affects indonesia’s export performance. this result is well documented in literature, e.g. in case of indonesia-yemen trade (sabaruddin, 2016), indonesia’s crude palm oil (cpo) trade (ridwanulloh, 2018), indonesia’s trades with china and india (bary, 2010), and indonesia’s textile export to 13 countries (maryono, 2012). in addition, distance which resembles transportation costs affects indonesia’s export and import performance negatively, as documented in numerous previous studies, e.g. effendi (2014), maryono (2012), ridwanulloh (2018), wahyudi and anggita (2015), and yuniarti (2007),. two main independent variables are also significant, namely import tariff and nontariff barriers. trade partners’ import tariff is negatively affects indonesia’s export of apec environmental goods. this result is in accordance with literature, e.g. effendi (2014). this result support argument that import tariff is not important to inhibit import (pkkpi, 2014; salam and nugroho, 2016), yet trading partners’ import tariff influences negatively on indonesia’s exports. the difference results could be explained by difference in indonesia’s average import tariff and trading partners’ average import tariff as shown in figure 2 and figure 3. indonesia’s average import tariff for environmental goods is all below 5%; while trading partners’ average imports tariffs are vary i.e. 3 countries around 0% and 5 countries above 5%. figure 2 indonesia’s average import tariff of environmental goods to selected trading partners source: wits (processed by authors) figure 3 trading partners’ average import tariff of environmental goods to indonesia source: wits (processed by authors) as for nontariff barrier measures, the regression results show that ntm positively influence indonesia’s export and import performance. these results do not support impacts of import tariffs and nontariff measures on indonesia’s trade performances of environmental goods: a gravity model 67 hypotheses that ntm affects international trade negatively; while in literature the positive coefficient of ntm for export performance is observed in case of indonesia’s tuna exports (rindayati and kristriana, 2018). rindayati and kristriana (2018) list possible explanations including increasing information regarding product safety, increasing product compatibility, and decreasing uncertainty. when these positive impacts exceed checking and certifying costs, it will increase trade volumes. furthermore, different coefficient sign may also be influenced by how ntm is measured, i.e. when measured as frequency index it will be positive; while it becomes restrictive effect if the ntm is measured as coverage ratio (mustafa et al., 2018). based on the results, indonesia may continue to decrease import tariff for egs since it does not significantly influence import performance. as for ntms, government could further develop them, especially technical barrier to trade (tbt). for example, government could set up registration requirements while at the same time could efficiency on administration processes for registration. lastly, government could also arrange offensive strategies to increase environmental good exports by improving technology and know-how (kalirajan, 2016), to compensate tendency of single flow of environmental goods from developed to developing nations. references apec policy support unit (apec-psu). (2016). apec regional trends analysis: reducing trade costs in the asia-pacific. singapore: apec secretariat. apec secretariat. (2012). 20th apec economic leaders' declaration: annex c apec list of environmental goods. 20th apec economic leaders' meeting. vladivostok, russia. bacchetta, m. et al., (2015). a practical guide to trade policy analysis. geneva: world trade organization and united nations conference on trade and development. bary, p. (2010). prospek perdagangan indonesia, china dan india melalui analisa gravity model. buletin ilmiah litbang perdagangan, 4(2), 194-209. dang, q. a. (2017). vietnam navigates change to defuse apec's internal crisis (giga focus asien, 5). hamburg: giga german institute of global and area studies leibniz-institut für globale und regionale studien, institut für asienstudien. effendi, y. (2014). asean free trade agreement implementation for indonesian trading performance: a gravity model approach. buletin ilmiah litbang perdagangan, 8(1), 1-22. gujarati, d. n. (2003). basic econometrics 4th ed.. new york: mcgraw hill. hill, c. w., wee, c.-h., & udayasankar, k. (2012). international business: an asian perspective. new york: mcgraw-hill education (asia). hoekman, b. & nicita, a. (2011). trade policy, trade costs, and developing country trade. world development, 39(12), 2069-2079. doi: 10.1016/j.worlddev.2011.05.013 kalirajan, k. (2016). the influence of regional cooperation on export potential of the apec 54 list of rcep countries. in anbumozhi, v., kalirajan, k., kimura, f. afebi economic and finance review (aefr) vol.04 no.01, june 2019 68 &yao, x. (eds.). investing in low-carbon energy systems: implications for regional economic cooperation. singapore: eria & springer. maryono, j. 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(2015). the gravity model of indonesian bilateral trade. international journal of social and local economic governance, 1(2), 153156. yuniarti, d. (2007). analisis determinan perdagangan bilateral indonesia pendekatan gravity model. jurnal ekonomi pembangunan, 12(2), 99-109. valuation of aeronautics and space technology at lapan 1 valuation of aeronautics and space technology at lapan erni br simanjuntak 1*and gede harja wasistha 2 1,2 universitas indonesia, depok, indonesia abstract new challenges arises for government institutions engaged in research and engineering to continuously innovate and develop technologies that have competitive advantages and provide income for the country through royalty from licensed technology. this research carried out to valuate the aeronautics and space technology. the objective of the study is to develop appropriate intellectual property valuation methods. this research is a case study utilizing sequential mix method which is the combination of quantitative and qualitative research. by using intellectual capital theory, this research-broaden the literatures on the technology valuation in the field of aeronautics and space. this study fills research gap on the existing technology valuation method that is still partially conducted by government research and development. this study discusses the value of intangible assets and licenses from intellectual property that are calculated through three valuation approaches, such as cost-based approach, income-based approach, and market-based approach. the results of the study show that the most appropriate intellectual property valuation method are the cost-based approach and income-based approach. jel classification: o30, o31, o33 keywords: cost based approach, income based approach, intellectual property, market based approach, sequential mix method 1. introduction globalization has created challenges as well as opportunities for countries that actively and passively take part in the world economic system. based on publications published by the organization for economic co-operation and development globalization has created challenges as well as opportunities for countries that actively and passively take part in the world economic system. based on publications published by the organization for economic co-operation and development (oecd factbook, population and migration, 2013), in 2020 the world population will reach approximately 7 billion people. based on projections issued by the statistics indonesia (bps, 2017), in 2020 indonesia will reach more than 271 million people. knowledgebased economics is based on production, distribution, and the use of knowledge. the biggest contributors to economic growth are human and social resources which are seen as very valuable assets that are able to increase productivity, added value and increase competitive advantage. the global competitiveness ranking index issued by the world economic forum (schwab, 2018) show the position of national competitiveness at the global level with indicators: human capital, markets, environment, and innovation, where indonesia ranks 34 in 2015, 37 in 2016, 47 in 2017, and ranked 36 in 2018. according to data from the world intellectual property organization (wipo, 2018) showing the ranking of intellectual property ownership, indonesia ranked 85 in 2013, 87 in 2014, 97 in 2015, 88 in 2016, 87 in 2017 and ranked 85 in 2018. as a government institution engaged in research and engineering, the indonesian national institute of aeronautics and space (lapan) has the task of conducting research and development in the field of space technology regulated by presidential regulation no. 49 of 2015 concerning the indonesian national institute aeronautics * corresponding author. email address: erniezanastacia@gmail.com mailto:erniezanastacia@gmail.com afebi economic and finance review (aefr) vol.04 no.01, june 2019 2 and space and law no.21 of 2013 concerning space, which became the basis and legal standing in the space management. in the mandate of government regulation no. 20 of 2005 concerning transfer of intellectual property technology as well as result of research and development by universities and by research and development institute which mentioned the mechanism of technology transfer includes (1) licenses; (2) cooperation; (3) science and technology services; and/or (4) publication, where the value of technology is needed in negotiating license agreement. intellectual property is categorized as intangible assets where the valuation involves inventors (researchers) as technology makers and lapan as research funding providers. until now there has been no standard policy in indonesia to regulate in detail about technology valuation technique or approach used, and benefits of patent appraisal. the formulation of technology/intellectual property valuation is still partial, this is evidenced by every ministry and institution that has a research and development division, formulates its own technology/intellectual property valuation through the regulation of heads of institutions or related ministers. lapan is a non-ministerial government institution that carries out government duties in the field of aerospace research and development and its application, as well as the implementation of space in accordance with the provisions of legislation. as one of the government institutions producing intellectual property, lapan needs to make a method to calculating technology valuation that does not only assessing patents value but also calculates the flows of the investments in technology, licensing value, and the value of royalties from utilizing technology. the method of calculating the value of technology is formulated into the guideline to conduct aeronautics and space technology valuation, in the form of regulations signed by head of lapan. this research will answer the question about how the technical calculation of monetary value (valuation) on technology resulting from space research at lapan and determine the most appropriate valuation method to be applied in lapan. in previous studies, technology valuations have been carried out in agriculture, manufacturing and pharmacy. however, until now the valuation of technology in the field of space has never been done in indonesia. technology/intellectual property valuation has been carried out by several parties such as: modeling and designing of patent oriented technology valuation systems in the bogor agricultural university (ipb) by (dharmawan, 2006); "model for the evaluation of a technology established in a manufacturing system" by (schuh et al, 2012); and "valuation of compound real options for investments in innovative projects in pharmaceutical industry" by (baranov & muzyko, 2015). this study uses the intellectual capital theory as described by (stewart, 1997), and analyzed using business process analysis, swot analysis, and soft system management (ssm). the research methodology used is in the form of case studies, where the data sources used are primary and secondary data and data are collected using mixed methods (quantitative and qualitative). ellet (2009, p.20) explains that there are four benefits of research from the results of case studies, namely problem solving, decision making process, evaluations, and rule determinations. the research of the case study must have direct benefits for the object of research, so it is expected that this research can be used as a basis for valuating the results of research, development and engineering of aeronautics and space technology at lapan and become a reference for other research and development institutions. this research was carried out at center for aerospace innovations and standards (pusispan) at lapan and limited only to the technology which has been registered in directorate general of intellectual property (djki) and had commercialization potential. the systematics of writing consists of 5 chapters: 1) background, contains an explanation of the research background; 2) literature theory and study, containing theories and concepts related to research themes; 3) research methodology used; 4) findings, which contain discussion and description of research objects; and 5) valuation of aeronautics and space technology at lapan 3 conclusions, containing conclusions from the results of the research and suggestions for what can be given to the government, especially lapan. 2. literature theory and study intellectual capital is all things that are known and given by everyone in the company, which provides competitive advantage, which contains intellectual material (knowledge, information, intellectual property rights, experience), and used to create wealth (stewart, 1997). intellectual capital is classified into 3 categories: human capital refers to human skills, knowledge and abilities (harris, 2014); structural capital refers to the capabilities possessed by the organization as a whole, such as: technology, inventions, scientific publications, patents, copyright, protection of trade laws (stewart, 1997); and customer capital refers to the most valuable component which is based on the assumption that customers can support the company's operations and provide benefits to the company (stewart, 1997). in addition, many studies which use intellectual property rights theory (hami) were influenced by john locke's in his book two treatises of government concerning property rights. with the emergence of a new theory of intellectual property, i. kant in his book "von der unrechtmäßigkeit des büchernachdrucks" in 1785 emphasized that the inventor has rights that cannot be seen in his work, which is called "ius personalissimus", namely the right of birth from within itself (personality rights) by (syafrinaldi, 2010). this study uses business process analysis of managing innovation in lapan environment using the approach of input-process-output popularized by (aguilarsavén, 2004) "business process modeling: review and framework" and and uses swot analysis which is defined as the analysis based on logic which not only maximize the strengths and opportunities, but also minimize your weaknesses and threats (rangkuti, 2013). the researcher also conducted a soft system management (ssm) analysis in which a systematic process of questions in the conceptual problemsolving process compared to relevant real-world situations (checkland & poulter, 2010). lapan's technology/intellectual property is classified as intangible assets which are non-monetary assets that can be identified but do not have physical form and used in producing or delivering goods or services, leased to other parties, or administrative purposes, which are controlled by the institution as due to past events and is expected to generate economic benefits in the future within estimated period of time when the asset utilized by the institution; or the number of production units or the like that is expected to be obtained by the institution from these assets (psak 19, iai, 2015). intellectual property is wealth that arises from human intellectual abilities through creativity, taste and intention in the form of work in the fields of technology, science, art and literature (pp no 20 tahun 2005). according to (wipo, 2016) in its book "what is intellectual property", states that intellectual property refers to the creation of thoughts in the form of discovery; literary and artistic works and symbols; names and images used in trading, and divided into two categories: 1) industrial property includes patents for inventions, trademarks, industrial designs and geographical indications; and 2) copyright includes literary works (such as novels, poetry and drama), films, music, artistic works (for example: pictures, paintings, photographs and sculptures) and architectural designs. technology valuation methods that can be used, among others: 1) cost-based method, calculate the historical cost that has been expended in creating and developing an intellectual property, or the cost to reproduce, or the cost of replacement for developing; 2) market based method, observing the price of the same intellectual property assets purchased and/or sold by an independent party, or comparing the amount of royalties from licenses that give the value of a similar intellectual property asset (european commission, 2014). this can happen if the market price of similar intellectual property assets can be obtained directly from the active market. according afebi economic and finance review (aefr) vol.04 no.01, june 2019 4 to (bader & rüether, 2011), the market is active if meets the following three conditions: a) goods in a homogeneous market, b) buyers and sellers are willing to enter into an agreement; and c) prices can be known to the public; 3) income based method, based on the assumption that the value of an intangible asset is seen from the future success of the asset in the form of cash flow (bader & rüether, 2011), which is determined as the present value of potential future cash flows that calculated based on a business plan (menninger et al, 2011). the determination of the present value is applying a risk-adjusted discount rate of the intangible assets during the remaining economic useful life. there are various technology valuation methods which use cash flow generated by intellectual property and discount rates, including discount cash flow (dcf), discounted future economic benefits (dfeb), relief-from-royalty method, and others. the dcf and dfeb approach is used to calculate the present value of future cash flows of an intellectual property over its useful life with two main factors: the time value of money and the estimated level of cash flow risk. the relief-from-royalty method is used to determine the amount of royalty that the other party must pay to license an intellectual property. as a research comparison, the researcher analyzed studies that were carried out by: 1) budi dharmawan (2006) entitled " model of technology valuation system of patent-oriented process (case study on composition of cajuput candy as throat relief)” using the ordered weighted-averaging (owa-operator) analysis method; 2) schuh et al. (2012) with the research "model for the evaluation of a technology established in a manufacturing system", which developed a manufacturing technology value method that is expected to eliminate the complexity of calculating the value of manufacturing technology that continues to evolve using discounted cash flow analysis method; and 3) baranov & muzyko (2015) with research on " valuation of compound real options for investments in innovative projects in pharmaceutical industry ", which use real options method (investment valuation method) to calculate the value of investment in innovative projects in russia. based on the previous study above, the valuation of technology especially in the field of space has never been done in indonesia. the approach taken for valuation of space technology/intellectual property, namely market approach, income approach, and cost approach. the research framework designed to facilitate understanding the research process can be seen figure 1. figure 1 research framework source: author • deliver the research objectives to lapan • identification of ip lapan • data collection schedule planning and preparation • observasion • interview • questionnaire data collection • data processing • business process analysis • swot analysis • soft system management data analysis • the application of the income based valuation method uses the dcf concept for zap 2.0 patent rights research interpretation valuation of aeronautics and space technology at lapan 5 this research is a case study at the center for innovation and space (pusispan) which is a work unit of the national aeronautics and space institute (lapan). the data used in this study are primary data and secondary data. primary data was obtained from interviewer, namely the head of the center, head of innovation, head of the technology transfer sub-field and several personnel under the innovation field, such as data technology business process data at lapan, pusispan organizational conditions, lapan intellectual property data, prospective business partner data, and criteria technology that is ready to be commercialized. secondary data can be in the form of data from books, journals and scientific works, intellectual property documents, financial planning documents, photos, videos, writings and other information from the internet related to research. 3. research methodology this section explains how to build a valuation method for aeronautics and space technology that is appropriate for lapan. this research is a case study that can dig deeper into the valuation process of aeronautics and space technology at lapan by developing a valuation method that is fit and in accordance with the characteristics of lapan technology and organization structure. the method used in data collection is sequential mix-method, which combining qualitative and quantitative methods. qualitative methods are used to understand the strategic conditions of lapan and provide adequate explanations from experts at lapan. quantitative methods are used in the process of data analysis and processing. this qualitative method is quantified through the process of codification (shauki, 2018). the data used in this study are primary and secondary, primary data obtained consist of data of technology transfer business process at lapan, the condition of the pusispan organization, data of lapan intellectual property, data of prospective business partner, and technology criteria that are ready to be commercialized. secondary data gathered from books, journals and scientific works, intellectual property documents, financial planning documents, photos, videos, writings and other information from the internet related to research. the research instruments used in the form of: 1) observations made by observing directly to the activities that occur from business process or object studied; 2) interviews the parties related to process of research, development, and engineering of aeronautics and space technology, such as researchers, head of research center, and other related parties; 3) giving a questionnaire; 4) documentation; 5) corporate website; and 6) document review. the analysis used in this study is 1) process business analysis, which is carried out to fully understand the business processes of technology transfer activities and to know the potential areas that can be improved and developed; 2) swot analysis, carried out to capture current conditions of lapan as a basis for preparing technology transfer strategies; 3) soft system management (ssm), used in building working system designs that have human aspects as the main problem. this system is needed to reconstruct a more soft and interpretive methodology to investigate human activities (bhaskar et al, 2006). according to (checkland, 1981), there are seven levels in implementing this ssm, namely: 1) identification of situations from unstructured problems; 2) descriptios of existing problems; 3) formulation of root definitions from relevant system; 4) building a conceptual model; 5) comparing models with reality; 6) establishing appropriate changes; and 7) take action to correct the situation. afebi economic and finance review (aefr) vol.04 no.01, june 2019 6 figure 2 soft system methodology source: adapted from the seven-stage model of ssm, (peter checkland, 1981) this research was conducted at lapan, lapan is responsible directly to the president under coordination minister of research, technology, and higher education, who has mandate to carry out government duties in the field of aerospace research and development and its utilization as well as the implementation of space in accordance with the provisions of legislation. in performing this main task, lapan has functions as follows: 1) preparing national policies in the field of research and development of space and atmosphere science, aeronautics, space technology, remote sensing and their implementations; 2) conducting research and development on space and atmospheric science, aeronautics and space technology, and remote sensing and their implementations; 3) space management; 4) coordinating functional activities in performing lapan tasks; 5) guiding and supporting administratively all units in lapan; 6) conducting aeronautics and space strategic policy studies; 7) carrying out aeronautics and space technology transfer; 8) managing aeronautics and space standardization and information systems; 9) supervising the implementation of lapan duties; and 10) submission of reports, suggestions, and considerations in the field of research and development of space and atmosphere science, aeronautics and space technology, and remote sensing and their implementation. pusispan is supporting unit that is functionally under and responsible directly to head of lapan and administratively under and responsible to the main secretary. in the context of innovation, pusispan has task to carry out the assessment and development of innovations and standards in the field of aeronautics and space. it has three pillars: 1) management of technology, which has task to trace intellectual property (ip) in lapan, ip valuation for determining intangible assets, and ip management; 2) transfer of technology, which has task of strengthening technology transfer and implementing technology valuations; and 3) standard, has the task of formulating, establishing, implementing, monitoring and reviewing aeronautics and space standard (source: www.lapan.go.id). valuation of aeronautics and space technology at lapan 7 figure 3 lapan organizational structure source: www.lapan.go.id 4. result this section explains the analysis of research results including the general description respondents and data acquisition in order to summarize and discuss the research findings. the research instruments used were observation, interviews and questionnaires. 4.1. findings the research carried out will answer the problems on intellectual property owned by lapan associated with the intellectual capital theories and intellectual property rights. lapan's intellectual property provides competitive advantages and is categorized as structure capital protected through statutory regulations if it is registered to directorate general of intellectual property (djki) 4.1.1. observation observation conducted to systematically obtain data of lapan's technology/intellectual property flow. this observation was perfomed at the pusispan by involving technical units which undertaking research, development and engineering of aeronautics and space technology at lapan. 4.1.2. interview semi structured inverview performed by asking interviewees 6 open questions then followed-up by deeper questions to get more information about their understanding of technology or intellectual property valuation owned by lapan. the target audience are 6 respondents consist of parties related to lapan's intellectual property valuation. from the target, the researcher managed to interview 2 respondents. this research instrument has 3 themes: 1) the importance of valuing intellectual property rights of lapan; 2) lapan intellectual property rights valuation method; and 3) commercialization of lapan intellectual property rights. 4.1.3. questionnaire questionnaire target are the inventors (researchers) at lapan who has registered their technology/intellectual property rights to djki and ready to be commercialized. from 251 inventors, this research is limited to 26 people based on the head of the pusispan official memo number: 172/jt.02/04/2019/pusispan dated 15 april 2019 with the consideration that 26 respondents already have intellectual http://www.lapan.go.id/ afebi economic and finance review (aefr) vol.04 no.01, june 2019 8 property that has been registered in the djki and has investors who are interested in licensing. this questionnaire has 33 questions about lapan's intellectual property rights. in table 1. we can see that the target respondents are 26 people. from the target, only 16 people filled out the questionnaire, of which 13 were male and 3 were female. respondents who filled out questionnaires averaged 35-44 years old and majority of the respondents are researchers at lapan. table 1 demographics of respondents 4.2. discussion 4.2.1. lapan intellectual property valuation research carried out through observation, interviews, and questionnaires answers the first question of research regarding the importance for lapan as a research, development and engineering institution in the field of aeronautics and space to conduct valuations or assessments of technological results or intellectual property. this intellectual property valuation process starts from inventors (researchers) conducted research on lapan technology, registered to the djki to obtain patent certificate, until intellectual property rights can be utilized and commercialized. table 2 list of lapan’s intellectual property of total 92 patents, there are 4 patents that are ready to be commercialized and already have investors including. lapan's intellectual property do not have a value that can be used as basis for recording intangible assets in lapan financial statements and as basis value for licensing intellectual property. for this reason, an appropriate valuation method is needed to calculate the value of lapan's intellectual property. no. description amount percentage 1. target respondents 26 people 100,00% 2. respondents filled out the questionnaire 16 people 61,54% 3. gender man 13 people 81,25% women 3 people 18,75% 4. age 18-24 years old 25-34 years old 2 people 12,50% 35-44 years old 8 people 50,00% 45-54 years old 4 people 25,00% 55-64 years old 2 people 12,50% 65 years and above 5. works head of center/bureau 2 people 12,5% head of division/field 1 people 6,25% head of sub division/field 1 people 6,25% head of research group researcher 9 people 56,25% engineer 2 people 12,5% others 1 people 6,25% valuation of aeronautics and space technology at lapan 9 4.2.2. application of soft system management (ssm) in the development of a valuation method designed valuation methods must consider needs and perspective of the inventor and prospective business partners. ssm offers series of steps that can be followed in meeting the established criteria table 3 stages of soft system management formulation of root definition is a statement that describes the foundation of a system when viewed from a certain angle (checkland & poulter, 2010). following is the catwoe construction framework of valuation methods for aeronautics and space technology. table 4. root definition of the lapan valuation method stages description information identification and description of problems there is no proper measurement tool for evaluating the results of research, development and engineering of aviation and space technology at lapan clear regulations related to technology transfer, recognition of intangible assets in financial reporting the formulation root definitions of the system are relevant roof definition is a statement that naturally describes the foundation of a system when viewed from a certain perspective (checkland, 2002) use the catwoe technique consisting of client-c, actors-a, transformation-t in this case the construction of the valuation method, views on the importance of "t" (weltanschauung-w), the owner of "t" (ownership-o), and limitations of the system environment (environment-e) build a conceptual model the conceptual model of valuations made must have criteria that are relevant to the current condition of puspanpan lapan as a valuator of the results of the lapan invention. apply the market approach, income approach, and cost approach to lapan inventions that will be commercialized compare models with reality the proposed valuation concept model is compared with real world conditions in the context of aviation and space technology and organizational context. adjust which valuation approach is the most appropriate and beneficial for inventors, lapan, and investors set valuation methods and actions to correct the problem situation this stage encourages the emergence of recommendations for improvements to the concept being built. apply the valuation method to all results of the invention that have the same criteria through the head of the national aeronautics and space agency's regulation on valuation guidelines for results of research, development and engineering of aeronautics and space technology stages description information identification and description of problems there is no proper measurement tool for evaluating the results of research, development and engineering of aviation and space technology at lapan clear regulations related to technology transfer, recognition of intangible assets in financial reporting the formulation root definitions of the system are relevant roof definition is a statement that naturally describes the foundation of a system when viewed from a certain perspective (checkland, 2002) use the catwoe technique consisting of client-c, actors-a, transformation-t in this case the construction of the valuation method, views on the importance of "t" (weltanschauung-w), the owner of "t" (ownership-o), and limitations of the system environment (environment-e) build a conceptual model the conceptual model of valuations made must have criteria that are relevant to the current condition of puspanpan lapan as a valuator of the results of the lapan invention. apply the market approach, income approach, and cost approach to lapan inventions that will be commercialized compare models with reality the proposed valuation concept model is compared with real world conditions in the context of aviation and space technology and organizational context. adjust which valuation approach is the most appropriate and beneficial for inventors, lapan, and investors set valuation methods and actions to correct the problem situation this stage encourages the emergence of recommendations for improvements to the concept being built. apply the valuation method to all results of the invention that have the same criteria through the head of the national aeronautics and space agency's regulation on valuation guidelines for results of research, development and engineering of aeronautics and space technology afebi economic and finance review (aefr) vol.04 no.01, june 2019 10 nkt = okt + pkt where: okt = 𝐵𝑘 σ b n 4.2.3. lapan intellectual property valuation method valuation of lapan’s ip has benefits, among others, as a basis for recording the acquisition value of intangible assets in lapan's financial statements and as a basis for determining the value of licensing. the technical calculation of monetary value (valuation) on technology, from the results of space research at lapan can be performed using valuation method, such as: cost based approach kaldos (2009) states that in a cost-based assessment, the cost of developing intellectual property (ip) assets is considered equivalent to the value of the asset. the historical costs incurred by ip owners to develop asset intellectual property are equal to current asset prices. calculation of technology value/patent using a cost approach can be done by calculating the historical cost that has been incurred in making and developing an intellectual property, or the cost to reproduce ip, or a replacement cost for developing another ip similar. based on the interviews conducted, the cost-based approach method is hard to calculate acquisition value of intangible assets as basis for determining the value of patents. lapan uses ip calculation methods adapted from lipi (2017), weighting methods, in which this calculation is based on the output value of ip after deducting the cost of building a prototype and other irrelevant costs coupled with the value of the process of ip protection. the cost of the process of protecting intellectual property is all costs incurred using the apbn in the context of submitting the protection rights of an intellectual property from registration to receipt of protection rights marked with a certificate. the cost of the protection process can be formed, but not limited to: registration fees, accelerated publication costs, substantive examination fees, certificate issuance costs, and other costs. formulation of the research cost weighting cannot be traced (lipi, 2017) information: nkt : value of intellectual property/technology okt : intellectual property/technology output pkt : intellectual property/technology protection process valuation of aeronautics and space technology at lapan 11 bk : weight of certain intellectual property b : total output weight in one budget ceiling n : budget ceiling for research, development and engineering figur 4 lapan’s ip valuation with cost-based approach mechanism source: author income based approach based on the results of the interview, this method is the best method to describe the asset value of lapan’s ip where this method can produce relatively stable or predictable cash flows. the two main factors that must be taken into account in calculating ip asset values are the time value of money and the estimated level of cash flow risk. the researcher uses discounted cash flow (dcf) to evaluate lapan’s ip which ready to be commercialized. dcf is a method of calculating fair value by valuing net cash flows during the life of a business and discounting the value of accumulated cashflow (damodaran, 2002). formulation of discounted cash flow where, n = the age of the asset cft = cash flow for period t r = discount rate risk estimation of cash flow 𝑉𝑎𝑙𝑢𝑒 = 𝐶𝐹𝑡 1 + 𝑟 𝑡 𝑡=𝑛 𝑡=1 𝐷𝐶𝐹 = 𝐶𝐹1 1+𝑟 1 + 𝐶𝐹2 1+𝑟 2 + ⋯ + 𝐶𝐹𝑛 1+𝑟 𝑛 terminal value or afebi economic and finance review (aefr) vol.04 no.01, june 2019 12 figure 5 lapan ip valuation with income-based approach mechanism source: author market based approach the market-based approach is carried out by observing the prices of similar ip assets that are traded by independent parties or comparing the amount of royalties from similar ip asset licenses to serve as the basis for providing the value of an ip asset (kaldos, 2009). ip assets produced by lapan are unique so it is hard to find the exact same technology in the market and if there is any comparative information avalailable it will be contained in confidential legal agreement documents owned by other parties, so that it cannot be used as a basis for valuing lapan's ip assets. table 5 valuation method of lapan intellectual property commercialization valuation of aeronautics and space technology at lapan 13 4.3. research interpretationvaluation zppi automated processing (zap) 2.0 zppi stands for fishing potential zone. zap is an application processing satellite image data automatically. the result of zap is zppi information. zap had registered in the directorate general of intellectual property in category of patents and type of patents is intangible assets. this intellectual property relates to a method for automatically determining potential fishing zones using zap 2.0 software. zppi information generated is daily information. the input data of zap 2.0 software is sea surface temperature (spl) of terra/aqua (t/a) modis and snpp viirs satellites. to detect thermal front, the single image edge detection (sied) method is used with a threshold value of 0.5c. results of thermal front detection is a polygon area, which it is partitioned into several polygon sections. the center point of each polygon is the zppi coordinar duck. the latest zppi information is valid for the next 2 to 3 days with a coverage radius of 3.3 km from its center. zppi information is provided in various formats namely: pdf, kmz, shp and jason. the aim is to accommodate the needs of users in various sectors. data obtained from earth station acquisition (satellite image data) are stored in the data bank server owned by the remote sensing application center, then processed automatically using zap 2.0 software. the satellite image will be sent to the prospective business partner server where the prospective business partner has installed zap 2.0 software to make data automatically processed into zppi, then it will be sent to the fisher navigation device. device is based on android which has been developed by business partners to display the coordinates of the potential fishing area. figure 6 process flow of zppi information production source: lapan’s document according to data from the fisheries industry grew by 6.78% in 2017 with a value of rp169.5 trillion and always above the national gdp growth and agricultural sector gdp since 2014. the fisheries industry still opens a broad avenue for the use of zppi information, especially for small and medium fishermen. zppi's information allows sea afebi economic and finance review (aefr) vol.04 no.01, june 2019 14 activities to be more effective and efficient where fishermen can know the location to be visited. although zap has promising market potential, there are several challenges must be faced, namely competition with similar fisheries information products that are available for free and fishermen's literacy rates that are not all high, so reading zppi information and operating devices is not easy for some fishing communities. simulation business of zap 2.0 zap is registered as a patent using remote sensing satellite data to generate zppi information. this patent is proposed by the remote sensing application center with the application number ki p00201708613. the current status of zap is patent pending with the estimated receipt of a patent (patent granted) in 2020 if there are no claims from other parties or other obstacles that slow down the process. in this valuation zap assumed to have royalti at a maximum of 5% above the rule-of-thumb of patent royalty rate of 1% based on market growth potential and quality excellence and the continuity of information produced by zap compared to similar products on the market. by calculating using income-based method, the value of the zap license is rp1,701,161,401.00 with the target market being vessel owners with a capacity of 030 gross ton. according to data ministry of maritime affairs and fisheries (2018), the number of vessels in the capacity group is 410,000 units and that number can increase with the growth rate of the fishing industry. zap products are targeted 10% of the group within 20 years. furthermore, the information is entered into the dcf formula through the excel application, then we get: average earning before interest and tax (ebit) is 17%; average after tax earning (eat) of 14%, return on investment of 16%, payback period in year 4, net present value (npv) of rp 9,141,049,845.00, and present value of royalty of rp3,349,760,184.00. 5. conclusion this section presents conclusions from the results of the study, the limitations of the study and the proposals for the next study. as a government institution that has missions on research, development and engineering of aerospace technology, lapan need to evaluate its intellectual property right and encourage the development of innovation ecosystems to foster innovation productivity in lapan research centers. these activities in accordance with pp no. 20 tahun 2005 on the transfer of intellectual property technology as well as the results of research and development activities by universities and research and development institutions. the technology valuation element consists of system actors and technology valuation factors. system actors are inventors, investors/industries, ip centers, and universities. technology valuation factors are technological factors, marketing factors and potential marketing factors. the technical calculation of the monetary value of technology as a result of space research at lapan is best using cost based approach and income based approach. this is based on the available information of lapan intellectual property. majority of the technologies produced by lapan are classified, using the market based approach will produce a bias value. information obtained in the market cannot provide definite value for the technology produced by lapan because of the costs-components are not likely to be disseminated or usually bound by cooperation agreements. lapan can track research costs and development costs that have been spent to produce patented technology at the directorate general of intellectual property, using the cost based approach valuation method. this method can generate definite value from the acquisition of intangible assets and lapan intellectual property license value. lapan can apply the income based approach method if these costs are very difficult to trace. by using the discounted cash flow concept based on an assumption on the selling price of the technology produced, lapan can determine the expected cash flow of investment with a discount rate in certain period of time. this method will provide information about: return on investment, payback period, net present value valuation of aeronautics and space technology at lapan 15 (npv) and present value of royalty for each lapan intellectual property that is predicted to be commercialized in the near future. research limitations is an event that cannot be controlled by the researcher. the researcher has submitted a letter of interview request addressed to the interviewees who has the interest in the valuation mechanism of lapan aeronautics and technology. researchers must follow standard operating procedure at lapan regarding research request, so the research cannot be carried out. from 6 targeted interviewees only 2 interviewees can be interviewed. the researcher felt that the results of the interviews from the two interviewees answer the research questions. researcher have also distributed questionnaires to lapan inventors from targeted 251 inventors to 26 inventors on the basis that this research is specifically for inventors who already have intellectual property certificates in djki and are ready to be commercialized. based on the head of pusispan service note number: 172/jt.02/04/2019/pusispan dated april 15, 2019, it is planned that 26 respondents will fill in the questionnaire, but until the specified time limit, only 16 respondents filled in. the researcher assumed that the 16 respondents were sufficient to meet the required research data. this research is only limited to the type of intellectual property in the form of patents. it is expected for the next researcher, to perform these valuation methods for other types of intellectual property, such as industrial design, copyright, brands, and so on. this study uses the concept of discounted cash flow where this concept has not produced the value of royalties desired by lapan, it is expected that further research can use the concept of relief-from-royalty method to determine the percentage of the amount of 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(2018). global innovation index 2018: rankings. retrieved from https://www.wipo.int/edocs/pubdocs/en/wipo_pub_gii_2018-intro5.pdf effect of water quality, environmental quality on economic growth in south sumatra province 2013-2017 29 effect of water quality, environmental quality on economic growth in south sumatra province 2013-2017 dimas resy ramadhan1)*, siti novia sari2), syamsurijal a kadir3), abdul bashir4) 1,2,3,4faculty of economics, sriwijaya university, palembang abstract environmental problems are currently the most common problems in the indonesian environment. this environmental problem can be caused by the characteristics of humans as economic beings from several things, ranging from natural factors or factors from humans themselves. most of these problems sometimes do not have a solution to solve them. so that it causes natural and environmental damage to continue. this study aims to determine the influence of development on water quality, air quality on economic growth in south sumatra province. secondary data used is time series sourced from the central bureau of statistics, ikplhd and related agencies during the period 2013 to 2017. the analytical tool used in this study is multiple linear regression based on ordinary least square (ols) along with statistical tests and tests. classic assumptions. the estimation results conducted show that the variables of air quality and water quality have a significant influence and have a positive relationship to per capita economic growth in south sumatra. keywords: air quality, water quality, economy growth per capita. 1. introduction an important problem in economic development is how to deal with trade-offs between development and environmental conservation efforts. development that does not pay attention to these two aspects will cause problems in the future. in short, economic development which merely refers to an advantage without considering the sustainability of nature and the environment will not only have a negative impact on nature but on humans as well. economic development, namely how to deal with the trade-off between meeting the needs of economic development and efforts to maintain environmental sustainability. natural resources in south sumatra are basically a production factor for companies and activities to improve the economy. however, the output issued by the production sector also produces an impact that is received by the quality of life and in the end has an effect on humans. with a human need, both household and consumer, that is, it has an impact on nature. south sumatra is one of the autonomous regions that manages its region by increasing industry and maintaining its natural resources. this is evident from the manufacturing sector and the agricultural sector which provide high contributions. south sumatra province has a high level of economic activity with abundant resources. as is the case in an area which is an area that has industry, mining, agriculture, plantations and others. broadly speaking, economic activities in south sumatra in general are production, consumption in south sumatra has abundant natural resources, so that if it can be managed properly, it can contribute to regional income and regional development in south sumatra. *coressponding author. email address: resy.ramadhan@gmail.com mailto:resy.ramadhan@gmail.com afebi economic and finance review (aefr) volume 6, no. 1 (2021) 30 table 1. air environmental quality index in south sumatra province 2015 2019 (percent) air quality index 2013 2014 2015 2016 2017 2018 2019 numbers 54 987 57 476 60 905 67 028 74 900 81 925 88 089 percent 55.01% 57.45% 60.27% 67.8% 74.28% 81.01% 88.94% source: ikplhd based on the data in table 2, it can be concluded that the high level of income cannot guarantee the improvement of environmental quality. when viewed from the air quality index, which in 2015 was the highest index value of 56.72% and then increased, so that in 2017 it was 74.99% and in 2019 it increased by 88.94%. this means that environmental quality indicators are quite good. table 2 water environmental quality index in south sumatra province 2015 2019 (percent) water quality index 2013 2014 2015 2016 2017 2018 2019 numbers 50 845 53 756 56 841 59 090 60 507 62 124 65 521 percent 51.03% 53.76% 56.72% 59.07% 60.65% 62.86% 65.47% source: ikplhd based on the data in table 3, it can be concluded that the water quality index was initially 51.03%. meanwhile, the water environment quality index has experienced a trend that continues to increase from year to year, but not so drastically. in 2019 the water quality index was 65.47, meaning that it was in a fairly good predicate. the value of this predicate will later serve as a benchmark indicator in making policies regarding processing issues and protecting environmental quality. the threshold set is in accordance with law number 32 year 2009 concerning environmental protection and management. the impact of the economic growth process can not only increase income from the process of economic activity itself but also cause negative externalities as a form of social costs arising from economic activity. government regulation of the republic of indonesia number 74 of 2001 concerning the processing of hazardous and toxic materials states that with the increase in development activities in certain fields, especially in the trade and industry sectors, there is a tendency for the use of hazardous and toxic materials to increase. the view that economic growth ultimately benefits the environment leads economists to argue that sustaining economic growth is important because the most powerful way to improve the environment is to get rich. sometimes this problem does not have a solution to solve it, so that natural and environmental damage continues to occur. this study aims to determine the influence of development on water quality, air quality on economic growth in south sumatra province effect of water quality, environmental quality on economic growth in south sumatra province 2013-2017 31 2. literature review economic development economic development is the process of creating an environment by the community that affects the results of economic indicators such as an increase in employment opportunities and economic growth. the environment referred to as a planning resource includes the physical, regulatory and behavioral environment. schumpeter, defines economic development as a spontaneous and discontinuous change in a circular flow channel which is a disturbance to the balance that always changes and replaces the previous equilibrium state. economic development is the main determinant of the success of a country, but on the other hand, development is also a big problem that must be faced, especially the impact of the process of development activities on the quality of the environment. economic growth simon kuznets, stated that economic growth is marked by an increase in capacity in the long run in providing various economic goods to the community and this is manifested by the continuous increase in national output and accompanied by technological advances. economic development and economic growth work together in achieving national development goals. however, if the two aspects do not pay attention to environmental sustainability, new problems will arise in the future. the existence of technological advances that are not environmentally friendly can endanger their natural habitat. production process activities are not environmentally friendly as a form of effort to increase output, besides being able to increase income, it will also generate quite large social costs. environmental kuznet curve the environmental kuznets curve (ekc) theory states that the case in developing countries over time, technological advances can destroy nature and the environment. meanwhile, in developed countries over time technological advances can improve environmental sustainability. this theory is known as the first theory that describes the relationship between the rate of economic growth and environmental degradation. this theory states that when a country's income is still low, the country's attention both in terms of production, is an investment that can encourage an increase in income by ignoring environmental problems. as a result, income growth will be followed by pollution levels and then will decline with continued growth. environmental kuznet curve divided into three stages, (panayotou, 2003), among others; first, the beginning of the economic development process will be followed by environmental damage which is known as the pre-industrial economy; second, the industrial economic stage, and third, the post-industrial economic or post-industrial stage. initially, industrialization started as a small industry and then developed into a large industry. this movement will increase natural resources and increase environmental afebi economic and finance review (aefr) volume 6, no. 1 (2021) 32 degradation. after that, industrialization will expand its role in the formation of domestic national products. this occurs in the second stage, along with the investment that drives the economic transformation from the agricultural sector to the industrial sector. in the third stage, there is a movement of economic transformation from the industrial sector to the service sector. this movement will be followed by a decrease in air pollution in line with an increase in income. simultaneously, the demand for environmental quality goes hand in hand with an increase in income. the community began to be able to pay for environmental losses arising from economic activities. environmental externalities environmental damage in economics is caused by human activities, specifically called externalities. losses or gains that economic behavior suffers or enjoys due to the actions of other economic actors are called externalities. externalities arise when some activities of producers and consumers have an indirect effect and the externalities that arise can be positive or negative. positive externalities occur when activities carried out by a person or group provide benefits to other individuals or groups (sankar, 2008). meanwhile, negative externalities occur when a factory process in an area has a negative impact, such as disposing of waste in a river which results in water pollution or causes air pollution resulting in environmental pollution. the residents around the factory will bear the external costs of this economic activity in the form of health problems, difficulty accessing clean water, and reduced clean air. pollution in water is not only caused by factory waste, but also caused by the use of chemical pesticides and fertilizers in the agricultural production process. then, air pollution is not only caused by motorized vehicles and factory fumes but also caused by burning rice barns, which until now is still often done by farmers. positive externalities occur when the marginal social benefits are greater than individual costs, therefore individual output is less than social output. meanwhile, negative externalities occur when the marginal social costs are greater than the marginal individual costs. therefore, the level of individual output is greater than social output. 3. research methods variable operational definition the operational definition is an explanation of all the variables used in this study in order to avoid misunderstanding for the reader in interpreting the meaning of the study. based on the variables used, the value of the environmental quality index (ilkh) is a quality standard that reflects environmental conditions. in addition, it can also be used as information material in supporting policy-making that is closely related to environmental protection. the iklh value is obtained from the calculation of the sum of environmental indicators such as water quality, air and land cover, where each indicator is multiplied by 30%. conceptually, the iklh value is comparative, meaning that the value of one province is relative to other provinces. effect of water quality, environmental quality on economic growth in south sumatra province 2013-2017 33 meanwhile, economic variables such as the industry, agriculture and transportation sectors are the result of gross regional domestic product by business field at current prices with a production approach. all variables used in this study use units in the form of percent. types and sources of data in this study, the data source used was secondary data obtained from the central bureau of statistics and ikplhd. secondary data used is data from the indonesian time series from south sumatra 2013-2019 in the form of data on water quality, air quality and real gdp per capita. method of analysis the analytical tool in this study uses multiple linear regression analysis based on ordinary least square (ols). with time series data along with statistical tests and classical assumption tests which aim to determine whether the data is suitable for dieting and to see the effect simultaneously on the dependent variable, the data processing tool used is the e-views 9.0 program. the following regression equation model is used: y = a + β0 + β1x1 + β2x2 + e information: y = economic growth β0 = regression constant β1x1 = water quality coefficient β2x2 = air quality coefficient e = error 4. result and discussion multiple linear regression test table 3. multiple linear regression output variable coefficient std. error t-statistic prob. c -7.2308 6.5808 -1.099548 0.3333 qa 2,9608 4.1408 0.716786 0.5131 qw -1.0209 1.0409 -0.981354 0.3820 r-squared 0.268652 mean dependent var 133988.1 adjusted r-squared -0.097022 sd dependent var 43383.26 se of regression 45439.12 akaike info criterion 24.58366 sum squared resid 8.26e + 09 schwarz criterion 24,56048 log likelihood -83.04281 hannan-quinn criter. 24,29714 f-statistic 0.734676 durbin-watson stat 2.796413 prob (f-statistic) 0.534870 source: processed data, e-views 9.0 based on the result of statistical calculations as in table 1 we obtained the results of multiple linear regression for the per capita economic growth variable are as follows: gnp = -7.2308 + 2.9608 -1.0209 + ei the coefficient results show the efficiency value for the quality variable air is2.9608 has a positive relationship, which means that the variable air quality increases, afebi economic and finance review (aefr) volume 6, no. 1 (2021) 34 then economic growth will have 2.9608 with a probability value of 0.5131> 0.05 which has a significant impact on economic growth. the coefficient results show the coefficient value for the water quality variable -1.0209 and has a positive relationship, which means that when the water quality variable increases, it will increase per capita economic growth by -1.0209with a probability value of 0.3820 <0.05 degree of error of 5% so that it is not statistically significant to economic growth. residual normality test figure 1. normality test 0 1 2 3 -50000 0 50000 series: residuals sample 1 7 observations 7 mean 0.000000 median -167.6827 maximum 49276.68 minimum -61466.53 std. dev. 37100.88 skewness -0.360321 kurtosis 2.244391 jarque-bera 0.317995 probability 0.852998 source: processed data, e-views 9.0 the normality test used in this study was the jarque bera test. the results of the residual normality test in the attachment show that the jarque fallow value is 0.317995 with a p value of 0.852998 where> 0.05. so that h0 is not accepted, which means that the data distribution residuals are not normal. multicollinearity test table 4. multicollinearity test output coefficient uncentered centered variable variance vif vif c 4.33e + 17 1.47e + 09 na qa 1.71e + 17 5.79e + 08 10,69596 qw 1.08e + 18 3.66e + 09 10,69596 source: processed data, e-views 9.0 data the above shows that the centered vif value of both the air quality and air quality variables is above or greater than 10, so it can be stated that there is a multicollinearity problem in the model. heteroscedasticity test (white) table 5. white heteroscedasticity test heteroskedasticity test: white f-statistic 3.068112 prob. f (2,4) 0.1557 obs * r-squared 4.237630 prob. chi-square (2) 0.1202 scaled explained ss 0.860942 prob. chi-square (2) 0.6502 source: processed data, e-views 9.0 effect of water quality, environmental quality on economic growth in south sumatra province 2013-2017 35 the heteroscedasticity test in this research model uses two tests, namely the breuschpagan test and the white test. in the first test of heteroscedasticity, namely the breuschpagan test, it can be indicated by the value of prob. chi square (3) at obs * r-squared is 0.2290 or a p value of 0.2290> 0.05 then h0 is accepted or which means the regression model in the breusch-pagan test is homocedasticity or in other words there is no problem with the assumption of non-heterocedasticity. and so on the white test, it was found that the value of prob. chi square (9) on obs * r-squared is 0.5060, where the critical value is a = 0.05, so that h0 is accepted, and it can be said that the model does not contain heteroscedasticity problems. linearity test (ramsey test) table 6. linearity test output value df probability t-statistic 0.043635 3 0.9679 f-statistic 0.001904 (1, 3) 0.9679 likelihood ratio 0.004441 1 0.9469 source: processed data, e-views 9.0 test the linearity in this study uses the ramsey reset test, with the p value shown in the probability column of the f-statistic row of 0.9679 where it is> 0.05 so that it can be concluded that the independent variable is linear with the dependent variable. determination coefficient test (r2) from the results of the calculation of multiple linear regression analysis, it can be seen that the r2 coefficient is 0.33 which is almost close to 1. this means that the per capita economic growth in indonesia during the 2013-2019 period can be explained by about 33% by the variable air quality and water quality while the remaining 6% is explained by other variables which are not included in this research model. f test statistics the f test aims to determine the effect of all independent variables together (simultaneously) on the dependent variable. table 7. output f-statistics f-statistic 0.734676 durbin-watson stat 2.796413 prob (f-statistic) 0.000000 source: processed data, e-views 9.0 on the results of the table above show that the f-count value with a significance level of 5% or 0.05 of 0.734676> f-table (0.534) and the f-count probability value of 0.000 <0.05, so it can be concluded that h1 is accepted, that the independent variable is simultaneously (together with -same) affects the dependent variable. afebi economic and finance review (aefr) volume 6, no. 1 (2021) 36 5. conclusion based on the results of the above research, it can be concluded that water quality has a positive and significant effect on economic growth. air quality variables have a negative correlation, but energy consumption has a statistically significant effect on economic growth in south sumatra in 2013-2019. air and water quality is currently the most common problem in the indonesian environment. this environmental problem can be caused by the characteristics of humans as economic beings from several things, ranging from natural factors or factors from humans themselves. most of these problems sometimes do not have a solution to solve them. so that it causes natural and environmental damage to continue. reference blakley, e. (1989). planning local economic development: theory and practices. california: sage dinas lingkungan hidup dan pertanahan provinsi sumatera selatan. informasi kinerja pengelolaan lingkungan hidup daerah (ikplhd) sumsel. http://dlhp.sumselpr ov.go.id/ikplhd-sumsel/ economy and environmental quality in indonesia ". economic journal: fe unp. pp. 512 febriana s et al, relationship of economic development to environmental quality in east java province. jdep journal vol. 2 no. 2. jember: faculty of economics and business, state university of jember https://www.prahu-hub.com/sumatera-selatan-yang-kaya-sumber-energi-dan-pangan/ https://dlhk.bantenprov.go.id/upload/dokumen/15%20permalah%20lingkungan%20 hidup%20indonesia%20dan%20penyebabnya.pdf idris. 2012. "the environmental kuznets curve: empirical evidence on the relationship between economic growth and environmental quality in indonesia". economic journal: fe unp. pp. 5-12. novista d et al analysis of economic growth and environmental quality in indonesia. journal, bandung: economics study program, faculty of economics and business, bandung islamic university volume 5, no. 1, year 2019 rajaguk w relationship between environmental degradation and economic growth: the case of indonesia. journal, jakarta: universitas kristen indonesia dki jakarta 2015) (unpublished) sankar, u. 2008. environmental externalities. obtainedon line : http://coe.mse.ac.in/dp/envt-ext-sankar todaro, michael p. and stephen c. smith. 2003. economic development 8th edition. england: person education limitide. pp. 201-216. https://dlhk.bantenprov.go.id/upload/dokumen/15%20permasalahan%20lingkungan%20hidup%20indonesia%20dan%20penyebabnya.pdf https://dlhk.bantenprov.go.id/upload/dokumen/15%20permasalahan%20lingkungan%20hidup%20indonesia%20dan%20penyebabnya.pdf http://coe.mse.ac.in/dp/envt-ext-sankar the effect of industrial sector and transportation sector on co2 emissions in indonesia 56 the effect of industrial sector and transportation sector on co2 emissions in indonesia izmi dwi maharani poetri1)* 1departement of economics, faculty of economics, sriwijaya university abstract environmental quality is an important aspect of life. this study aims to analyze the effect of industrial sector gdp and transportation sector gdp on environmental quality in terms of carbon dioxide emissions in indonesia. this analysis uses multiple linear regression models with the ordinary least square (ols) method. the results of the analysis show that the gdp of the industrial sector has no significant effect on co2 emissions, while transportation gdp has a significant and positive effect on co2 emissions, this is supported by the environmental kuznet curve (ekc) theory. keywords : carbondioxyde emission, gdp of industry sector, gdp of transportation sector 1. introduction the main objective of a country is success in economic development for the welfare of its people. activities in economic development must have implications for the environment. economic activities cannot be separated from the use of natural resources, so that it will reduce the availability of natural resources itself and cause environmental damage, such as water and air pollution. this shows that an economic system and the use of natural resources are interdependent. the sustainability of natural resources is indicated by the importance of a sustainable economic development system by observing the effects of extracting natural resources and emissions from pollutants released into the environment (tisdell, 2009: 265). based on pasal 28h paragraph (1) and pasal 33 paragraph (4) of the 1945 constitution of the republic of indonesia, it is a key provision regarding the regulation of environmental norms in the constitution. in succession the two articles read as follows: article 28h paragraph (1):" every person has the right to live in physical and spiritual prosperity, to have a place to live, and to have a good and healthy living environment and the right to obtain health services ". article 33 paragraph (4): "the national economy shall be carried out based on economic democracy with the principles of togetherness, fair efficiency, sustainability, environmental insight, independence, and by maintaining a balance between progress and national economic unity". based on the above article, it is clear that the 1945 constitution of the republic of indonesia has also accommodated constitutional protection for its citizens to obtain an adequate living environment and guarantee the maintenance of a sustainable environmental order due to the negative impacts of economic activity. national. this provision implies that every citizen has the right to and *coressponding author. email address: izmidwi@gmail.com mailto:izmidwi@gmail.com afebi economic and finance review (aefr) volume 6, no. 1 (2021) 57 obtain a constitutional guarantee (constitutional guarantee) to live and obtain a good and healthy living environment to grow and develop. economic development has more or less polluted the surrounding environment and resulted in a decrease in the quality of the environment. indonesia, which is one of the developing countries, has a goal of increasing gdp from various sectors. in this research, it is more discussed in the industrial sector and the transportation sector. gdp data for the industrial sector and the transportation sector can be seen in figure 1. figure 1. gdp data for the industrial sector and the transportation sector 2000-2019 source : bps (2020) according to kuznet (1955), development without paying attention to the preservation of nature and the environment only creates damage to the environment itself. so there is the environmental kuznet curve theory which shows the relationship between economic growth and environmental degradation. according to this theory, when a country's income is still low, increasing income is of particular concern, so that production and investment will be increased by ignoring environmental quality problems. based on data from the ministry of environment, co2 emissions have increased from 2000 to 2019. this proves that there has been a decrease in environmental quality, especially air quality. figure 2 shows the co2 emission data for 2000 2019. 0 5000000 10000000 15000000 20000000 25000000 30000000 35000000 40000000 45000000 50000000 2 0 0 0 2 0 0 2 2 0 0 4 2 0 0 6 2 0 0 8 2 0 1 0 2 0 1 2 2 0 1 4 2 0 1 6 2 0 1 8 gdp of industry and transportation sector gdp of industry sector (billion rp) gdp of transportation sector (billion rp) the effect of industrial sector and transportation sector on co2 emissions in indonesia 58 figure 2. co2 emission data in indonesia, 2000 – 2019 source : klh (2020) this causes income growth to be accompanied by an increase in pollution and environmental damage. economic growth is driven by increasing economic activity from various sectors, but this also has a negative impact on the environment. one of the negative impacts referred to is air quality pollution which is indicated by the presence of co2 emissions, which can trigger the greenhouse gas (ghg) effect. formulation of the problem the increasing growth of the transportation and industrial sectors is considered to be able to increase co2 emissions. this causes air pollution which is one of the problems faced by several regions including indonesia. the increasing use of transportation causes higher fuel combustion, resulting in an increase in co2 emissions. in time this will also hamper economic growth. the quality of the environment has an impact on the healthy lifestyle of the community which will also benefit from an economic side. therefore, the problems formulated in this study are: how does the gdp of the industrial sector and the gdp of the transport sector affect the quality of the environment when viewed from co2 emissions in indonesia? research purposes the purpose of this study was to determine and analyze the effects of the effect of grdp of industrial and transportation sectors together on co2 emissions? benefits of research the results of this research are expected to provide academic and practical benefits, therefore the benefits of this research include: 1. academically, the results of this study are expected to contribute to the field of health and environmental economics 2. in practical terms, the results of this study are expected to provide information and become a discussion material for policy makers in terms of environmental quality management for economic growth. 3. in general, the results of this study can provide a reference for further studies 0 100 200 300 400 500 600 700 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 2 0 1 9 emisi co2 afebi economic and finance review (aefr) volume 6, no. 1 (2021) 59 1. literatur study environmental quality the environment is seen as an asset capable of providing various benefits. the environment is the most special asset in that it is able to provide a system that supports the existence of life, although as an asset there must be an increase through other assets or at least to prevent improper depreciation of the environment, because the value of environmental assets is so important for the survival of life (tietenberg and lynne, 2011: 17) according to tietenberg and lynne (2011: 31), the environment as a public good is not only a charming sight, but also clean air, clean water sources and biodiversity conservation. however, consumption of public goods cannot be separated and without exception, especially environment and natural resources where one person uses natural resources does not reduce the availability of natural resources for future generations. economic growth according to soekirno (2000: 10), economic growth is the development of activities in the economy that causes goods and services produced in society to increase and the welfare of society to increase. this can be seen and measured from the development of national income (gross domestic product) at constant prices from year to year. gross domestic product (gdp / gdp) is the market value of all final goods and services produced in the economy during a certain period of time. based on this idea, gdp describes the economic activity of a country in a certain period of time. in carrying out these production activities, of course there are production factors used, namely, human resources, natural resources and capital. the relationship between economic growth and air pollution according to hanley and edward (2009: 38), the environment provides many goods and services that are important to the economic system and people's lives, namely: 1. the environment acts as a provider of materials and energy sources 2. the environment acts as a collection of waste from production and consumption activities 3. the environment provides the most basic necessities of life the mass of material from the environment that enters the economic system and accumulates, then is returned to the environment which is referred to as waste (tietenberg, 2011: 18). excessive waste will pollute both air and water so that it also has an impact on reducing environmental values. economic activities that aim to improve people's lives tend to rely on the exploitation of natural resources and are not accompanied by actions to conserve the availability of these natural resources. economic growth can be seen in the increasing gdp, but there is pollution or environmental damage which is also increasing. economic activity and pollution are directly proportional, where the higher the economic activity, the more pollutants produced will increase. environmental damage caused by human production and consumption activities is called an externality. according to fauzi (2006), externalities are the impact of an action by a certain party on another party in the form of positive or negative impacts, or in formal economic terms as a net cost or benefit, from the actions of one party towards another party. environmental damage such as air pollution includes negative externalities. externalities occur when a person's actions have an impact on another person or group of people without any compensation, resulting in inefficiencies in the allocation of the effect of industrial sector and transportation sector on co2 emissions in indonesia 60 production factors. external externalities are basically due to human activities that do not follow environmental economic principles. the market can be an efficient allocation of resources if the assumptions are met, including that actors are rational, have perfect information, markets are in the form of perfect competition, and goods are private. but in reality, these ideal assumptions are difficult to fulfill. as a result, there is a market failure where the market mechanism cannot function efficiently in allocating economic resources that exist in society and among others are caused by externalities. when externalities occur, market prices do not reflect marginal social costs or marginal social benefits, resulting in inefficiencies in resource allocation. based on the impact, the deterioration of environmental quality is considered a negative externality. negative externalities, namely the impact of an activity that is detrimental to other parties without any compensation from the party carrying out the activity. the first theory that describes the relationship between environmental degradation and a country's economic growth rate is the environmental kuznet curve (ekc) theory. according to this theory, when a country's income is still low, efforts to increase a country's income will be the country's main concern. so that an increase in production and investment will be carried out which will encourage an increase in income by disregarding problems of environmental quality. as a result, the quality of the environment will decline even though conditions for income growth continue. previous research similar research has been conducted and has produced several conclusions regarding environmental quality. below are some of the previous researches of this kind. gupito (2012) conducted a study to determine the per capita grdp linkage of the industrial, agricultural and forestry transportation sectors to environmental quality measured by co2 emissions (case study in: 30 districts / cities of central java province, 2009-2010). this study uses co2 emissions as the dependent variable and the grdp of the industrial sector, grdp of the transportation sector, grdp of the agricultural sector and grdp of the forestry sector as independent variables. in this study states that the transportation and forestry sector have a positive and significant effect on co2 in the districts / cities of central java province. meanwhile, the industrial and agricultural sectors have a negative or insignificant effect on co2 in districts / cities of central java province. hutabarat (2010) conducted a study on the effect of industrial sector gdp on environmental quality in terms of sulfur and co2 emissions in five asean member countries for the period 1980-2000. where the domestic product in the industrial sector is the dependent variable. meanwhile, sulfur emissions per capita and co emissions per capita are independent variables. in this study it was found that overall this research proves that the growth of sulfur and co2 emissions from year to year is in line with the increase in gdp in the industrial sector. fasikha and yuliadi (2018) conducted a study on the effect of environmental changes on per capita income in asean countries for the period 2005 2015. where co2 emissions had a positive and significant effect on gdp per capita in nine asean member countries for the period 2005-2015. in this study, it was found that asean countries for the period 2005-2015 indicated the environmental kuznets curve (ekc) hypothesis in industrial economics in which the amount of co2 emissions and gdp per capita simultaneously continued to increase and had not yet reached a turning point. the afebi economic and finance review (aefr) volume 6, no. 1 (2021) 61 results also show that energy use and forein direct investment (fdi) have a positive and significant effect on gdp per capita in nine asean member countries for the period 2005-2015. this research was conducted to determine the impact of economic growth from the industrial and transportation sectors on environmental quality in terms of co2 emissions which refers to the hutabarat research. however, hutabarat's research is only on the industrial sector regarding environmental quality in terms of sulfur and co2 emissions. another difference in the dependent variable hutabarat's research is the gdp of the industrial sector, while sulfur and co2 emissions are independent variables and use the fixed effect model (fem) with panel data analysis. 2. research methodology this research was conducted using secondary data from various appropriate literature. secondary data used is time series data from 2000-2019. this research was conducted using secondary data from various appropriate literature. secondary data used is time series data from 2000-2019. the variables used in this study are based on literature studies conducted on journals, previous research and literature related to the problem under study. data and data sources in this study can be seen in table 1 below: table 1. data and data sources variable unit source co2 emission metriks ton klh gdp of industrial sector billion rupiah bps gdp of transportation sector billion rupiah bps the definition of each variable in research is: a. co2 emissions are gases released from the combustion of compounds containing carbon. co2 emissions are one of the pollutants to measure air quality b. economic growth (gdp) in the industrial sector is a condition in which an increase in the production of goods and services is also followed by an increase in people's income in an area for a certain period of time seen from the industrial sector c. economic growth (gdp) in the transportation sector is a condition where there is an increase in the production of goods and services which is also followed by an increase in people's income in an area in a certain period of time seen from the transportation sector. the analysis uses multiple regression models to determine the effect of gdp in the industrial and transportation sectors on environmental quality in terms of co2 emissions. the model used to estimate the parameters of economic growth is formulated as follows: co2 = bo + b1 logpdbindustri + b2 logpdbtransportasi+e the effect of industrial sector and transportation sector on co2 emissions in indonesia 62 when : co2 = emission co2 (metriks ton) logpdbindustri = gdp of industry sector (billion rupiah) logpdbtransportasi = gdp of transportation sector (billion rupiah) bo = constanta b1, b2 = koefisien regression e = error 3. research and discussion the multiple linear regression analysis method is used to analyze the effect of the gdp of the industrial and transportation sectors on co2 emissions and is processed using spss 23. in this analysis the dependent variable (y) is co2 emissions and the independent variable is gdp of the industrial sector and gdp of the transportation sector. based on the least squares method (ols) from multiple linear regression, the estimation results of the industrial and transportation sector gdp influence on co2 emissions are as follows: table 2. estimation results of multiple linear regression no variabel regression coefficient t-stat prob 1 constant -872.161 -8,182 0,000 3 logpdbind -9,692 -0,661 0,517 4 logpdbtrans 263,186 12,265 0,000 r-square = 0,914 f-statistic = 89,788 prob (f-statistic) = 0,000 source : data processed in 2020, n = 20, α = 0,05 the estimation results obtained r2 value of 0.914. this means that 91.4 percent of the variation in co2 emission levels in indonesia can be explained by the variation of the two independent variables together, namely the gdp of the industrial sector (x1) and gdp of the transportation sector (x2). meanwhile, another 8.6 percent is determined by other variables outside the model used. the regression equation model is obtained as follows: co2 = -872,161 – 9,692 logpdbind + 263,186logpdbtrans based on the results of the regression test, it is found that the industrial sector gdp does not have a significant effect on co2 emissions in indonesia. meanwhile, the gdp of the transportation sector has a positive and significant effect on co2 emissions. where if the gdp of transportation sector activities increases by one percent, it will increase emissions in indonesia by 263.186 percent with the assumption of ceteris paribus. this is in accordance with kuznet's thought, known as the environmental kuznet curve (ekc) theory. where when the country's main attention is focused on efforts to increase a country's income by ignoring environmental quality problems. as a afebi economic and finance review (aefr) volume 6, no. 1 (2021) 63 result, the increase in income is accompanied by decreased environmental quality, marked by increased pollution, namely co2 emissions. the transportation sector is one of the sectors that contributes high figures to co2 emissions in indonesia. the more rapid the economic development, the higher the need for transportation services. as a result, air pollution caused by the combustion of fuel oil from motorized vehicles is high in line with the increasing population and economic growth. so that the consumption of fuel oil increases in the transportation sector 4. conclusion based on the results and discussion, it can be concluded that the gdp of the transportation sector has a significant and positive effect on co2 emissions at the 5% significance level. this explains that the increasing gdp of the transportation sector will increase the co2 emission rate in indonesia. meanwhile, the gdp of the industrial sector does not have a significant effect on co2 emissions. reference fauzi a. 2006. ekonomi sumberdaya alam dan lingkungan. jakarta (id): gramedia pustaka utama. gupito, retno. 2012. keterkaitan pdrb perkapita dari sektor industri, transportasi, pertanian dan kehutanan terhadap kualitas lingkungan diukur dari emisi co2. skripsi. fakultas ekonomi dan bisnis. universitas diponegoro. hanley dan barbier. 2009. pricing nature; cost-benefit analysis and environmetal policy. mpg books group: u.k hutabarat, lamhot. 2010. pengaruh pdb sektor industri terhadap kualitas lingkungan ditinjau dari emisi sulfur dan co2 di lima negara anggota asean periode 1980 – 2000. skripsi. fakultas ekonomi. universitas diponegoro. soekirno, sadono. 1994. makroekonomi modern, perkembangan pemikiran dari klasik hingga keyenesian baru. penerbit pt. raja grafindo perkasa: jakarta. tietenberg, tom dan lyenn lewis. 2011. environmental & natural resource economics. pearson education. boston tisdell, a clement. 2009. resource and environmental economics. world scientific. singapore. analysis of the causality of co2 emissions, consumption of fossil fuels, electricity consumption, and economic growth in indonesia in 1990-2019 113 analysis of the causality of co2 emissions, consumption of fossil fuels, electricity consumption, and economic growth in indonesia in 1990-2019 melati intan kurnia1*, hadi sasana2, yustirania septiani3 1,2,3 universitas tidar, magelang, indonesia abstract increasing economic growth will spark against increased energy consumption. but on the other hand, increasing economic growth will also trigger the occurrence of natural damage and degradation of environmental quality derived from co2 emissions. co2 emissions are caused by oxidation process of fossil fuel energy. this research aims to know the causality relationship between co2 emissions, fossil fuel consumption, electricity consumption, and economic growth in indonesia, as well as long-term relationship between co2 emissions, fossil fuel consumption, electricity consumption, to economic growth in indonesia in 1990 – 2019. the used data is the secondary data that is in the form of data time series. the dependent variables of this study are economic growth, while independent variables are co2 emissions, fossil fuel consumption, electricity consumption. the method that is used in this study is vector error correction model. the results showed that there was a one-way causality between economic growth and fossil fuel consumption, and between electricity consumption and co2 emissions. the research also shows that on long-term co2 emissions has a negative influence, while the consumption of fossil fuels and electricity has a positive effect on indonesia's economic growth in 1990-2019. keywords: co2, energy consumption, economic growth. 1. introduction economic growth is a good parameter of the country's economic performance. economic growth also illustrates how the economy with many goods and services could be better to fulfill the demands of households, corporations, and governments. in recent years, indonesia's economic growth is experiencing not good-enough trend. the economic growth grew to a rate of 5%. it is due to the impact of decreasing global economy, the uncertainty of financial markets and the decline in world trade volumes. it has also seen in 1998 that showed the economic growth of indonesia tends to decline drastically even being taken -13%, because on that year it was a massive economic crisis that affecting the country's economic condition. there are several factors that contribute and has an important role in influencing economic growth. these factors include consumption, government expenditure and trade openness. consumption is a variable that is closely related to the economy because the consumption has a linear relation to the gdp (ichvani and sasana, 2019). meanwhile, the economic growth has polluted environment and caused the decreasing quality of environment that would cause many environmental problems. the economic growth grows in tandem with decreased durability and environmental function. such as, global warming that becoming a serious world problem, especially on this era of globalization. the impact of global warming has been going on for a long time without we realized it. it is started by climate change and quite extreme weather change. from some of these ghg categories, co2 emissions is the most important because of the high contribution of co2 emissions in ghg, which is about 75% (sukardi, 2012:13). *corresponding author. email address: melati.intan.k@gmail.com afebi economic and finance review (aefr) volume 4, no 02 (2019) 114 the world meteorological organization (2012) reported that co2 emissions in the atmosphere reached its highest record in 2011 and it is estimated to have accounted for around 85% of the radiation that led to a rising global temperature. emissions (co2) have the greatest amount and the longest in the atmosphere about hundreds years. as for the sectors that used energy are one of the biggest donors of co2 emissions. emissions, which is caused by co2 and not only contributing to the global warming, can also exacerbate the environment especially affecting to our health. this is in agreement with the research (sasana, kusuma, and setyaningsih., 2019) that the emission of co2 gases is very harmful to the human body. the higher the effect of co2 emissions on air quality then the worse. the lower the quality of air will greatly affect the condition of human health, which can lead to a variety of diseases that will ultimately increase health care demand so that it will increase government expenditure in the health sector. co2 emissions are largely generated by the carbon oxidation process (combustion) in fuel (international energy agency, 2013). the carbon emissions in question are carbon emissions derived from the burning of fossil fuels. however, the use of fuel energy is still quite high one in the country of indonesia. so for the movement of the amount of co2 emissions in indonesia tends to fluctuation. based on data published by the ministry of energy resources (2005) in the minister of environment (2005), the co2 generated by the use of energy dominates about 99% of greenhouse gas emissions, while the remaining approximately 1% is produced by methane (ch4), and dinitro-oxide (n2o). co2 gas comes from a wide range of energy consumption that airs. the current economic activity is not spared from the use of natural resources that produce energy. indonesia's energy consumption is experiencing a trend that continues to increase from year to year. the high energy consumption in indonesia is caused by growing energy needs all the time. on the other hand, this increase in energy consumption is also triggered by the rate of economic growth that tends to strengthen, the population growth is very high, and accompanied by changes in community life patterns. the increasing number of population resulted in increased consumption. the final energy consumption in indonesia to date has increased with increasing economic growth. the energy used comes from fossil fuels such as oil, gas, and coal (indonesia energy outlook, 2018). seen from the year 1990-2019 the consumption of fossil fuels in indonesia is about 50-60%. according to the energy and mineral resources depertemen (2003), fossil fuel energy consumption consumed 70% of total energy consumption, while the electrical energy occupies the second position by consuming 10% of total energy consumption. this is seen from the final energy consumption per type in indonesia. indonesia faced an energy problem that is decreasing fossil energy reserves and has not been balanced with the discovery of new reserves. dependence on fossil energy is clearly still considerable, while the contribution from renewable energy is biofuel that only has a share of 3% of the total is still very minimal (ministry of energy and mineral resources, 2017). in addition to fossil energy, indonesia also has problems with electrical energy. the need for electrical energy in indonesia still can not be felt by a small portion of the community where the area is located very far from most of the population settlements. this shows that the distribution of electrical energy channeling provided by the government through pln company is still not sufficient for community needs. indonesia's electricity consumption per capita can have an effect on increasing economic growth, when electricity consumption per capita is used for economic activities directly related to the increase in production output thereby affecting the formation of gdp. however, the increase in electricity consumption in addition to assisting in increasing economic growth through gdp, also affects the increase in co ₂ emissions. this is in line with research (azam, 2015) that there should be a causal relationship flowing from energy consumption to gross domestic product (gdp) as well as vice versa. energy can be a cause due to economic growth. therefore, gdp and energy needs have a mutually affecting relationship so that gdp becomes one of the drivers of energy needs. analysis of the causality of co2 emissions, consumption of fossil fuels, electricity consumption, and economic growth in indonesia in 1990-2019 115 therefore, the overall problem of energy faced by indonesia consists of 3 coverage namely low electrification, dependence on fossil energy sources, and low new and renewable energy. in addition, there are other problems that arise related to the increase of co2 emissions due to excessive energy consumption. it is due to the consumption of fossil fuels and electricity into the dominant energy used in industrialization and development processes. of course this will have a positive impact, because the consumption of fossil fuels and electricity used can support economic activities that influence the increase in economic growth. economic growth that aims to enrich the people in the end become a destroyer of the life support system, if in consuming excessive energy is not renewable and it will certainly increase the co2 emissions. so it will impact on the decline in environmental quality. economic growth alone is not enough, but also requires environmentally sound development. the aim of the study is to analyse causality and long-term relationships of co2 emissions, fossil fuel consumption, electricity consumption and economic growth in indonesia. 2. research method this type of research uses a descriptive type of research with a quantitative approach. the used variables in this study consisted of dependent variables (y) i.e. economic growth, and independent variables (x) i.e. co2 emissions, fossil fuel consumption, and electricity consumption. in an effort to gather information, as well as a foundation of theories required in analysis and discussion of problems, the authors use secondary data in the form of time series of data from 1990-2019 of co2 emissions, fossil fuel consumption, electricity consumption and economic growth obtained from the world bank website, ministry of finance, oecd, international energy agency, and indonesia energy outlook. the method of analysis used in this study was vecm. before getting into test causality relationship there are several stages done. among them test stasioneritas, optimal lag test, cointegration test. it was only conducted a test of causality relationship to see the relationship of each variable. as for seeing long-term relationships can be seen from vecm. stationonerity test the stasionerity test is used to see whether the root unit is contained in variables from the data time series. in this study, it used the methods of augmented dickey-fulley and phillips-perron. data is considered to be stationary if the probability value is smaller than α = 5% because the data does not have the unit root so that the data is stationary, conversely if the probability is more than α = 5%, then the data has root unit roots so it is not stationary. optimal lag test an optimal lag test is done to avoid autocorrelation on models. determination of the optimal lag is done by choosing the smallest number of accountability criteria (aic) information, schwarz cruterion (sc), and hannan-quinn criteria (hq). cointegration test the cointegration test aims to determine which next method will be taken by using the var or vecm method. variables that are not stationary on a level but in first difference, increase the potential for cointegration between variables, so that the cointegration test needs to be done. the cointegration test was done by using the johansen cointegration. causality relationship test the causality relationship test is done by using granger causality that is intended to know whether two variables have causality relation or not between another variable. in other words, if one variable have cause and effect relation with other variables significantly, because every variable in a research has a chance to be endogenic or exogenic variable. afebi economic and finance review (aefr) volume 4, no 02 (2019) 116 long-term relationship test the long-term relationship in this study, was seen using the vecm analysis with the aim to see the variables affecting economic growth on the short and long term, to figure out the influence of variables in short and long term by paying attention to the value of the t test. where to compare between t-stastistics obtained from vecm calculations with t-table. 3. results and discussion stationonerity test table 1 augmented dicky fulley root test results variable level information first difference information economic growth 0.2901 not stationary 0.0000 stationary co2 emissions 0.9996 not stationary 0.0107 stationary fossil fuel consumption 0.9865 not stationary 0.0072 stationary electricity consumption 1.0000 not stationary 0.0150 stationary source: the data is processed with e-views 10, 2020 table 2 phillips perron root test results variable level information first difference information economic growth 0.2904 not stationary 0.0000 stationary co2 emissions 0.9996 not stationary 0.0107 stationary fossil fuel consumption 0.9865 not stationary 0.0000 stationary electricity consumption 0.9921 not stationary 0.0094 stationary source: the data is processed with e-views 10, 2020 based on the results of table 1 and 2, it can be concluded that all economic growth variables, co2 gas emissions, fossil fuel consumption, and electricity consumption have a root test and srasioner unit in first difference as the probability value in the study is smaller than α = 5%. when stationary data in first difference then the cointegration test is done. when each variable is cointegrated then the method used is vecm. if no cointegration method is used is var first difference. optimal lag test table 3 optimum lag test results lag aic sc hq 0 29,52879 29.72381 29,58288 1 22.99997 23.97507 * 23,27042 2 22.67982 * 24.43501 23.16664 * source: the data is processed with e-views 10, 2020 analysis of the causality of co2 emissions, consumption of fossil fuels, electricity consumption, and economic growth in indonesia in 1990-2019 117 table 3 shows that the value of lag is found in lag 2, where at this lag there is the lowest value for the akaike information criterion (aic) of 22.67982, and hannan – quinn criterion (hq) amounted to 23.16664. as for schwarz cruterion (sc) optimum in lag 1 of 23.97507. then the optimization lag length is at lag 2. cointegration test table 4 cointegration test results hypothesized no. of ce (s) trace statistics 0.05 critical value prob. ** conclusion none 66.19976 47,85613 0.0004 cointegrated hypothesized no. of ce (s) max-eigen statistics 0.05 critical value prob. ** conclusion none 35.20267 27,58434 0.0043 cointegrated source: the data is processed with e-views 10, 2020 based on table 4, it can be seen that the trace statistic and max-eigen statistic values are more than the 5 percent critical value. based on the result of processed eviews above, it can be seen that the value of trace statistic is greater than the value of critical value 5 percent of 66.19976 > 47.85613, as well as the value of max-eigen statistic is greater than the critical value value of 5 percent is 35.20267 > 27.58434, which means that there is a cointegration in the model of the equation. causality test table 5 causality test results null hypothesis: obs f-statistics prob. information co2 does not granger cause eg eg does not granger cause co2 25 0.69480 1,03641 0.5108 0.3730 co2 ≠ eg eg ≠ co2 fossil does not granger cause eg eg does not granger cause fossil 25 0.42844 4.86339 0.6574 0.0190 fossil ≠ eg eg → fossil electricity does not granger cause eg eg does not granger cause electricity 25 0.31288 0.56439 0.7349 0.5775 electric ≠ eg eg ≠ electric fossil does not granger cause co2 co2 does not granger cause fossil 25 0.35385 0.85251 0.7063 0.4413 fossil ≠ co2 co2 ≠ fossil electricity does not granger cause co2 co2 does not granger cause electricity 25 8.91040 0.71040 0.0017 0.5034 electric→ co2 co2 ≠ electric electric does not granger cause fossils fossil does not granger cause electric 25 0.79682 0.27195 0.4646 0.7647 electric ≠ fossil fossil ≠ electric source: the data is processed with e-views 10, 2020 according to the table 5, it shows the results of causality test that co2 emissions against economic growth showing a probability number of 0.5108 which is more than α = 5% so ho afebi economic and finance review (aefr) volume 4, no 02 (2019) 118 is accepted. as for the probability of economic growth of co2 emissions by 0.3730 which is greater than α = 5% so ho is accepted. the test results of the causality of fossil fuel consumption to economic growth have shown a probability number of 0.6574 which is greater than α = 5% until ho is accepted. on the other hand, the probability of economic growth in fossil fuel consumption has a probability of 0.0190 which is less than α = 5% so ho is rejected. the test results of the causality of the electricity consumption against economic growth showed a probability number of 0.7349 which was greater than α = 5% until ho was accepted. while the probability of economic growth of electricity consumption has a probability of 0.5775 which is greater than α = 5% until ho is accepted. long-term relationship test table 6 long-term relationship test results variable coefficient t-statistic information d (co2 emissions (-1)) -0.330947 -4.11172 significant d (electricity consumption (-1)) 0.152705 5.65121 significant d (fossil fuel consumption (-1)) 1,626309 1,82915 significant source: the data is processed with e-views 10, 2020 based on the results of the long-term estimate of table 6 variable co2 emissions at lag 1 has a negative relationship and significantly affects economic growth at α = 5% with a coefficient of-0.330947. the fossil fuel consumption variable at lag 1 has a positive relationship and significantly affects the economic growth at α = 5% with a coefficient of 1.626309. the electrical consumption variable at lag 1 has a positive relationship and significantly affects the economic growth at α = 5% with a coefficient of 0.152705. discussion causality relationship between co2 emissions, fossil fuel consumption, electricity consumption, and economic growth in indonesia based on the analysis of data that has been conducted through a test the causality of a granger relationship is obtained that from variable co2 emissions and economic growth has no causality relationship. this means that during the high research period low economic growth does not affect co2 emissions, and conversely the low high co2 emissions do not affect economic growth. this increase in co2 emissions is followed by increased energy consumption. so when consuming, people use many natural resources and technologies that are not environmentally friendly causing environmental damage without any countermeasures. while the consumption of energy made by the community tends to consume that does not do economic activities. the results of the analysis by testing the causality of granger are seen that the consumption of fossil fuels and economic growth has a direct causality relationship between the economic growth of fossil fuel consumption. this means that during periods of high research or low economic growth affects fossil fuel consumption. because almost some activities of economic sector use fossil fuels in the production process. economic growth relies heavily on fossil fuels, which are a primary source of energy. so it is always used for daily activities by the community especially for developing countries such as in indonesia. the use of fossil fuels alone tends to be used for industries, transportation to power plants. the influence of fossil fuel use is increasingly because the government has begun to eliminate subsidies for fossil fuels such as premium oil. on the other hand it shows the indonesian economy is almost completely supported by the consumption of fossil fuels. the results of the analysis of the testing of causality for electricity consumption and economic growth is no causality relationship. so during periods of high research or low electricity consumption does not affect economic growth, and conversely the low high economic growth does not affect electricity consumption. due to high electricity consumption even in every year always have an increase. the policy implications of the absence of causality analysis of the causality of co2 emissions, consumption of fossil fuels, electricity consumption, and economic growth in indonesia in 1990-2019 119 is that economic growth does not influence or negatively affect the consumption of electrical energy and vice versa. due to the fact that the consumption of electricity in indonesia in significant quantities is used only for the fulfillment of basic needs (lighting and entertainment). long term relationship among co2 emissions, fossil fuel consumption, electricity consumption with economic growth in indonesia based on the results of long-term estimation via vecm calculations it is known that there is a long term relation between co2 emissions with economic growth. it is due to the pollution from co2 emissions, it is considered to be able to directly lower the output which impacts to the decreasing capital and labor productivity, because pollution causes health problems and loss to workers. many future co2 emissions will come from emerging economies today, due to the population and faster economic growth and increasing of industries that needed much energy. it is based on sectors that use energy to be the largest contributor of co2 emissions from total national ghg emissions. the consumption of fossil fuels and economic growth has long-term relationships. it happens because almost all of the indonesian economy sector are supported by the consumption of fossil fuels, so in the long-term all types of fossil fuels affect the rate of economic growth. it means that in the long term fossil fuel consumption will still be influential in increasing the economic growth due to the absence of renewable energy that could replace fossil-fueled energy. because almost in every sector of fossil fuels’ cosnumption is still used. electricity consumption to economic growth has a long-term relationship. the effect of electricity use especially in the era of industrialization nowadays is very helpful to the economic growth. so, it is possible in the future to more accelerating the implementation of industrialization. moreover, the government begins to implement sustainable development and increase the standard of living that would affect the increasing of electricity consumption in the future. 5. conclusion based on the analysis result and discussion as described above, the following conclusions may be taken as follows: 1. in the granger causality test, it shows that there is no relationship between variables in the causality of economic growth and emissions of co2. meanwhile, there is a direct causality relationship that occurs between economic growth and fossil fuel consumption. the causality of economic growth and electricity consumption has no relationship between them. 2. in the vecm test, it indicates that in the three long-term variable namely co2 emissions, fossil fuel consumption, and electricity consumption has a significant influence on economic growth in indonesia. whereas in the short-term variable that affect economic growth is variable of co2 emissions. according to the research discussion above, the researchers give some suggestions for the next research, such as: 1. the government is expected to optimize the investment sector in a friendly energy infrastructure and optimize new renewable energy in industrialization in order to increase the eco-friendly economic growth firstly, by the way of increasing the capacity of the unit of plt ebt units that are there and the ebtke project (new energy renewable energy consumption) that is running according to the ruptl (business plan of electricity supply), secondly the efforts to create ebt market. in addition, the use of renewable new energy that is environmental friendly aims to minimize the use of fossil fuel consumption, electricity consumption so it could compress the level of higher co2 emissions and also minimize the use of fossil fuel energy due to the less stock of fossil energy, using some systems firstly, optimize the development of electric transportation, secondly, reduce afebi economic and finance review (aefr) volume 4, no 02 (2019) 120 fossil-fueled subsidies and switch into the optimalization of conservative renewable energy. 2. the government is expected to create policies such as emission taxes whose purpose is to minimize the increasing of co2 emissions in the future. the government has to revise or improve some regulations, and increase the activity for research funds in the renewable energy use expected to suppress the use of fossil fuel energy. references azam, m. d. (2015). the causal relationship between energy consumption and economic growth in the asean-5 countries. rewnable and sustainable energy reviews, 47, 732-745. energi, d., & mineral, s.d. (2003). kebijakan pengembangan energi terbarukan dan konservasi energi (energi hijau). jakarta: departemen energi dan sumber daya mineral. kementerian lingkungan hidup. (2005). status lingkungan hidup indonesia 2005. jakarta: klhr. ichvani, l. f., & sasana, h. (2019). pengaruh korupsi, konsumsi, pengeluaran pemerintah dan keterbukaan perdagangan terhadap pertumbuhan ekonomi di asean 5. jurnal rep (riset ekonomi pembangunan), 4(1), 61-72. indonesia energy outlook (ieo). (2018). indonesia energy outlook 2018. washington: dc (united states usdoe energy information administration). office of energy analysis. kementerian energi sumber daya dan mineral. (2017). kajian penyediaan dan pemanfaatan migas, baturbara, ebt dan listrik. jakarta pusat: pusat data dan teknologi informasi energi dan sumber daya mineral kementerian energi dan sumber daya mineral. sasana, h., kusuma, p., & setyaningsih, y. (2019). the impact of co2 gas emissions on government expenditure of health sector in indonesia. in e3s web of conferences (vol. 125, p. 04004). edp sciences. sukardi, s. d. (2012). redd+ dan lulucf : panduan untuk negosiator. jakarta, indonesia. world meteorological organization. m.r.o.m. (2012). world meteorological organization. climate computing project. analysis of smes competitiveness through the innovation strategy and product sale information system in the trunan village, magelang city 131 analysis of smes competitiveness through the innovation strategy and product sale information system in the trunan village, magelang city panji kusuma prasetyanto 1) , jalu aji prakoso 2)* , rian destiningsih 3) 1,2,3 departmen of economics development, faculty of economics, universitas tidar, indonesia abstract the role of smes in development can be obtained through contributions made by smes to grdp. the trunan village located in south magelang regency is an area that has the largest sme-producing products in the city of magelang. the problem caused by smes in the trunan village, magelang city, is the lack of product innovation in their production goods. special tofu producer smes in trunan village, magelang city lack understanding of the importance of their production. another problem suspended by msmes in trunan village, especially tofu producers in developing their business is the information system of selling tofu products. the problem that has been determined will be determined by the specified target. this study aims to determine the importance of applying the innovation of tofu products and tofu sales information systems in business activities. the results showed that there are 3 important things that must be owned by an entrepreneur to be able to innovate, among others: the desire to improve products, services, and entrepreneurial actions. the information system will build a compilation of information patterns that are developed. business operators must agree on who sends information and receives information. this activity occurs in the exchange of messages in the media information system. information that is interrelated will cause feedback from the sender and response from the recipient of the message. keywords: smes, inovation, information system 1. introduction micro, small and medium enterprises (msmes) are the driving force of economic development. the role of msmes in the economy can be demonstrated through the contribution of productivity generated by msmes to the grdp. the strategic role in the economy is in line with the increasing number of msmes each year. the high contribution and the increasing number of msmes will have a major impact on improving the economy. one of the regencies / cities in central java, namely the city of magelang from the msme sector, was able to contribute to the gross regional domestic product (grdp) of 53.3% of the total grdp of the city of magelang, with the number of msmes in the city of magelang reaching 5,000 msmes spread across 3 (3 three) district. the role of micro businesses in the city of magelang is very effective in strengthening the regional economy if it can be managed properly. the village of trunan located in the district of south magelang is an area that has the largest msme producer of tofu products in the city of magelang. tofu entrepreneurs in the village of trunan reached 62 business units and absorbed a workforce of up to 261 people. compared to other tofu-producing regions, trunan village is in first position, second is kampung tidar campur with 31 units of tofu business units, and third is in kampung tidar baru with 17 units. the distribution of msmes engaged in the tofu product processing industry in magelang city is spread in these three regions. the quality of tofu from the production in trunan village is well known even outside of the city of magelang. the scope of marketing of the tofu product in trunan village reaches di yogyakarta province. potential tofu business potential is reflected in the large number of business units, absorption of the workforce, and the marketing scope of the umkm (kuncoro, 2008). *corresponding author. email address: jaluaji@untidar.ac.id afebi economic and finance review (aefr) volume 5, no 01 (2020) 132 this condition is in line with the results of alimudin's (2015) small and medium-sized businesses (smes) are able to make a significant contribution in driving indonesia's economic growth. this is due to the absorption of smes to a very large workforce and close to the small people in (sripo, 2010). trunan village as a center for umkm tofu products can play a bigger role when tofu production activities are developed with the current economic conditions. current economic conditions are reflected in the consumption activities of people who have diverse tastes. to meet these needs, producers are required to produce products that innovate. factors that influence the development of msmes are innovations that follow the market needs (hartini, 2012). innovative products are products that will be able to compete and become the market leaders of the types of businesses that they do. in addition, innovations carried out by smes will have an impact on the sustainability of their business activities (ernani, 2010). tofu products produced in trunan village, magelang city have better quality than tofu production elsewhere. this is certainly a good initial capital to be developed into other processed tofu products. in the midst of the success of knowing the production of trunan village, it turns out that there are problems faced by tofu entrepreneurs there. the problem faced by smes in the trunan village, magelang city, is the lack of product innovation from their products. the smes, especially tofu producers in trunan village, magelang city, do not understand the importance of innovation in their production. the conventional perspective has an impact on people's perceptions of tofu only made into ordinary food. other regions, such as batu city in malang, east java, are producing apples as a local specialty when apples can be made into various types of processed foods, thanks to the ideas and innovations of apple producers. this certainly contrasts with tofu that has good quality in trunan village, but does not have innovative ideas to develop it into various types of processed foods that can increase the value of the typical tofu trunan village. another problem faced by msmes in trunan village, especially tofu producers in developing their business is the sales information system of tofu products. the conventional sales system has many weaknesses and is less than optimal in making a profit. sales of tofu products that do not innovate are only done in traditional markets and stalls around the village and are less developed in terms of information that can be obtained by consumers. this will certainly have an impact on constant moving revenue. the importance of marketing information media will support increased production, diversification of tofu derivative products and the number of tofu products marketed (siswanto, 2018). increasing the use of information technology will make producers more competitive (apulu & latham, 2011). one of the successful industrial activities in increasing the use of information technology to improve business services is the banking industry (adeosun, adeosun, adetunde, & adagunodo, 2008). through the application of information systems, the cycle of production activities will have an impact. thus, it is felt very important for msmes to implement information systems in an effort to improve their production capabilities. this community service has the aim to help the problems faced by the service area. first, this activity aims to help the community in trunan village to be able to innovate the resulting tofu products. bearing in mind, the initial capital in the form of tofu quality produced in trunan village is quite good. innovation is needed in order to create a new paradigm of processed tofu which is not merely an ingredient of basic needs. but also can be used as light processed food products with high selling value. second, the purpose of community service is to increase literacy in the village of trunan as a tofu producer to implement information systems in the sale of tofu products. the implementation of the sales information system can have a systemic impact on the production cycle from how to obtain raw materials to selling products. problems that occur in the production of tofu is the lack of product innovation and sales systems, it takes a massive innovation by tofu producers, and tofu sales information systems in order to increase the value added of tofu. the description of the problem described earlier will set the absolute target that must be met. the measurability of the community service activities will be very useful when it will see the success of the implementation of community analysis of smes competitiveness through the innovation strategy and product sale information system in the trunan village, magelang city 133 service programs that are carried out. problems related to product innovation will be prioritized in the development of derivative products from tofu in trunan village. the form of innovation can be tofu processing into a form of snack food. community service activities provided in the form of tutorials for the community in trunan village in producing products derived from tofu produced by the community. the expected outcome of this program is that people in trunan village are able to produce tofu products and their product innovations in the form of derivatives from tofu. the community will take part in a series of training activities to be able to produce product innovations so that the community in trunan village has a variety of processed tofu products. through these activities it is expected to produce an outcome for producers in the form of an increase in community welfare through the mechanism of increasing community income. the problem of uncompetitive product marketing will be dealt with by the application of tofu product sales information systems in trunan village. community service activities carried out in the form of an introduction to the form of sales information systems through media that are affordable but have a major impact on the msme production chain. the community of trunan village as the economic activator of the city of magelang was given a tutorial in the media access information system of tofu product sales and product innovation from tofu. sales information systems not only provide benefits in marketing ease but up to the production process which will increase because sales of tofu products and tofu product derivative innovations are increasing thanks to the applied sales information system. thus, the economic capacity of the community will be affected towards a better. previous research that was used as a reference in this community service was related to innovations in smes. hall, lotti, & mairesse (2009) in their research found that innovation in manufacturing micro small businesses in italy has an impact on productivity. this research was conducted in manufacturing smes in italy from 1995-2003. hall, lotti, & mairesse (2009) produce a built-in model for information systems innovation that will be applied in these small and medium-sized businesses. ernani's research (2010) concerning the effect of creativity and innovation on the entrepreneurial attitudes of smes. the purpose of this study is to determine the sustainability of smes because of the entrepreneurial attitude they have. the results showed that the innovations carried out took the form of;; 1) creativity and innovation stimulation affect the entrepreneurial attitude of smes, 2) partial creativity influences community entrepreneurship, 3) innovation variables affect entrepreneurship of smes, and 4) innovation variables have a big impact on entrepreneurship. branzei & vertinsky's (2006) research examines how mses strategies in selecting strategies to determine the conceptual business, business development, product introduction, and commercialization of new products. the study was conducted by classifying smes based on their ability and the results of empirical tests related to how the different strategies used by smes to produce innovative products. the research results are divided into two findings, first: the ability of sme innovation is known based on the type of product produced. second: the research findings in the form of efforts to innovate strategies in sme activities in the property sector, namely by making acquisitions, transformation, and capacity building. research related to marketing information systems is based on several studies. such research (apulu & latham, 2011) identifies the use of information and communication technology (ict) in micro small enterprises (smes) in nigeria and reveals that the key to the successful use of ict adopted by smes in nigeria provides benefits, satisfies consumers and saves time and cost. the results show that the use of ict in smes in nigeria can help businesses in the process and convey information, communicate with consumers and work partners, and so can assist them in the development process. research jauhari (2014) is related to efforts to improve the competitiveness of smes in order to obtain export opportunities and other business opportunities by utilizing the development of information and communication technology (ict), especially e-commerce. not only using the internet as a tool to make proposals or find business opportunities, but also must be balanced with good administrative management through the right software. website afebi economic and finance review (aefr) volume 5, no 01 (2020) 134 and e-commerce development needs to be done as a means for promotion and marketing of business products, so that it will increase sales volume and increase revenue. siswanto (2018) conducted research related to the optimization of social media as a marketing medium for small and medium businesses. siswanto's research results show that social media as an integrated marketing communication (imc) is able to provide a competitive advantage for smes. utilization of information technology is a must for smes in order to survive amid competition. smes as the basis for people's economic strength must be able to market products through more innovative media. so that smes can access the system, it is necessary to increase the understanding of smes in the use of social media as marketing media. previous research literature has been the foundation of thought in community service activities in trunan village as a conventional year product-producing area. the framework is structured to solve problems faced by business actors. all smes in trunan village produce conventional tofu products, no derivative products have been developed in order to create added value. the use of information systems is offered to businesses in order to market their products to a wider market. the expected consequence is there is an increase in product innovation when the use of sales information systems is applied. 2. literatur study previous research that was used as a reference in this community service was related to innovations in smes. hall, lotti, & mairesse (2009) in their research found that innovation in manufacturing micro small businesses in italy has an impact on productivity. this research was conducted in manufacturing smes in italy from 1995-2003. hall, lotti, & mairesse (2009) produce a built-in model for information systems innovation that will be applied in these small and medium-sized businesses. ernani's research (2010) concerning the effect of creativity and innovation on the entrepreneurial attitudes of smes. the purpose of this study is to determine the sustainability of smes because of the entrepreneurial attitude they have. the results showed that the innovations carried out took the form of;; 1) creativity and innovation stimulation affect the entrepreneurial attitude of smes, 2) partial creativity influences community entrepreneurship, 3) innovation variables affect entrepreneurship of smes, and 4) innovation variables have a big impact on entrepreneurship. branzei & vertinsky's (2006) research examines how mses strategies in selecting strategies to determine the conceptual business, business development, product introduction, and commercialization of new products. the study was conducted by classifying smes based on their ability and the results of empirical tests related to how the different strategies used by smes to produce innovative products. the research results are divided into two findings, first: the ability of sme innovation is known based on the type of product produced. second: the research findings in the form of efforts to innovate strategies in sme activities in the property sector, namely by making acquisitions, transformation, and capacity building. research related to marketing information systems is based on several studies. such research (apulu & latham, 2011) identifies the use of information and communication technology (ict) in micro small enterprises (smes) in nigeria and reveals that the key to the successful use of ict adopted by smes in nigeria provides benefits, satisfies consumers and saves time and cost. the results show that the use of ict in smes in nigeria can help businesses in the process and convey information, communicate with consumers and work partners, and so can assist them in the development process. research jauhari (2014) is related to efforts to improve the competitiveness of smes in order to obtain export opportunities and other business opportunities by utilizing the development of information and communication technology (ict), especially e-commerce. not only using the internet as a tool to make proposals or find business opportunities, but also must be balanced with good administrative management through the right software. website and e-commerce development needs to be done as a means for promotion and marketing of business products, so that it will increase sales volume and increase revenue. analysis of smes competitiveness through the innovation strategy and product sale information system in the trunan village, magelang city 135 siswanto (2018) conducted research related to the optimization of social media as a marketing medium for small and medium businesses. siswanto's research results show that social media as an integrated marketing communication (imc) is able to provide a competitive advantage for smes. utilization of information technology is a must for smes in order to survive amid competition. smes as the basis for people's economic strength must be able to market products through more innovative media. so that smes can access the system, it is necessary to increase the understanding of smes in the use of social media as marketing media. previous research literature has been the foundation of thought in community service activities in trunan village as a conventional year product-producing area. the framework is structured to solve problems faced by business actors. all smes in trunan village produce conventional tofu products, no derivative products have been developed in order to create added value. the use of information systems is offered to businesses in order to market their products to a wider market. the expected consequence is there is an increase in product innovation when the use of sales information systems is applied. 3. research methodology the research was carried out using the method of field observation, lectures, tutorials, and discussions with the public. the initial stage carried out in the activity at the service location is a field observation that aims to determine the condition of the problem at the service location to the community. observations were made in the trunan village of tofu craft community groups. the purpose of field observations is to determine the condition of the existing area that will be a location of service. the results found from the field observations are tofu entrepreneurs in trunan village in tofu production activities only produce one type of product, namely consumption tofu. meanwhile, marketing of tofu products is done conventionally through traders who bring the results of tofu production to traditional markets. the second step is the lecture, participants are given a general description material about product innovation and motivation to have creative innovation ideas in their business activities, especially tofu production. the lecture was given to tofu craftsmen in trunan village to provide an overview of the importance of innovating tofu products as wel l as modernizing the marketing system. tofu product innovation can be in the form of tofu walik, tofu contents, meatball tofu, round tofu, tofu chips, and other derivative products from tofu. the product is offered to the community in trunan village as a reference for residents who want to pursue business activities in the form of products derived from tofu. the third method is a tutorial, where training participants are given sales information system material as an illustration of the application in their business. the tutorial given to the community of tofu craftsmen in trunan village is filled with material on how to sell processed tofu products through the help of sales information systems. like social media, the information system can help tofu producers to expand their market reach for the sale of tofu and processed products for the year. in this digital age, the use of social media is very evective when used as a medium for selling, especially to the public. the fourth step is a discussion to the public, training participants are given the opportunity to discuss issues related to product innovation and information systems for selling msme products. discussions with tofu craftsmen in trunan village aim to measure the ability of tofu producers after receiving training in innovation and the use of sales information systems. through this activity, the program that has been carried out can be evaluated in relation to the community's understanding of the activities that have been carried out. 4. result and discussion innovation strategy in tofu product development in trunan vllage tofu producers in trunan village, magelang city have weaknesses in the innovation of tofu products produced. these weaknesses make tofu production activities not increase in afebi economic and finance review (aefr) volume 5, no 01 (2020) 136 production. the fixed level of production will have an impact on the income of tofu craftsmen. community income tends to be fixed. on the other hand, tofu products produced by the people in trunan village have good quality tofu. these results become a strength for tofu producers if they will improve their results through tofu product innovation. building strengths sourced from within is a step towards creating competitive entrepreneurs. the community of trunan village has strength which comes from the conditions in its business activities. the strength is in the form of a good quality product and can be made in the form of other processed tofu. building entrepreneurial spirit is a challenge in community service activities. convincing the intention that working hard will give optimal results is the initial effort taken so that the community is aware of this important matter. figure 1. entrepreneurial process, innovation and business performance the step taken is the introduction and motivation for business people related to product innovation that can increase public income. there are 3 important things that must be owned by an entrepreneur to be able to innovate, among others: the desire to improve business performance, product / service innovation efforts, and entrepreneurial action. the desire of a producer to improve business performance is the basis that must be thought by business actors. improved business performance will result in increased producer income. that is, increased welfare will be achieved. secondly, efforts to innovate produl / services, namely the desire to innovate the products / services produced by businesses. third, entrepreneurial action is a concrete step to realize the desire of producers to innovate. information system implementation as a means to increase sales the information system that has not yet been developed in the tofu business group in kampung turunan is one of the findings in this service. to build information systems in business activities, several things need to be considered in order to create an information system network. business actors must determine who is the sender of information and the recipient of the information. these activities take place in the exchange of messages in the media information system. the interconnected information will cause feedback from the sender and response from the recipient of the message. thus, the information system will be built through the information system roadmap analysis of smes competitiveness through the innovation strategy and product sale information system in the trunan village, magelang city 137 figure 2. business information systems implementation of information systems becomes very important when undergoing business activities / business in the current era. consumers have used their gadgets to buy goods and services without having to meet with the seller. one of the most effective buying and selling media for marketing production is social media instagram. the trunan village community is equipped with information system materials and their uses. the aim is for the community to be able to become entrepreneurs who are able to compete in the digital era as it is today. the use of sales information systems will certainly bring a systemic impact in the form of increased production, the desire to innovate products / services, increased production quality and other impacts. 6. conclusion the conclusion drawn from the community partnership (pkm) activity is to increase knowledge for the smes of tofu producers in trunan village. in this study, there is an interesting phenomenon in the field, namely a lack of understanding by msme producers knowing about the importance of applying the innovation of tofu products and tofu sales information systems in their business activities, not yet able to know the smes of tofu producers in making the innovation of processed tofu products and applying the information system of selling tofu product sales in order to increase the value of tofu and the benefits generated, so that it impacts on their well-being, as well as the level of knowledge that is still lacking. references adeosun, o. o., adeosun, t. h., adetunde, i. a., & adagunodo, e. r. (2008). strategic application of information and communication technology for effective service delivery in banking industry. proceedings of the 2008 international conference on computer and electrical engineering, iccee 2008, 135–140. https://doi.org/10.1109/iccee.2008.194 alimudin, a. (2015). peningkatan daya saing produk konveksi usaha kecil berbasis iptek desa tri tunggal kecamatan babat lamongan. prosiding seminar nasional teknologi terapan sv ugm, 64–68. apulu, i., & latham, a. (2011). drivers for information and communication technology adoption: a case study of nigerian small and medium sized enterprises. international journal of business and management, 6(5). https://doi.org/10.5539/ijbm.v6n5p51 branzei, o., & vertinsky, i. (2006). strategic pathways to product innovation capabilities in smes. journal of business venturing, 21(1), 75–105. https://doi.org/10.1016/j.jbusvent.2004.10.002 ernani, h. (2010). kreativitas dan inovasi berpengaruh terhadap kewirausahaan usaha kecil. jurnal manajemen dan kewirausahaan, 13(1), 8–16. retrieved from http://ced.petra.ac.id/index.php/man/article/view/18240 afebi economic and finance review (aefr) volume 5, no 01 (2020) 138 hall, b. h., lotti, f., & mairesse, j. (2009). innovation and productivity in smes: empirical evidence for italy. small business economics, 33(1), 13–33. https://doi.org/10.1007/s11187-009-9184-8 hartini, s. (2012). peran inovasi: pengembangan kualitas produk dan kinerja bisnis. jurnal manajemen dan kewirausahaan, 14(1), 82–88. https://doi.org/10.9744/jmk.14.1.83-90 jauhari, j. (2014). upaya pengembangan usaha kecil dan menengah (ukm) dengan memanfaatkan e-commerce. jurnal sistem informasi, 2(1), 159–168. https://doi.org/2355-4614 siswanto, t. (2018). optimalisasi sosial media sebagai media pemasaran usaha kecil menengah. journal liquidity, 2(1), 80–86. https://doi.org/10.32546/lq.v2i1.1 the influence of infrastructure, poverty and income on food security in south sumatra province 26 the influence of infrastructure, poverty and income on food security in south sumatra province siti rohima31* 1 universitas sriwijaya, palembang, indonesia abstract this study aims to determine the influence of infrastructure, poverty and income per capita on food security in districts / cities in south sumatra province. the data that has been used in this study are primary and secondary data in the form of data panels in the period 2010 to 2016 with 15 district/city. the method used in the study is a quantitative method with multiple linear regression analysis. the results show that infrastructure, poverty and income per capita significantly influence food security. meanwhile, per capita income has a large influence on food security compared to poverty and infrastructure in the district / city in south sumatra province. jel classdification: i30, i31, i38 keywords: food security, income, infrastructure, poverty 1. introduction improving food security is a top priority for development, because food is the most basic need for humans. the increasing population growth requires sufficient food availability from agricultural products to strengthen food security in an area. this is because food security has a central position in increasing productivity and improving the quality of life of citizens. food security can be interpreted as the availability of food in sufficient quantity and quality, distributed at affordable prices and safe for consumption by the public in order to carry out daily activities. food security is also interpreted as the presence of rice price stability, the availability of abundant world rice supply, food self-sufficiency, and the availability of foreign exchange as a requirement to fulfill rice imports (damanik, 2016). based on the data, the number of poor people in the province of south sumatra in 2006-2015 amounted to more than one million people but the level of poverty showed a decline from 2006-2013 except in 2014 and 2015 which experienced an increase in the number of poor people at 1,085.8 million in 2014 and 1,145.6 million in 2015 with a percentage of 13.62 percent in 2014 and 14.25 percent in 2015 when compared with the previous year of 1,043.6 million people with a percentage of 13.48 percent in 2013 (bps, 2015). at present the percentage of poor people in south sumatra province is still quite high, reaching 14.80 percent in 2010. this figure is far from the national target in 2015 of 7 , 5 percent. for details can be seen in figure 1. figure 1 percentage of poor population by regency / city source: badan pusat statistika (bps) * corresponding author. email address: sitirohima@unsri.ac.id https://fahar26.files.wordpress.com/2012/02/miskin7.jpg afebi economic and finance review (aefr) vol.04 no.01, june 2019 27 in this figure 1, there is considerable inequality between districts / cities in south sumatra province. the high percentage of poor people is found in musi banyuasin regency (20.06 percent), musi rawas (19.38 percent) and lahat (19.03 percent). while the lowest was found in pagaralam city (9.81 percent) and east oku district (9.81 percent). palembang city as the capital city still has a high percentage of poor people (15.00 percent) and even exceeds the provincial level nationally (bps, 2016). one characteristic of the poor in particular is that most of them live in rural areas with dominant livelihoods in their own efforts in the agricultural sector (pasaribu, 2006) and the development of the agricultural sector becomes very important in efforts to reduce poverty (yudhoyono, 2004, datt and ravallion, 1996, and matsuyama, 1992) agriculture is a sector that is expected to reduce poverty, but the budget allocation for the agricultural sector is still very small. the high level of poverty in rural areas is caused by urban bias development policies and the industrial sector, while the agricultural sector budget allocation drops dramatically (sajogyo, 2002). according to mubyarto (1991) the agricultural sector is the dominant sector in the national economy because of its substantial contribution to national income, foreign exchange income through the export of agricultural products. the agricultural sector is the provision of food and is a provider of industrial raw materials. in addition, the agricultural sector is also able to provide jobs to residents who are always growing rapidly. likewise, south sumatera province promotes development in the agricultural sector because of the abundant potential of agricultural resources in the region. this potential needs to be utilized and developed for the food security of the people of south sumatra. local food sources in south sumatra province include food crops and horticulture, livestock, plantations and fisheries. rice production in south sumatra province in 2015 experienced an increase of 588.67 thousand tons (16.04 percent) from the previous year, and reached 4,259,104 tons. the increase in production was due to an increase in harvested area of 60.92 thousand ha (7.51 percent) and productivity increased by 3.59 qu / ha (7.93 percent). on sumatra island, out of the 10 provinces, south sumatra is one of the second highest rice producing provinces after north sumatra. the contribution of rice production in the province of south sumatra in 2015 amounted to 5.43 percent of national rice production (bps, 2015). one effort to encourage food production and productivity is the availability of adequate agricultural infrastructure. infrastructure development that is currently needed is among others in the form of repair and construction of irrigation infrastructure, such as reservoirs and irrigation channels, as well as the construction of roads that connect production centers to end consumers. the inconsistency in the distribution process will result in expensive marketing costs and damage to agricultural commodities. problems that occur in the distribution process due to limited transportation facilities and infrastructure, erratic climate that can interfere with food transportation. technical problems in this distribution process result in soaring freight costs. the travel time for transporting fresh food material in the event of a good disturbance due to inadequate road infrastructure conditions, as well as erratic weather will cause more food to be damaged so that food prices will tend to rise which results in a soaring inflation rate (bkp, 2015). in terms of increasing the fulfillment of consumption needs and realizing the availability of infrastructure, support and coordination between agencies in charge of physical development and local government through policy support that facilitates the implementation of development, is absolutely necessary. in addition to infrastructure development, increasing production and agricultural productivity also requires the support of technology provision, and must be in line with efforts to reduce poverty and food security. based on this background, this study aims to analyze the influence of infrastructure, poverty and income on food security in south sumatra province. 2. literature review food security in terms of food affordability is also closely related to efforts to improve the quality of indonesia's human resources. without the support of sufficient and quality food, quality human resources cannot be produced. therefore, building a the influence of infrastructure, poverty and income on food security in south sumatra province 28 robust food security system is an absolute requirement for national development. the problem of food security is not just the fulfillment of the food availability aspect for the community, but also the more important aspect is the accessibility (affordability) of the community (household) of food. the purchasing power of households is a factor that greatly influences food affordability. meanwhile, people's purchasing power is strongly influenced by the amount of income and prices of food commodities (rosyadi & purnomo, 2012). this is supported by (world food summit, 1996) which states that food security exists when everyone, at all times, has sufficient physical and economic access, safe and nutritious food that meets their dietary needs and food preferences for active and healthy living. infrastructure is a major support of social and economic system functions in people's daily lives. infrastructure systems can be defined as basic facilities or structures, equipment, installations built and needed for the functioning of social systems and systems. economic community (prasetyo, 2008) and salepe (2014). in addition salape (2014) stated that the existence of poor infrastructure and inadequate support from related organizations; roads are not in good condition which limits access to market facilities and other destinations and the lack of an efficient and effective transportation system paralyzes the performance of farmers which will affect food security. this is clarified by baldwin and dixon (2008) which mentions several characteristics of infrastructure, namely: (1) assets have a physical form with a long service life. asset creation requires sufficient development preparation period; (2) assets have few substitutes in the short term; (3) the asset structure is able to facilitate the flow of goods and services and without assets there will be disruption in the flow of goods and services; (4) assets are important especially because assets function as complementary or complementary goods to goods and services in the production factor; and (5) having positive externalities, namely the benefits that can be enjoyed by parties outside the infrastructure maker. poverty according to sharp et.al in kuncoro (2000) tries to identify the causes of poverty that occur in society, which is divided into three perspectives. first, poverty occurs because of differences in ownership patterns of resources that cause inequality of income distribution. poor people only have very limited resources with low quality. second, poverty arises as a result of differences in the quality of human resources. the low quality of human resources will result in low productivity so that it will result in low wage levels received. the low quality of human resources is caused by, among others, low education, unfortunate fate, discrimination and heredity. third, poverty arises as a result of differences in access to capital. in some countries poverty is largely due to food availability factors as the opinion of rhoe (2008) and salepe (2014). poverty is basically a condition which per capita income tends to be low. the low per capita income causes low levels of consumption and food security of the people according to maharjan (2009) and sukirno (2004). per capita income according to sukirno (2004) is the amount of the average income of residents in a country. per capita income is obtained from the distribution of a country's national income in a given year with the country's population in that year. 3. methodology quantitative analysis to analyze infrastructure dynamics, poverty, and food security in south sumatra by using panel data regression. as a cross section data analysis unit, there are 15 (fifteen) districts / cities in south sumatra province and time series data for the period 2010-2016. the reason for using cross section data is to better understand the behavior of rice food security from each district / city, so that appropriate policies can be taken for each region. meanwhile, the use of time series data from 2010-2016 is based on data availability a. regression model of panel in general, this research model was developed from research conducted by gani and prasad (2007); timmer (2004a); malik (2011); rodriguez et al., (2013). the afebi economic and finance review (aefr) vol.04 no.01, june 2019 29 relationship between variables in this study can be expressed in mathematical equations as follows: fs = f ( infrastructure, poverty, income) (1) fsit = α0 + α1 infrait + α2povit + α3 income it + eit (2) 4. result and discussion 4.1 production of rice in south sumatra province food security is useful to monitor important aspects of individuals in the household, to design, implement, and to evaluate policies, programs or projects. the link between household access to food (food security); household needs for food; and allocation behavior means that household food security has limited value as an indicator of the individual's lack of interest (andersen, 2009). rice is one of the most dominant food commodities for most indonesian people where rice is a food ingredient that is easily converted into energy, in addition to containing enough nutrients and boosters for the body. the number of regencies / municipal rice production in south sumatra province can be seen in figure 2. figure 2 number of rice production in regencies / cities in south sumatra figure 2 shows the amount of rice production in 2010 and 2016 in the regency / city of south sumatra. from the figure it can be seen that there is a significant increase and decrease in each regency / city of south sumatra province. in 2010, east oku district was the regency that had the most number of paddy and field rice production, while prabumulih city was the city that had the least amount of rice production. in 2016 the banyuasin regency was the district that produced the highest number of rice plants and the city of lubuklinggau did not produce rice plants. 4.2 infrastructure based on the south sumatra apbd general policy, government expenditures in the infrastructure sector are directed to the construction and maintenance of roads and bridges in south sumatra province. total government expenditure on infrastructure in south sumatra can be seen in table 2.1. based on table 2.1, the infrastructure budget in south sumatra tends to increase from previous years. in 2011, it increased by 31.4% from 2010. in 2012 it increased by 16.4%, in 2013 it increased by 26.6%, in 2014 it increased by 19.8%, but in 2015 it experienced a decline the infrastructure budget was 8.4% from 2014, and in 2016 the infrastructure budget experienced a return of 16.6% from the previous year. 0 200000 400000 600000 800000 1000000 1200000 1400000 1600000 2010 2016 the influence of infrastructure, poverty and income on food security in south sumatra province 30 table 1 infrastructure of south sumatra province 2010-2016 (million rupiahs) source : direktorat jenderal perimbangan keuangan, 2017. 4.3 poor people of south sumatra poor people are a problem in the province of south sumatra. the largest number of poor people in the province of south sumatra in the last seven years, namely in 2015 amounting to 1.085 million people or 13.62% of the total population in that year. figure 3 poor population in south sumatra 2010-2016 source: badan pusat statistik, 2016 in terms of increasing the fulfillment of consumption needs and realizing the availability of infrastructure, support and coordination between agencies in charge of physical development and local government through policy support that facilitates the implementation of development, is absolutely necessary. in addition to infrastructure development, increasing production and agricultural productivity also requires the support of technology provision, and must be in line with efforts to reduce poverty and food security. 4.4 per capita income district / city per capita income can be used to measure the level of economic prosperity of a region by dividing the grdp by the middle-year population in the region. this indicator describes the average value added created by each population in an area due to the production process. the increase in grdp per capita illustrates that in nominal terms the income of the general public has increased. the high and low no kabupaten/kota 2010 2011 2012 2013 2014 2015 2016 1 ogan komering ulu 152.209 159.097 198.122 273.303 269.298 217.358 269.524 2 oku timur 76.133 121.095 128.658 195.781 199.770 219.884 224.282 3 oku selatan 72.620 217.828 178.369 224.766 256.912 306.001 364.141 4 ogan komering ilir 134.204 305.675 308.238 368.886 348.114 352.661 356.188 5 ogan ilir 219.942 189.004 272.997 338.689 402.243 295.737 348.970 6 musi banyuasin 323.815 634.365 695.240 800.360 1.007.589 845.268 1.014.322 7 banyuasin 145.533 149.144 154.450 228.181 307.327 251.446 336.938 8 muara enim 203.343 215.202 199.530 330.966 448.568 375.959 394.757 9 lahat 109.267 133.989 138.137 147.748 107.048 189.974 336.254 10 musi rawas 270.634 237.432 414.242 490.251 392.968 398.031 402.011 11 empat lawang 64.165 80.203 149.976 208.132 199.977 214.140 229.130 12 palembang 170.278 178.630 145.176 288.699 498.318 409.051 425.413 13 lubuk linggau 99.858 121.160 153.789 110.262 301.996 212.580 257.222 14 pagar alam 31.677 38.624 90.210 85.864 133.329 137.498 213.122 15 prabumulih 115.562 95.485 122.659 147.395 203.819 227.166 252.154 sumatera selatan 2.189.240 2.876.933 3.349.793 4.239.283 5.077.276 4.652.754 5.424.427 0 50,000 100,000 150,000 200,000 250,000 2010 2011 2012 2013 2014 2015 2016 afebi economic and finance review (aefr) vol.04 no.01, june 2019 31 magnitude of this indicator is influenced by the magnitude of the grdp value generated by an area and the population of the region figure 4 average revenue in south sumatra province (in million rupiah) source: badan pusat statistik, 2016 in terms of per capita income, musi banyuasin district occupies the first position with the highest average income per capita value of 21.69 million rupiah where with per capita income of 23.30 million rupiah in 2016 and always increases every year, the income per capita increases caused by the movement of production of goods / services produced in all sectors in musi banyuasin regency and the relatively large contribution of the oil and gas sector to the regional gdp. compared with the city of palembang in the next position with a per capita income of 18.41 million rupiah in 2016, and continued to increase from previous years with the average amount of income per capita 2010-2016 amounted to 14.07 million rupiah. the movement of the per capita income value in palembang city in the past seven years illustrates the acceleration of development which tends to be massive. while the regions that have the lowest income perkaita in 2016 are occupied by east oku amounting to 5.25 million rupiah with an average income per capita of 4.52 million rupiahs. the large population of an area affects the value of per capita income given that palembang has the largest population south sumatra is 1.49 million people. 4.5. result of estimation model this study uses a fixed effect model to see the effect of infrastructure, poverty and income on food security. based on the equation of the regression results show that without the influence of infrastructure (infra), poverty level (pov) and income per capita (income), food security in south sumatra averaged 10.31%. however, the overall impact of infrastructure variables, and per capita income shows a significant influence with the coefficient of determination (r2) reaching 0.56, while for the poverty level variable shows an insignificant influence on food security in south sumatra. this shows the influence of these variables as independent variables on the dependent variable reached 56% and significant at 95% confidence level. means, the variables in the model have a large influence and the influence of variables outside this model only reaches 44% of household food security in south sumatra. the panel data estimation results using the fixed effect model can be simplified in the following table 2: 0.000 5.000 10.000 15.000 20.000 25.000 rata-rata the influence of infrastructure, poverty and income on food security in south sumatra province 32 table 2 results of the regression model panel variable coefficient t-statistic prob. c -103102.6 -1.120054 0.2658 infra? 0.267100 3.403637 0.0010 pov? 1.235525 1.400145 0.1650 income? 33.03282 3.774666 0.0003 r2 0.568323 n 105 f 0,00000 table 2 shows that the f test is 0.000000 which means it is smaller than the error level of 0.05 (5%), this shows that overall the independent variables are infrastructure (infra), poverty level (pov) and income per capita (income ) together have a significant influence on the dependent variable, namely food security. this test is conducted to see whether each independent variable influences the dependent variable or knows the level of significance of the independent variable. this test is done by comparing the probability value t-count to the significance level α (5% or 0.05), with the test criteria if the probability t count> α (0.05) then the effect of the independent variable is insignificant. this means that the independent variable does not affect individually the dependent variable, on the contrary if the probability of t count <α (0.05) then the effect is significant, meaning that the independent variables can affect individually the dependent variable. the estimation result of t test shows on probability t count the level α = 5% (0.05). probability t calculate infrastructure expenditure (infra) is 0.0010 <0.05 which means that infrastructure expenditure (infra) can affect individually household food consumption expenditure. whereas, the probability of calculating the poverty level (pov) is 0.1650> 0.05, which means that the level of poverty does not affect individually the consumption of household food. probability of calculating income per capita is 0.0003 <0.05 which means that per capita income can affect individually food security. infrastructure has a significant effect and has a positive relationship to food security at a significant level of 5 percent. the estimated parameter value of the infrastructure is 0.267100, meaning that if the infrastructure increases by one percent it will increase food security by 0.0267100 percent. poverty has a positive relationship with food security but is not significantly affected. the estimated parameter value (regression coefficient) of the poverty variable is 1.235525 which means that every increase of one percent of the poverty variable will increase food security by 0.1235 percent. the pattern of poor household expenditure is more likely to be spent on food consumption than basic non-food needs, this indicates that the pattern of expenditure of poor households in south sumatra is still on primary consumption because most of the income is used for food consumption, indicating a low level of food security. income has a significant effect and has a positive relationship to food security at a significant level of 5 percent. estimated value is 3.303282, meaning that if income increases by one percent, it will increase food security by 0.330328 percent. each district / city has its own value to see the influence of infrastructure, poverty and income on food security. the highest intercept value is lubuk linggau regency which is 120,146 followed by oku timur, empat lawang, pagar alam, south oku, prabumulih. this means that food security in lubuk linggau is 120,146 and subsequently for east oku regency is 108,007, empat lawang is 62,933, pagar alam is 51,236, south oku is 26,190 and prabumulih is 19,568 when infrastructure spending, poverty level and income per capita are equal with or considered zero (constant). afebi economic and finance review (aefr) vol.04 no.01, june 2019 33 furthermore, in ogan ilir regency of -4,197, lahat amounted to -72,445, oki of -79,786, oku of -100,177, musi rawas of -127,249, banyuasin of -166,843, and muara enim of -339,849. this can provide the fact that when infrastructure expenditure, poverty level and per capita income are in constant condition, the regency / city consumption expenditure will decrease by the intercept value of each district. while the lowest intercept is found in musi banyuasin regency which is -708,796 and followed by palembang city -462,754 which means that infrastructure, poverty level and per capita income are in constant condition, the resistance of musi banyuasin regency will decrease by 708,796, and palembang city will decrease by 462,754. infrastructure development can increase consumption of food, infrastructure development in the form of transportation facilities and infrastructure, such as roads and bridges, can expedite and accelerate distribution, so that food can be more easily accessed. aspects of availability and accessibility can increase which has implications for increasing food security. this condition is in line with the research of rhoe (2008) and salepe (2014) that roads are not in good condition which is an indication of poor basic infrastructure that creates limited access to market facilities or any destination. there is a bad road network and one major gravel road that connects to the area to the nearest city (empangeni) which creates transportation constraints such as expensive and time-consuming transportation costs for travel, and that has a negative impact on attracting markets and maintaining food security. during the summer there is sometimes rain most of the muddy gravel roads which make it difficult for vehicles to have access to the area thereby reducing food security. poverty has a positive relationship with food security but is not significantly affected. the estimated parameter value (regression coefficient) of the poverty variable is 1.235525 which means that every increase of one percent of the poverty variable will increase food consumption expenditure by 0.1235 percent. the pattern of poor household expenditure is more likely to be spent on food consumption than basic nonfood needs, this indicates that the pattern of expenditure of poor households in south sumatra is still on primary consumption because most of the income is used for food consumption, indicating a low level of food security. per capita income has a significant effect and has a positive relationship to food security at a significant level of 5 percent. the estimated parameter value of the infrastructure expenditure variable is 3.303282, meaning that if infrastructure spending increases by one percent it will increase food consumption expenditure by 0.330328 percent. according to keynes (prathama 2008) states that income factors have a direct effect on consumption, where the higher the income, the higher the consumption, and vice versa. the higher the income per capita of the household, the higher the allocation of their expenditure for food consumption where the addition is also quite significant. increasing income means increasing opportunities to buy food with better quantity and quality. conversely a decrease in income will cause a decrease in the quality and quantity of food purchased. 5. conclusion food security is very important to maintain the sustainability of life and fight food insecurity in the district / city in south sumatra province. in the presence of food security many factors influence it, including infrastructure, poverty and income. based on partial model estimates that infrastructure has a positive and significant impact on food security. good and smooth infrastructure strongly supports food security in meeting the needs of the community furthermore poverty has a positive and insignificant effect. there is a tendency for the missile community to consume more food items than non-food items. furthermore, per capita income has a positive and significant effect on food security. the higher the income per capita in the district / city the more potential in meeting the needs of life and the better food security in the region. but in general it can be said that infrastructure, poverty and income influence food security. therefore, a policy is needed for local governments or authorities to improve the influence of infrastructure, poverty and income on food security in south sumatra province 34 infrastructure, create jobs to reduce poverty and increase income. so that it can support good food security in districts / cities in south sumatra province. references andersen, p. p. (2009) . food security: definition and measurement. food sec, 1: 57. doi: 10.1007 / 1257-008-0002-y. available at:http://observatotioseguridadalimentaria.org/sites/default/files/publicationes/a rchivos/pinstrup-andresen food% 20 security-definition-meansurement2009.pdf. anon. (2011) infrastructure for economic development and poverty reduction in africa. nairobi: un-habitat central bureau of statistics. (2015). official news statistics: poverty conditions of south sumatra province. central bureau of statistics. (2015). official gazette of statistics: profile of poverty in indonesia. south sumatra food security agency. (2014). food security statistics of south sumatra province. baldwin, j. r., & dixon, j. (2008). infrastructure capital: what is it? where is it? how much of it is there?. canadian productivity review research paper no. 16. http: //ssrn.com/abstract=1507883. calderón, c., & chong, a. 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(2009). relationship between income-poverty and food security in rural far-western mid-hills of nepal, paper prepared for presentation at the international association of agricultural economists conference, beijing, china, august 16-22, 2009 afebi economic and finance review (aefr) vol.04 no.01, june 2019 35 malik, s. m. (2011). an emprical investigation of relationship between food inscurity, landlessness and violent conflict in pakistan. pide working papers no.71, pakistan islamic institute of development economics mubyarto. (1997). introduction to agricultural economics. lp3es. jakarta prasetyo, r. b. (2008). inequality and influence of infrastructure on the economic development of the western region of indonesia (kbi). department of economics, faculty of economics and management, bogor agricultural university. pingali, p., alinovi, l., & sutton, j. (2005). food security in complex emergencies: enhancing food system resilience. disasters, volume 29, june 2005 prathama rahardja & mandala manurung ,. 2008, macro economic theory an introduction, jakarta, lpfe-ui. raychaudhuri, a., & de, p. (2010). trade, infrastructure and income quality in selected asian countries: an empirical analysis. asia-pacific research and training network on trade working paper series, no. 82 rhoe, v., babu, s., & reidhead, w. (2008). an analysis of food security and poverty in the central asia-case study of kazakhstan. journal international development, 20, 452-465 sajogyo, p. s. (2011). rural sociology, yogyakarta, gadjah mada university press salepe, m. (2014). the effect of infrastructure challenges on food security in ntambanana, kwazulu-natal, south africa. african journal of hospitality, tourism and leisure vol. 3 (1) (2014) issn: 2223-814 sharp. (1996). economics of social issue, 12th edition, richard d. chicago irwin timmer, c. p. (2004a). food security in indonesia: current chalenges and the longrun outlook. working paper. center for global development. timmer, c. p. (2004b). food security and economic growth: an asian perspective. working paper. center for global development. todaro, m. p. (2006). economic development in the third world. erlangga publisher, jakarta. world food summit 1996. fao agricultural and development economics division: http://www.fao.org/es/esa/ ec-fao food security program: http://www.foodsecinfoaction.org/ effect of urbanization and growth rate population of expectations life in indonesia 129 effect of urbanization and growth rate population of expectations life in indonesia muhammad syaifulloh1)*, gita ayu an2), syamsurijal a kadir3), abdul bashir4) faculty of economics, sriwijaya university, palembang abstract the driving factor for villagers to urbanize is the lack of jobs in their home areas. agriculture is the main sector that is relied on by the population, meanwhile, the number of fertility is increasing, which results in unfulfilled needs. poverty in the village is a driving factor for villagers to migrate. population growth in an area occurs due to several population factors, including birth (fertility), death (mortality) and also population migration. population growth is a dynamic balance between the forces that increase and those that reduce the number of people. more and more people are afflicted with a disease means that it will destroy vitality, productivity, keywords: population,urbanization, life expectations, ols 1. introduction urbanization is influenced by three factors, namely population growth in urban areas, migration from rural areas to urban areas, and reclassification of rural villages to urban villages. the projection of the population of urban areas in this projection is not carried out by making assumptions for these three factors, but based on differences in population growth rates in urban and rural areas (urban rural growth difference / urgd). population growth is an important indicator in a country. the classical economists who were pioneered by adam smith even considered that the population was a potential input that could be used as a production factor to increase the production of a household company. the more the population, the more labor that can be used. as the population continues to increase, there is much that must be declared to cope with the situation of the growing population. the population growth is getting faster, inviting many problems. but this does not mean that in ancient times the population problem did not exist. in line with the development of the world's population, indonesia is also a developing country that cannot be separated from its rapid population growth. 2. literature study urbanization urbanization is influenced by three factors, namely population growth in urban areas, migration from rural areas to urban areas, and reclassification of rural villages to urban villages. the projection of the population of urban areas in this projection is not carried out by making assumptions for these three factors, but based on differences in population growth rates in urban and rural areas (urban rural growth difference / urgd). however, by making urgd assumptions for the future, it means that this projection has indirectly considered these three factors. at the national level, the level of urbanization is projected to reach 66.6 percent by 2035. for several provinces, especially provinces in java and bali, the level of urbanization is already higher than that of indonesia in total. the real urbanization is the proportion of the population living in urban areas (urban area). urban (urban area) is not the same as a city (city). what is meant by urban (urban) *coressponding author. email address: saifulabdulazizz@gmail.com mailto:saifulabdulazizz@gmail.com afebi economic and finance review (aefr) volume 6, no 2 (2021) 130 is an area or area that meets three requirements, namely as follows. a. population density of 5000 people or more per square km. b. the number of households working in the agricultural sector is 25% or less. c. has 8 or more types of urban facilities. urbanization is much influenced by natural processes which include birth and death rates, natural disasters, environmental changes and socio-economic problems including individual income, education, health, basic facilities, industrialization and government policies. there are factors that cause urbanization, including pull and push factors. the pull factor is a condition that causes someone to be attracted to move from rural to urban areas because there is an attraction that is offered. the driving factors consist of health facilities, high standards of living, decent education standards, the existence of recreational areas, high employment opportunities, the existence of security for life as well as the existence of better property and a better social environment. the driving factor is the factor that causes a person to move to an urban area due to unfavorable rural conditions. driving factors include poverty, low living standards, low life security, lack of transportation and communication facilities, lack of employment opportunities, minimal health facilities and also low quality of education. urbanization is not merely seen as a population phenomenon, but more than that, urbanization must be seen as a political, social, cultural and economic phenomenon. various studies show that the more advanced the economic level of a region is, the higher the level of urbanization. thus, urbanization is a natural phenomenon in line with economic development and the level of welfare of the population in an area. things that must be considered or avoided in relation to urbanization are the presence of high or excessive population concentrations in an area, causing what is called agglomeration or primacy. indonesia applies an urbanization policy through two approaches. first, developing rural areas to be more advanced by having the characteristics of urban areas known as "rural urbanization". second, developing new economic growth centers known as “growth center buffer zones”. the first approach seeks to "accelerate" the rate of urbanization without waiting for economic growth, namely by making several non-economic breakthroughs. population growth rate population growth is an important indicator in a country. the classical economists who were pioneered by adam smith even considered that the population was a potential input that could be used as a production factor to increase the production of a household company. the more the population, the more labor that can be used. as the population continues to increase, there is much that must be declared to cope with the situation of the growing population. the population growth is getting faster, inviting many problems. but this does not mean that in ancient times the population problem did not exist. in line with the development of the world's population, indonesia is also a developing country that cannot be separated from its rapid population growth. mulyadi (2006: 15) population growth is a dynamic balance between the forces that increase and the forces reduce the population. bachrawi sanusi (2004: 79) rapid population growth means that it will exacerbate the pressure on workplaces and lead to unemployment. also the problem of providing food is increasing in number. population growth factors population growth in a country is strongly influenced by 3 things, namely birth (fertility), death (mortality) and population movement (migration). on this occasion we will examine the three. a. birth (fertility). the rate of population growth through the birth of a baby in an area in a certain period. b. death (mortality). reduction of population through death in an area in a certain period. effect of urbanization and growth rate population of expectations life in indonesia 131 c. displacement of population (migration). migration of population from one place to another and is not affected by territory. there are 2 (two) migrations, namely permanent and non-permanent. there are two different views regarding the influence of population on development. first, is the pessimistic view which argues that population (rapid population growth) can lead to and encourage resource depletion, lack of savings, environmental damage, ecological destruction, which in turn can lead to social problems, such as poverty, underdevelopment and hunger. the second is an optimistic view which argues that the population is a possible asset to encourage economic development and the proliferation of technological and institutional innovations so as to encourage improvements in social conditions (rohani, 2016). population impacts economic development through population size, savings, labor structure, technological advances. and industrialization. however, these impacts interact with each other in the long term (wanjun et al., 2013). jeon (2013) argues that one of the main causes of slow growth in some middle-income countries is the slow transformation of agriculture. malthus's theory in skuocene (2009: 85) basically states that the earth's resources cannot keep up with the needs of an ever-increasing population, as a result, unlimited human needs are inversely proportional to the amount of natural resources used as a means of satisfying limited human needs. this will encourage people to approach the poverty line because of the tight competition in fulfilling their needs. jeon (2013) argues that one of the main causes of slow growth in some middleincome countries is the slow transformation of agriculture. malthus's theory in skuocene (2009: 85) basically states that the earth's resources cannot keep up with the needs of an everincreasing population, as a result, unlimited human needs are inversely proportional to the amount of natural resources used as a means of satisfying limited human needs. this will encourage people to approach the poverty line because of the tight competition in fulfilling their needs. jeon (2013) argues that one of the main causes of slow growth in some middleincome countries is the slow transformation of agriculture. malthus's theory in skuocene (2009: 85) basically states that the earth's resources cannot keep up with the needs of an everincreasing population, as a result, unlimited human needs are inversely proportional to the amount of natural resources used as a means of satisfying limited human needs. this will encourage people to approach the poverty line because of the tight competition in fulfilling their needs. life expectancy life expectancy rate (ahh) is a tool for evaluating the performance of the government in improving the welfare of the population in general, and increasing the degree of health in particular. life expectancy rate describes the average age reached by a person in the mortality situation prevailing in the community. low life expectancy in an area indicates that health development has not been successful, and the higher the ahh, the more successful the health development in that area is. mils and gilson (1990) in dimas (2010) define health economics as the application of theories, concepts and techniques of economics in the health sector, so that health economics is closely related to matters, namely the allocation of resources among various health efforts, the number of resources. resources used in health services, organizing and financing of various health services, the efficiency of allocating and using various resources and the impact of prevention, treatment and health recovery efforts on individuals and communities. mils and gilson (1990) in dimas (2010) define health economics as the application of theories, concepts and techniques of economics in the health sector, so that health economics is closely related to matters, namely the allocation of resources among various health efforts, the number of resources. resources used in health services, organizing and financing of various health services, the efficiency of allocating and using various resources and the impact of prevention, treatment and health recovery efforts on individuals and communities. afebi economic and finance review (aefr) volume 6, no 2 (2021) 132 3. research methodology in this study, the data source used was secondary data obtained from the world bank, the central bureau of statistics (bps), and related agencies. secondary data used is the indonesian timeseries data from 1985-2019 (35 years), in the form of data on urbanization (people), total population (people) and life expectancy (year). model specifications the analytical tool in this study uses multiple linear regression analysis based on ordinary least square (ols) with time series data along with statistical tests and classical assumption tests which aim to determine whether the data is worth estimating and to see the effect simultaneously on the dependent variable. the data processing tool used is the e-views 9.0 program. the following regression equation model is used: let = β0 + β1logut + β2logpt + e information: le = life expentency β0 = intercept /regression constant β1, β2, = coefficient of estimation u = urbanization p = population e = error /random error 4. result and discussion statistic test multiple linear regression test based on the result of statistical calculations as in table 1 we obtain multiple linear regression results for the per capita economic growth variable as follows: let = 30.21233 9.21u + 2.06p + e the coefficient results show that the coefficient value for the urbanization variable is 9.21 and has a positive relationship, which means that when the urbanization variable increases, it will reduce life expectancy by -9.21 with a probability value of 0.0002 which is <0.05 degree effect of urbanization and growth rate population of expectations life in indonesia 133 of error 5% so that it is statistically significant. significant to life expectancy. and for the results, the coefficient results show that the coefficient value for the urbanization variable is 2.06 and has a positive relationship, which means that when the urbanization variable increases, it will increase life expectancy by 2.06 with a probability value of 0.0000, where <0.05 degrees of error is 5% so that is statistically significant to life expectancy. residual normality test 0 1 2 3 4 5 6 7 8 -0.3 -0.2 -0.1 0.0 0.1 0.2 0.3 series: residuals sample 1985 2019 observations 35 mean 4.68e-15 median 0.026351 maximum 0.271400 minimum -0.293274 std. dev. 0.149969 skewness -0.231448 kurtosis 2.254468 jarque-bera 1.123049 probability 0.570339 the normality test used in this study was the jarque bera test. the results of the residual normality test in the attachment show that the jarque value is 1.914306 with a p value of 0.57 where it is> 0.05. so that h0 is accepted, which means that the data distribution residuals are normal. multicollinearity test the data above shows that the centered vif value for both the urbanization variable and the total population is above or greater than 10, so it can be stated that there is a multicollinearity problem in the model. variance inflation factors date: 05/15/21 time: 05:02 sample: 1985 2019 included observations: 35 coefficient uncentered centered variable variance vif vif c 8.963368 13128.33 na x1 4.88e-16 7217.544 769.5541 x2 5.46e-16 38710.82 769.5541 afebi economic and finance review (aefr) volume 6, no 2 (2021) 134 heterokedesticity test based on the data above, the probability value is> 0.05, which means that there is no heterocadicity problem in these variables. determination coefficient test (r2) from the results of the calculation of multiple linear regression analysis, it can be seen that the value of the r2 coefficient is 0.99 which is almost close to 1. this means that the per capita economic growth in indonesia during the 1985-2019 period can be explained by about 99% by the variables of urbanization and population. while the remaining 1% is explained by other variables not included in this research model. f test statistics the f test aims to determine the effect of all independent variables together (simultaneously) on the dependent variable. in the table above, it is found that the f-count value with a significance level of 5% or 0.05 is 8343> f-table (0.343) and the f-count probability value is 0.000 <0.05, so it can be concluded that h1 is accepted, that the independent variable is simultaneously (together) affect the dependent variable. dependent variable: resabs method: least squares date: 05/15/21 time: 05:47 sample: 1985 2019 included observations: 35 variable coefficien... std. error t-statistic prob. c 0.273570 1.534846 0.178239 0.8597 x1 2.47e-09 1.13e-08 0.217673 0.8291 x2 -1.76e-09 1.20e-08 -0.147004 0.8841 r-squared 0.108018 mean dependent var 0.124139 adjusted r-squared 0.052269 s.d. dependent var 0.081405 s.e. of regression 0.079249 akaike info criterion -2.150626 sum squared resid 0.200973 schwarz criterion -2.017311 log likelihood 40.63596 hannan-quinn criter. -2.104606 f-statistic 1.937586 durbin-watson stat 1.435038 prob(f-statistic) 0.160582 effect of urbanization and growth rate population of expectations life in indonesia 135 5. conclusion urbanization population migration causes an increase and decrease in the number of people in an area. the most visible form of migration in indonesia is urbanization. the proportion of the population of cities in indonesia continues to increase. the percentage of the population of the city of jakarta has reached 100 percent, meanwhile, the highest proportion is followed by the riau islands province which reached 83.18 percent of the population living in urban areas. meanwhile, the islands of west java, yogyakarta, bali, north kalimantan and east kalimantan are classified as high urban population, ranging from 61 percent to 80 percent. cities in the province are the choice of villagers to improve standards and quality of life. the driving factor for villagers to urbanize is the lack of jobs in their home areas. agriculture is the main sector that is relied on by the population, meanwhile, the number of fertility is increasing, which results in unfulfilled needs. poverty in the village is a driving factor for villagers to migrate. there is a link between increasing and decreasing gdp of a country and the level of urbanization. when viewed from an economic perspective, the urbanization process is able to increase productivity and greater efficiency in the allocation of national resources. however, on the other hand, urbanization can become an additional fiscal burden related to infrastructure improvements. rural areas will suffer losses because more and more people lose their more productive human resources. on a broader scale, it will greatly disrupt the growth of small and mediumsized cities, especially outside java, growth will be slow and will be increasingly lagging behind. the rpjmn has provided a clear picture that this unbalanced urban growth coupled with development disparities between regions has resulted in uncontrolled urbanization. physically this is shown by 1) the expansion of urban areas due to the rapid development and expansion of the fringe area, especially in big and metropolitan cities; 2) the expansion of urban physical development in sub-urban areas that have integrated smaller cities around the main city and formed uncontrolled conurbations; 3) increasing the number of rural-urban areas; 4) reclassification (changes in rural areas to urban areas, especially in java); 5) the trend of population growth in the core cities in metropolitan areas has decreased and vice versa in the surrounding areas has increased (urbanization in rural areas). population growth rate population growth in an area occurs due to several population factors, including birth (fertility), death (mortality) and also population migration. population growth is a dynamic balance between the forces that increase and those that reduce the number of people. the population will continuously be affected by the increase in the number of births (fertility), but at the same time it will also be reduced by the number of deaths (mortality) that occurs at all age groups, and migration also plays a role as immigrants (migrants) will increase and emigrants will reduce the population. (ida bagoes mantra, 2003). the population will continue to increase from time to time and of course it will affect changes from time to time as well, in line with changes in population and all forms of activity, in other words, the population will interact with each other in their efforts to meet all their needs. the high rate of population growth in certain areas will cause the population to increase rapidly. life expectancy more and more people are afflicted with a disease means that it will destroy the vitality, productivity, efficiency and even weaken the initiatives and social activities of the workforce. furthermore, it is said by komaruddin (1993) that low per capita income can reflect an afebi economic and finance review (aefr) volume 6, no 2 (2021) 136 economic production power of the people in the area concerned, and in this case health is another index of economic and social efficiency. according to the world health organization (who) in 1948, the definition of health is a condition of physical, mental, social welfare and not just a condition of illness or weakness. in statute, n0. 23 of 1992, health is a state of well-being of body, soul and society that allows everyone to live productively socially and economically. health effort is any activity to maintain and improve health carried out by the government and / or society. reference kasto, 2002. population mobility and its impact on regional development in indonesian population mobility; cross-disciplinary review. pskk ugm, yogyakarta am fazaalloh, "urbanization, industrialization, income and education in indonesia," habitus j. education, sociology, and anthropol., vol. 1, pp. 16–23, 2017. https://databoks.katadata.co.id/datapublish/2019/10/08/tentuk-urbanisasi-indonesia-dalamkategories-menengah#, accessed on 22 april 2021 19.05 indonesian population projection 2010-2035, national development planning agency, central bureau of statistics, united nations population fund, jakarta 2013 tjiptoherijanto, prijono., 1999. urbanization and urban development in indonesia. population population policy research bulletin volume 10 number 2 year 1999. ppk ugm, yogyakarta h. hussain, nh m & byrd, “malaysia, urbanization and de-industrialization: does malaysia have the land capacity for de-urbanization?”, 2012. r. jedwab et al., "demography, urbanization and development rural push, urban pull and urban push ?," work. paper, vol. 15, p. 32, 2014. r. jedwab, l. christiaensen, and m. gindelsky, “rural push, urban pull and ... urban push? new historical evidence from developing countries∗, "no. january, 2014. salim, fahruddi, 2006, urbanization, village-city, growth center, in http://www.sinarharapan.go.id/ felecia p. adam, urbanization trends in indonesia, 2010 millary agung widiawaty, urbanization factors in indonesia, 2019 j. martinez-vazquez, “urbanization and the poverty level,” international study program work. paper. ser. june 2014, pp. 1–47, 2009. jhingan, ml 2010. development economics and planning, translation. rajawali publisher. jakarta. https://databoks.katadata.co.id/datapublish/2019/10/08/tingkat-urbanisasi-indonesia-dalam-kategori-menengah https://databoks.katadata.co.id/datapublish/2019/10/08/tingkat-urbanisasi-indonesia-dalam-kategori-menengah http://www.sinarharapan.go.id/ the impact of migration on the wage distribution in indonesia 1 the impact of migration on the wage distribution in indonesia clalisca pravitasari 1*and arie damayanti 2 1,2 universitas indonesia, depok, indonesia abstract research on the impact of migration on workers' wages in destination areas has long been debated in the literature. however, studies that link migration to wage rates in different percentiles along the distribution have not been widely implemented, as migration does not have the same impact on wage levels in all groups of workers. by establishing a counterfactual using the semi-parametric dfl method of national labor force survey data, this study found that migration promotes changes in the distribution of wages, especially in the upper and lower percentiles. after controlling the magnitude of in-migration in each percentile group by using the ordinary least square method, this study also proves that migration leads to wage decreasing in percentile groups where migrant workers are overrepresented, which is in the 75th and 90th percentile groups. meanwhile, no negative impacts were found on wage levels in the lower middle percentile. in fact, migration has proven to encourage an increase in the average wage of workers in the lowest percentile of the distribution. jel classification: j01, j11, j61 keywords: counterfactual, migration, wage distribution, 1. introduction the economic impact of labor migration on the wage level in destination area is still being a debate in the literature. migrants will choose to move to the destination which can provide adequate facilities and greater expected benefits. pons, paluzie, silvestre, & tirado (2007) and crozet (2004) reveal that migrants will be concentrated in particular areas that can attract migrant workers by providing a good access to the labor market, such as adequate infrastructure, larger employment opportunities, higher productivity and labor wages, and lower prices for consumer goods due to low transportation costs. the concentration of migrant workers in a particular area will encourage human capital accumulation and knowledge spillover between migrant and non-migrant workers in the destination area. thus, migrant workers will increase nonmigrant workers’s productivity and in turn will increase the average wage in the destination area (jaumotte, koloskova, & saxena, 2016). contrary to the previous theory, classical economic theory reveals that migration can give negative impact on the average wage in the destination area by increasing labor supply in the labor market (todaro, 1976). the negative impact on the worker’s wage in destination area will be even greater when the number of migrants is larger and the elasticity of migrant workers in substituting non-migrant workers is higher (berker, 2011; boustan, fishback, & kantor, 2010; friedberg, 2001). however, recent research no longer looks at the impact of migration on the average wage, considering the magnitude of its impact is not the same for all groups of workers. assuming the majority of migrant workers are low-skilled, various studies in developed countries reveal that the inflow of migrant workers will encourage a decrease in the average wage of workers through increasing labor supply mechanism. in addition by being able to substitute non-migrant workers with the same skill level, migrant workers can also play a complementary role for non-migrant workers who have different skills, resulting in increased productivity and wages of highly skilled workers (asali, 2013; devillanova, 2004). * corresponding author. email address: clalisca.pr@gmail.com afebi economic and finance review (aefr) vol.03 no.02, december 2018 2 contrary to the previous theory, positive self-selection theory explains that workers with high education and skills will have bigger probability to migrate (borjas, 1992; todaro, 1976). the human capital theory also explain that migration is seen as an investment, so that the higher the skill and education the larger worker's chances of moving. nonetheless, the tight of competition and the lack of experience drive the migrant workers tend to downgrade considerably when arriving in the destination area (dustmann, frattini, & preston, 2013). the lack of network or access to labor market and the asymmetric information from employers also make migrant workers tend to receive lower wage to enter the labor market (chiswick, 2011; dustmann et al., 2013; manacorda, manning, & wadsworth, 2012). thus, migrant workers inflow can actually encourage lower average wages, especially in the group of highly skilled workers. meanwhile, low-educated workers who decide to migrate are those who have higher job-transferable skills and higher levels of schooling (barnum & sabot, 1977). in the group of low-skilled workers, migrants tend to have a higher bargaining power than non-migrant workers who do not migrate. low-skilled migrant workers also have a better fighting ability when arriving at the destination than non-migrant workers with same skills level, because migrant workers tend to do the job that is not wanted and cannot be done by non-migrant workers (constant, 2014). thus, the inclusion of lowskilled migrant workers will have the opportunity to increase the average wage of lowskilled workers in the destination area. over the past three decades, inter-census population survey data (supas) shows that migration flows between provinces in indonesia has increased sharply by 73.3 percent. however, research that looks at the impact of migration on wages in different groups has never been done in indonesia. the research that has been conducted in indonesia only links migration with the average wage level in the destination of migration (bryan & morten, 2017; latifadina, 2015). bryan & morten (2017) revealed that migration will have an impact on increasing worker productivity in the destination area. the positive impact will increase if there is a migration barriers reduction such as migration costs namely in areas that have adequate infrastructure facilities. in line with the research of bryan & morten (2017), latifadina (2015) also revealed that migration had a significant impact on the increase of average wage, especially in areas with high human development index (hdi). nonetheless, both studies have not considered the heterogeneity of workers in the migration destination. therefore, this study aims to find out how migration affects the wage rates of workers in the destination area, especially in different groups of workers along the distribution. 2. theoretical framework the theoretical framework used in this study refers to the theory built by dustmann, et al. (2013). in contrast to other theoretical frameworks, this model not only looks at the impact of migration on one group of workers but on wages in different groups of workers in the economy, where the migration will encourage lower wages for workers in groups with high concentrations of migrant workers. this model uses constant elasticity of substitution (ces) production function and assumes that the economy produces a single output (y) and uses various types of labor derived from various i-percentile groups (i = 1,2, ..., l) and capital (k) in the production process. the price of manufactured goods are assumed to be fixed and are determined in a market mechanism which normalized into one. 𝑦 = [𝛽𝐻𝑠 + (1 − 𝛽)𝐾 𝑠] 1 𝑠 (1) 𝐻 = [∑ 𝛼𝑖 𝑙𝑖 𝜎 𝑖 ] 1/𝜎 (2) where h is the aggregate labor input, 𝛼𝑖 reflects the productivity of the labor group-i, σ denotes substitution elasticity between groups of workers i (0 < σ <1), β is labor productivity relative to capital, and s is the substitution elasticity between labor work the impact of migration on the wage distribution in indonesia 3 with capital (0 < s < 1). in each working group-i, companies can employ non-migrant workers 𝑙𝑖 0 and migrant workers 𝑙𝑖 1, and assuming between migrant and non-migrant workers can substitute each other and have the same productivity, so 𝑙𝑖 = 𝑙𝑖 0 + 𝑙𝑖 1. assuming the market clear for each group of workers-i, denoted as 𝑙𝑖 = 𝑛𝑖 where 𝑛𝑖 is the supply of group labor-i which also comes from the supply of non-migrant and migrant workers (𝑛𝑖 = 𝑛𝑖 0 + 𝑛𝑖 1). the total supply of non-migrant workers is expressed as 𝑁0 = ∑ 𝑛𝑖 0 𝑖 , so 𝑛𝑖 = 𝑁 0(𝜋𝑖 0 + 𝜋𝑖 1𝑚), where 𝜋𝑖 0 = 𝑛𝑖 0/𝑁0 is the fraction of the group non-migrant-i worker, 𝜋𝑖 1 = 𝑛𝑖 1/ ∑ 𝑛𝑖 1 𝑖 is the fraction of the migrant-i group of workers to total migrants and 𝑚 = ∑ 𝑛𝑖 1/𝑁0𝑖 is the ratio of migrant workers to total non-migrant workers. in order to maximize profits, the company will choose optimum input when the wage of worker group-i (𝑤𝑖) is equal to the marginal product of labor, and the price of capital ρ is equal to the marginal product of capital, so that it is obtained: ln 𝑤𝑖 = ln 𝛽𝛼𝑖 + (𝜎 − 1) ln(𝜋𝑖 0 + 𝜋𝑖 1𝑚) + (1 − 𝜎) ln (𝐻 𝑁0 ⁄ ) + (1 𝑠⁄ − 1)𝑙𝑛 [𝛽 + (1 − 𝛽)( 𝐾 𝐻⁄ ) 𝑠 ] (3) where, ln (𝐻 𝑁0 ⁄ ) = 1 𝜎⁄ 𝑙𝑛(∑ 𝛼𝑖 (𝜋𝑖 0 + 𝜋𝑖 1𝑚) 𝜎 𝑖 ). ln 𝜌 = ln(1 − 𝛽) + (𝑠 − 1) ln(𝐾 𝐻⁄ ) + ( 1 𝑠⁄ − 1) ln [𝛽 + (1 − 𝛽)( 𝐾 𝐻⁄ ) 𝑠 ] (4) by assuming 𝜃 as the supply elasticity of capital, where 𝜃 = 𝑑𝑙𝑛 𝐾 𝑑𝑙𝑛 𝜌 , we can know the change in the wage level equilibrium as a reaction to the change in the ratio of nonmigrant workers, expressed as: 𝑑𝑙𝑛 𝑤𝑖 𝑑𝑚 = (𝜎 − 1) ( 𝜋𝑖 1 𝜋𝑖 0 − ∅ ∑ 𝜔𝑖 𝜋𝑖 1 𝜋𝑖 0 𝑖 ) (5) where 𝜔𝑖 = 𝛼𝑖(𝜋𝑖 0+𝜋𝑖 1 ) 𝜎 ∑ 𝛼𝑗(𝜋𝑗 0+𝜋𝑗 1) 𝜎 𝑗 is the share of worker-i in the aggregate labor force 𝐻𝜎, 𝜑 = 𝛽𝐻𝑠 𝛽𝐻𝑠+(1−𝛽)𝐾𝑠 is the share of labor in the production process, and ∅ = 1 + [ (1−𝑠)(1−𝜑) 1+(1−𝑠)𝜑𝜃 ] 1 𝜎−1 is a parameter whose value depends on capital mobility 𝜃, substitution elasticity between labor and capital s, and share of labor in the production process 𝜑. compared to capital mobility between countries, capital tends to have no barriers on moving from one area to another within a country's area. so by assuming that capital is mobile (𝜃 = ∞), then ∅ will be worth one. because (𝜎 − 1) will be negative, then from equation (5) it can be seen that migration will have a negative impact on the wage rate in the i percentile if the ratio of the proportion of migrant workers relative to the non-migrant workers in each i-group is greater compared the weighted average ratio of the proportion of migrant workers to the proportion of non-migrant workers in all percentiles. meanwhile, if the concentration of migrant workers is the same as the concentration of non-migrant workers in all percentile groups (𝜋𝑖 1 = 𝜋𝑖 0), then migration will not change the wages of workers in all percentile groups. this theory is in line with classical economic theory that the abundance of labor available in group-i relative to other groups will encourage a decrease in wages in the group. conversely, the rarer labor supply in group-i relative to other groups will encourage increased wages of workers in the group. this is also in line with constant's (2014) theory which reveals that migrant workers tend to have a higher fighting ability when arriving at the destination than nonmigrant workers with the same skill level. migrant workers tend to do work that nonmigrant workers cannot and do not want to do. because of the lack of access to the labor market, and the asymmetric information from employers, migrant workers tend to be willing to receive wages that are lower than the wages that should be received at the level of skills they have in order to enter the labor market. migration destination afebi economic and finance review (aefr) vol.03 no.02, december 2018 4 areas (chiswick, 2011; dustmann et al., 2013; manacorda et al., 2012). thus the inflow of migrant workers drives the decline in percentile group’s wage where migrant workers are concentrated. 3. methods 3.1 counterfactual methods to see the impact of migration on wage levels in different groups in the destination of migration, a method is needed that not only can see the impact of migration on the wages of workers on average but also on the changes in workers' wages to different groups of workers. in literatures, there are at least two methods used to measure wage changes along the distribution. the first approach uses quantile regression (buchinsky, 1994; koenker & bassett, 1978) and the second one uses counterfactual approach (dinardo, fortin, & lemieux, 1996; machado & mata, 2000). the counterfactual method is chosen because it can provide more detailed on the wage changes along distribution. by constructing a counterfactual that describes the condition of wage distribution if the workers structure available in the labor market does not change due to migration, making this counterfactual method more attractive because it can provide additional information that cannot be provided by the other methods, namely "what is the wage distribution condition if the workers characteristics do not change due to migration?" the counterfactual method is constructed by comparing the distribution of worker’s wage in an area with the wage distribution if the migration does not occur (counterfactual condition). in constructing this counterfactual condition, it is necessary to identify the workers who categorize as migrant and non-migrant workers. because the definition of migration used in this study is recent migration, the identification process is carried out by comparing the current residence with the place of residence five years ago. individuals who have migrant status will be further identified as inmigrant in the destination area, as well as out-migrants in the area of origin. the counterfactual condition in this study is used to look at the distribution of workers' wages due to migration by assuming that the characteristics of individual workers do not change and workers receive wages according to current factual conditions. the counterfactual conditions are built by placing individuals as migrant workers into their home areas before migrating, joined with non-migrant workers. in constructing the counterfactual density, this study adopted a semiparametric approach introduced by dinardo, fortin, & lemieux (1996). assuming that each individual in the distribution is denoted as a vector (w, z, t), consists of wages (w), individual characteristics (z), and periods t, then the joint distribution of wages and worker characteristics in a given period denoted as the conditional distribution 𝐹(𝑤, 𝑧|𝑡). wage density in period t = 1, 𝑓(𝑤|𝑡 = 1), can be written as an integral of the conditional wage density of individual characteristics and time, 𝑓(𝑤|𝑧, 𝑡𝑤 ), on the distribution of individual characteristics in a period t, 𝐹(𝑧|𝑡𝑧 ). 𝑓𝑡 (𝑤) = ∫ 𝑑𝐹(𝑤, 𝑧|𝑡𝑤,𝑧 = 𝑡) 𝑧 = ∫ 𝑓(𝑤|𝑧, 𝑡𝑤 = 𝑡) 𝑑𝐹(𝑧|𝑡𝑧 = 𝑡) 𝑧 = 𝑓(𝑤| 𝑡𝑤 = 𝑡, 𝑡𝑧 = 𝑡) by assuming t=2 is a factual condition, which describes the characteristics of workers available in an area after migration, the factual wage distribution can be written as: 𝑓(𝑤| 𝑡𝑤 = 2, 𝑡𝑧 = 2) = ∫ 𝑓(𝑤|𝑧, 𝑡𝑤 = 2) 𝑑𝐹(𝑧|𝑡𝑧 = 2) 𝑧 (6) the impact of migration on the wage distribution in indonesia 5 meanwhile, to construct counterfactual wage density which describes the wage distribution in factual conditions (t = 2) but the characteristics of workers available in an area do not change due to migration (t = 1), then equation (6) can be modified to: 𝑓(𝑤| 𝑡𝑤 = 2, 𝑡𝑧 = 1) = ∫ 𝑓(𝑤|𝑧, 𝑡𝑤 = 2) 𝑑𝐹(𝑧|𝑡𝑧 = 1) 𝑧 (7) 𝑓(𝑤|𝑡𝑤 = 2, 𝑡𝑧 = 1) = ∫ 𝑓(𝑤|𝑧, 𝑡𝑤 = 2) 𝑑𝐹(𝑧|𝑡𝑧 = 1) 𝑑𝐹(𝑧|𝑡𝑧 = 2) 𝑧 𝑑𝐹(𝑧|𝑡𝑧 = 2) (8) 𝑓(𝑤|𝑡𝑤 = 2, 𝑡𝑧 = 1) = ∫ 𝑓(𝑤|𝑧, 𝑡𝑤 = 2) 𝛹(z) 𝑧 𝑑𝐹(𝑧|𝑡𝑧 = 2) (9) the important point from equation (9) is that the counterfactual distribution equation can be obtained from the factual distribution using the help of the weighing function 𝛹(z). however, this method assumes that the wage structure of workers if migration occurs (t = 2) and if migration does not occur (t = 1) does not change, and the important assumption that the wage structure at t = 2 does not depend on the distribution of individual characteristics z . by applying the bayes' rule, it is obtained: 𝑃(𝑧|𝑡 = 1) = 𝑃(𝑡 = 1|𝑧) 𝑑𝐹(𝑧) ∫ 𝑃(𝑡 = 1|𝑧) 𝑑𝐹(𝑧) 𝑧 (10) and 𝑃(𝑧|𝑡 = 2) = 𝑃(𝑡 = 2|𝑧) 𝑑𝐹(𝑧) ∫ 𝑃(𝑡 = 2|𝑧) 𝑑𝐹(𝑧) 𝑧 (11) thus, the weighting function in equation (4) can be transformed into: 𝛹(𝑧) = pr(𝑡1 = 1|𝑧) pr (𝑡 = 2) pr(𝑡2 = 1|𝑧) pr (𝑡 = 1) (12) where pr(t = k) is the unconditional probabilities while pr(𝑡𝑘 = 1|𝑧) is the conditional probabilities. dickey (2014) reveals that unconditional probabilities can be estimated by the proportion of individuals in an area, both the conditions of migration occur (t = 2) and if migration does not occur (t = 1). meanwhile, conditional probabilities can be estimated through individual opportunities in an area at t = 1,2 conditionals on individual characteristics possessed. the standard method used to estimate the unconditional probabilities is a probit model, using explanatory variables in the form of personal characteristics (age, gender, education level and marital status) and job characteristics (hourly wages, hours worked, and employment status). after obtaining a weighing value for each individual, a description of counterfactual wage distribution can be estimated using the weighted kernel density estimation: 𝑓ℎ̂ (𝑤) = ∑ 𝜃𝑖 ℎ 𝜓𝑖 (𝑧)𝐾 ( 𝑤 − 𝑊𝑖 ℎ ) 𝑛 𝑖=1 where 𝑤𝑖 is the observable wage/hour, 𝜃𝑖 is the weighing (∑ 𝜃𝑖 = 1)𝑖 , h is the bandwidth, 𝐾(∙) is the kernel density function, and 𝜓𝑖 (𝑧) is the reweighting function. 3.2 ols method although the counterfactual method can provide more detailed information on changes in workers’ wages along the distribution due to migration, this method can not provide the magnitude of the marginal effect of migration on the worker's wage level in different groups. in addition, this analysis has not been able to control the proportion of migrants in each group to prove the hypothesis of this study. a particular group with a higher ratio of migrant to non-migrant workers will have a bigger negative impact on afebi economic and finance review (aefr) vol.03 no.02, december 2018 6 the average wages. so that this study uses a regression analysis tool to determine the magnitude of the marginal effect in each group of workers. referring to the theoretical framework in equation (5), empirical equations can be obtained to see the impact of migration on wage levels in the first percentile as follows: 𝑙𝑛 𝑤𝑟𝑡 𝑖 = 𝛼𝑖 + (𝜎 − 1) ( 𝜋𝑖 1 𝜋𝑖 0 − 1) 𝑚𝑟𝑡 + 𝛿𝑋𝑟𝑡 𝑖 + 𝑟𝑡 𝑖 𝑙𝑛 𝑤𝑟𝑡 𝑖 = 𝛼𝑖 + (𝜎 − 1) ( 𝑛𝑖 1 𝑛𝑖 0 + ∑ 𝑛𝑖 1 ∑ 𝑛𝑖 0) 𝑟𝑡 + 𝛿𝑋𝑟𝑡 𝑖 + 𝑟𝑡 𝑖 (13) 𝑙𝑛 𝑤𝑟𝑡 𝑖 = 𝛼𝑖 + 𝛽𝑖 𝑀𝑟𝑡 𝑖 + 𝛿𝑖 𝑋𝑟𝑡 𝑖 + 𝑟𝑡 𝑖 (14) where w is the real wage of the worker in the factual condition, i shows the iwage percentile, r is the variation between regions, and t is the variation between times. by controlling the estimated capital mobility through the infrastructure level in each region, and controlling the characteristics of workers education in the labor market in the form of the proportion of workers based on education level, and the ratio of skilled and unskilled workers in each i-percentile, the equation (14 ) can be translated into: 𝑙𝑛 𝑤𝑟𝑡 𝑖 = 𝛼 + 𝛽𝑖 ln 𝑀𝑟𝑡 𝑖 + 𝛿1 𝑖 ln ( 𝑊𝑜𝑟𝑘𝑒𝑟𝑒𝑙𝑒𝑚𝑒𝑛𝑡 𝑠𝑐ℎ−𝑝𝑟𝑖𝑚𝑎𝑟𝑦 ℎ𝑖𝑔ℎ 𝑠𝑐ℎ 𝑇𝑜𝑡𝑎𝑙 𝑊𝑜𝑟𝑘𝑒𝑟 ) 𝑟𝑡 + 𝛿2 𝑖 ln ( 𝑊𝑜𝑟𝑘𝑒𝑟𝑠𝑒𝑐𝑜𝑛𝑑𝑎𝑟𝑦 ℎ𝑖𝑔ℎ 𝑠𝑐ℎ 𝑇𝑜𝑡𝑎𝑙 𝑊𝑜𝑟𝑘𝑒𝑟 ) 𝑟𝑡 + 𝛿3 𝑖 𝑙𝑛 ( 𝑊𝑜𝑟𝑘𝑒𝑟𝑈𝑛𝑖𝑣 𝑇𝑜𝑡𝑎𝑙 𝑊𝑜𝑟𝑘𝑒𝑟 ) 𝑟𝑡 𝑖 + 𝛿4 𝑖 ln 𝐼𝑛𝑓𝑟𝑎𝑠𝑡𝑟𝑟𝑡 + 𝛿5 𝑖 𝐷𝑢𝑚𝑚𝑦 𝑌𝑒𝑎𝑟 + 𝑖𝑟𝑡 (15) in the above equation, worker characteristics need to be controlled because the changes in workers’ characteristics available in labor market will also influence workers’ wage in that area (glaeser, 1999; lucas, 1988). the difference of workers proportion based on education level will give different effects on wage levels in each percentile. the infrastructure availability also needs to be controlled in equation (15), because the condition of infrastructure will also affect worker's wages from demand and supply side. the infrastructure availability will reduce migration costs, so that it will attract the inflow of migrant workers to the areas with good infrastructure facilities. the availability of infrastructure can also illustrates capital mobility in the area, so that it will affect the wage level in terms of labor demand. the better infrastructure facilities will make it easier for companies to enter the market and do the production process in that area. this condition will encourage the creation of clustering and economic agglomeration that affects the demand for production factors and affects the wages offered by the company (krugman, 1991; rahman & fujita, 1990). this study uses micro data source from the 2016 and 2017 national labor force survey (sakernas) published by the central statistics agency (bps). the selection of 2016 and 2017 as the year of observation of this study is driven by the data availability and data actuality, where the 2016 sakernas is the first employment survey that provides recent migration data equipped with comprehensive employment information. because this study focus on labor migration, the sample used in this analysis is limited to individuals who are in the working age, based on the concept from ilo (15 years above), which are as many as 536,970 samples. in addition, this study also focuses on the impact of migration on worker’s wage in destination areas through the labor availability changes mechanism. therefore 174,240 individuals must be excluded from the sample because these individuals are not included in the workforce, such as housewives and are in school. thus, the number of samples used in this study were 369,833 individuals. the impact of migration on the wage distribution in indonesia 7 4. results and discussion before looking at the impact of migration on the wages distribution in the destination areas, information regarding the characteristics of migrant and non-migrant workers is needed. the proportion of migrant workers who have diploma/university education is greater than the proportion of non-migrant workers with same education level (table 1). meanwhile, the proportion of non-migrant workers who have junior high school education is much greater than the proportion of migrant workers. from the table 1, it can also be seen that the decision to migrate is mostly carried out by the workers in productive age. this is in line with greenwood's (1975) study which revealed that workers who have higher education and are of productive age will have wider access to enter the labor market in the destination area. compared to women, most migrant workers in indonesia are male. wajdi, mulder, & adioetomo (2017) revealed that migration mostly was driven by economic reasons so that men as the backbone of the family would have a bigger motivation to migrate to get higher wages in the destination area. refer to table 1, it can also be seen that most migrant workers in indonesia work in the formal sector. although migrant workers have limited access and tend to enter the informal sector at the beginning of arrival, the opportunity to get a job in formal sector will also be increasingly open along with the increase in work experiences and skills. (manning & pratomo, 2013). table 1 the proportion of migrant and non-migrant workers based on characteristics worker status (%) the proportion of migrant / proportion of non-migrant proportion of non-migrant proportion of migrant education junior high school below 59.16 44.01 0.74 senior high school 28.94 35.70 1.23 diploma/university 11.90 20.29 1.71 age 15-24 15.65 24.27 1.55 25-34 22.77 35.90 1.58 35-44 25.13 25.13 1.00 45-59 27.18 12.88 0.47 60+ 9.27 1.82 0.20 gender male 61.69 65.58 1.06 female 38.31 34.42 0.90 occupation formal 49.26 65.87 1.34 informal 50.74 34.13 0.67 wage group top 25% 25.14 20.61 0.82 25% lowest 24.07 33.05 1.37 source: sakernas (2017) if we look more detail at the proportion of migrant workers than the proportion of non-migrant workers in each percentile group, it can be seen that migrant workers are concentrated in the top-wage group (figure 1). by looking at the conceptual framework used in this study, where migration will encourage a decrease in wages of workers in groups with high concentrations of migrant workers, it can be concluded that migration will encourage a decrease in workers wages in the top percentile of the distribution. meanwhile, the worker's wages in the median area were allegedly unchanged, because the proportion of migrants did not change the proportion of nonmigrant workers on that percentile. afebi economic and finance review (aefr) vol.03 no.02, december 2018 8 figure 1 ratio (proportion of migrant workers / proportion of non-migrant workers) according to the percentile group to analyze the impact of migration on wage distribution using the counterfactual method, the analysis was carried out by comparing density curve of counterfactual conditions, where migration does not occur, with factual density curve conditions, where migration has occurred. from the graph of appendix 1, it can be seen that the impact of migration on wage distribution through the counterfactual approach shows different results between provinces. nevertheless, there are three large patterns that can be taken to illustrate the impact of migration on changes in wage distribution in 34 provinces in indonesia. the first pattern illustrates that migration flows are driving down wages for workers who are in the top 25 percent of the distribution. however, the wages in the lowest 25 percent are not significantly affected, which means that migration does not change the characteristics of workers in the destination of migration. this pattern occurs in most provinces in indonesia, such as aceh, west sumatra, lampung, bangka belitung, ntb, ntt, central kalimantan, south kalimantan, central sulawesi, west sulawesi, north maluku, west papua. skilled workers who decide to migrate to these provinces tend to be overeducated because economic characteristics in these provinces are more supported by the traditional sector which requires more unskilled workers than skilled workers. thus, migration will encourage a decrease in the worker's wages in the top distribution. figure 2 changes in wage density factual and counterfactual due to migration, aceh province (pattern 1) meanwhile, the second pattern illustrates that migration flows actually increase the wages in the 25 percent lowest of the distribution. this second pattern occurs in several provinces, such as north sumatra, riau, jambi, bengkulu, banten, south sulawesi, southeast sulawesi, maluku, and papua. in these provinces the wage rates in the low-skilled group, which consist of workers with junior high school education and below, are higher than the average low-skilled wages in national level. though they have the same low skill, migrant workers tend to have higher skills and productivity than non-migrant workers. thus, the inflow of migrant workers will increase the average wage in the low-skilled group. 0.8 1 1.2 1.4 1.6 10 20 30 40 50 60 70 80 90 100 (p ro p m ig ra n /p ro p n o n m ig ra n ) i persentil 0 .1 .2 .3 .4 .5 9 10 11 12 13 14 log of wage/hour riil factual 2017 counterfact 2017 the impact of migration on the wage distribution in indonesia 9 figure 3 changes in wage density factual and counterfactual due to migration, south sulawesi province (pattern 2) the last pattern illustrates the migration flow shifts the wage distribution to the right. this indicates that migration will increase the wage rates of workers in both the low-skilled and high-skilled groups. this pattern occurs in some provinces, such as south sumatra, riau islands, north sulawesi, west java, yogyakarta, and bali. this condition occurs because these provinces have economic characteristics that are concentrated in the manufacturing industry and the service sector. as in west java, the occurrence of industrial agglomerations encouraged workers to come. the concentration of migrant workers in agglomeration areas will create knowledge spillovers, thus influencing the workers productivity, both low-skilled and high-skilled workers. from the three large patterns, conclusions can be drawn that migration tends to increase the wages of workers in the lower percentile. meanwhile, most regions indicated that migration reduced the wages of the top distribution. figure 4 changes in wage density factual and counterfactual due to migration, south sulawesi province (pattern 3) although counterfactual analysis can provide more detailed information regarding the wage changes along distributions and provide information about wage distribution when migration occurs and if migration does not occur. however, the counterfactual analysis can not control the ratio of migrant and non-migrant workers at each group. so this analysis tool is not enough to prove the research hypothesis, where migration will encourage a decrease in wages in groups with a high concentration of migrant workers. this analysis also has not been able to provide information on the magnitude of the marginal effect of migration on the wages in each percentile along the distribution. therefore, this study carried out further analysis through a regression equation to explain the magnitude of the impact of migration on workers' wages in different percentile groups. table 2. the impacts of migration on wages based on percentile groups ln (wage real/hour) percentile 10 percentile 25 percentile 50 percentile 75 percentile 90 percentile 100 (1) (2) (3) (4) (5) (6) ln migration (i) 0.592** 0.544 0.220 -0.337** -0.224* 0.051 (0.277) (0.358) (0.341) (0.13) (0.118) (0.094) -0.359** -0.383 -0.127 0.108 0.075 0.138 0 .1 .2 .3 .4 .5 8 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 0 .1 .2 .3 .4 .5 8 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 afebi economic and finance review (aefr) vol.03 no.02, december 2018 10 ln prop. elmntary & junior hsc (0.17) (0.238) (0.2046) (0.1158) (0.1017) (0.1059) ln prop. elmntary & senior hsc 0.031 0.088 0.077 0.194 0.166 -0.008 (0.172) (0.167) (0.191) (0.125) (0.126) (0.108) ln prop. university 0.210 0.181 0.211 0.334*** 0.285*** 0.181** (0.156) (0.161) (0.148) (0.11) (0.102) (0.088) ln infrastructure 0.130*** 0.131*** 0.112*** 0.064* 0.056* 0.064** (0.045) (0.043) (0.041) (0.036) (0.031) (0.031) dummy year -0.088 -0.050 -0.018 -0.008 -0.005 -0.003 const 5.855*** 6.530*** 7.567*** 9.403*** 10.077*** 10.622*** n 68 68 68 68 68 68 adj-r squared 0.2649 0.2348 0.1906 0.2638 0.2093 0.2237 note: the equation use dummy year (2017=1, 2016=0); standard error are presented in parentheses; *significance level 10%; ** significance level 5%; *** significance level 1% the estimation results in table 2 shows that migration significantly affects the wage rates in the 75th and 90th percentiles. the parameter coefficients show that migration in the 75th and 90th percentiles, measured by the ratio of overall migrant workers to the non-migrant worker's ratio in each percentile, has a negative impact on the wage reduction in both percentiles, which are -0.333 and -0.224 respectively. we can conclude that in the condition of ceteris paribus, every one percent increase of migration in the 75th percentile will reduce the average wage in the 75th percentile group by 0.34 percent. likewise, an increase of one percent of migration in the 90th percentile will reduce the average wage on that percentile by 0.22 percent in the condition of ceteris paribus. significant impacts on the 75th and 90th percentile are in accordance with the conditions of migrant workers in indonesia, where migrant workers are more concentrated in groups of workers with high skill levels so that the negative impact on the wage level of workers will occur in high skill groups. the decrease in this group’s wage occurs because migrant tends to accept lower wages than non-migrant workers with the same level of skills upon arrival in the destination to enter the labor market (constant, 2014; dustmann et al., 2013; manacorda et al., 2012). migrants tend to discount themselves due to lack of network and limited access on entering the labor market. thus, the high concentration of highskilled migrants who experience a downgrade in the destination area will encourage a decrease in the average wage of top percentiles. this condition is also in line with harris-todaro's theory which reveals that highskilled workers will have higher chance to move to other areas in order to obtain higher expected income at the destination area (todaro, 1976). meanwhile, high-skilled nonmigrant workers who decide to stay in the area of origin are those who have higher productivity and higher wages than the wages received in other regions. when compared to migrant workers with same skill level, high-skilled non-migrant workers who decide to stay in their home areas will tend to be more productive than newly arrived migrant workers. thus, the high number of migrant workers will have negative impact on the average wage of top percentiles. the opposite results occurred in the 10th percentile group, where migration will have a positive impact on the average wage of the 10th percentile. from the estimation results, it is known that every 1 percent increase in migrant workers in the 10th percentile will increase the average wages of workers in that group by 0.59 percent, ceteris paribus. although migration has a high chance for high-skilled workers, barnum & sabot (1977) revealed that low-educated workers who decided to migrate are workers who had higher job-transferable skills and higher levels of schooling. thus, the impact of migration on the wage distribution in indonesia 11 when arriving at the destination, low-skilled migrant workers have higher specifications and bargaining power in the labor market than non-migrant workers in the 10th percentile, considering that workers in the lowest percentile of the distribution are closely related to the conditions of uneducated and unskilled workers. migrant workers tend to do jobs that non-migrant workers don't want to do (constant, 2014). thus, the inflow of low-skilled migrant workers will increase the average wages in the lower percentile group. the results of this study are in line with the foged & peri (2015), where the inflow of low-skilled migrant workers will encourage low-skilled non-migrant workers to move to less-manual intensive jobs, thereby increasing worker productivity and increasing average wages. from table 2 we also conclude that migration did not affect the average wages in the 25th, 50th and 100th percentiles. this condition happened because the proportion of migrant workers is equal to the proportion of non-migrant workers in these percentile groups. thus, the entry of migrant workers will not change the relative price of production factors in the 25th, 50th and 100th percentiles. in addition, workers in the top percentile of distribution can be described as workers with the highest productivity compared to workers in other groups. therefore, as workers who do not have strong experience and networks, it will be difficult for newly arrived migrant workers to compete and be in the top percentiles when they arrive at the destination area. table 2 also reveals that the variables which control the changes of worker skill composition in the labor market also influence wage rates in different percentiles. every one percent increase in the proportion of elementary & junior high school workers to total workers will reduce wages in the 10th percentile by 0.35 percent. conversely, the higher the level of workers education available in the labor market will encourage companies to pay higher wages. so that every one percent increase in the proportion of highly educated workers will increase the average wage in the 75, 90 and 100 percentiles, by 0.33 percent, 0.29 percent, and 0.18 percent, respectively. meanwhile, the estimation results on infrastructure variables indicate that infrastructure availability is statistically significant in encouraging the increase of average wages in all groups. the availability of infrastructure will facilitate the labor mobility between regions. better infrastructure will increasingly attract workers to come, so that affects the labor supply in the destination area. better infrastructure will also facilitate the inflow of capital into the destination area, where capital can be in the form of physical companies or investments. capital inflow into the destination area will affect the wage level due to increased demand for labor production factors (dalenberg & partridge, 1997). although infrastructure significantly influences wage increases in all percentiles, the positive impact is bigger for workers in the lower percentile. this can be seen from the highest coefficient values occurring in the 10th percentile and getting smaller in the higher percentile group. thus, infrastructure development is effectively used as a tool to improve welfare equality in indonesia. 5. conclusion this study proves that migration has an unequal impact on different groups of workers. by using counterfactual analysis, this study shows that in general there are three patterns of changes in wage distribution due to migration, but most provinces experience changes in distribution through decreasing wages to the right of the distribution. this shows that in most provinces, migration has an effect on decreasing wages of highly skilled workers. after controlling the magnitude of the ratio of migrant workers to non-migrant workers in each percentile group, the results of the regression analysis indicate that each one percent increase in migration will have a significant impact on the wage reduction of workers in the 75th and 90th percentiles, 0.34 percent and 0.22 percent respectively. this happens because migrant workers tend to downgrade their ability upon arrival in the destination area, where the migrant workers are willing to receive lower wages in order to enter the labor market. therefore, the high concentration of afebi economic and finance review (aefr) vol.03 no.02, december 2018 12 migrant workers in the 75th and 95th percentiles will drive the decline of average wages in those percentiles. conversely, migration has a positive impact on the average wage of workers in the 10th percentile, where every one percent increase in migrant workers in the 10th percentile group will increase the average wage of workers by 0.59 percent in that group. low-educated workers who decided to migrate are workers who had jobtransferable skills and higher levels of schooling. thus, when arriving at the destination, low-skilled migrant workers have higher specifications and bargaining power in the labor market than non-migrant workers in the lower percentile of the distribution. meanwhile, migrant workers also tend to do work that non-migrant workers do not want to do. thus, the inclusion of low-skilled migrant workers will increase the average wage of workers in the lower percentile of the distribution. the results of this study do not 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(2017). inter-regional migration in indonesia: a micro approach. journal of population research, 34(3), 253–277. afebi economic and finance review (aefr) vol.03 no.02, december 2018 14 appendix 1 wage density of factual and counterfactual conditions from the occurrence of migration in the destination areas 11. aceh 15. jambi 12. north sumatera 16. south sumatera 13. west sumatera 17. bengkulu 14. riau 18. lampung 0 .1 .2 .3 .4 .5 9 10 11 12 13 14 log of wage/hour riil factual 2017 counterfact 2017 0 .2 .4 .6 8 9 10 11 12 log of wage/hour riil factual 2017 counterfact 2017 0 .2 .4 .6 8 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 0 .1 .2 .3 .4 .5 8 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 0 .2 .4 .6 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 0 .1 .2 .3 .4 .5 8 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 0 .2 .4 .6 8 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 0 .2 .4 .6 8 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 the impact of migration on the wage distribution in indonesia 15 19. bangka belitung 34. di yogyakarta 21. kepulauan riau 35. east java 31. dki jakarta 36. banten 32. west java 51. bali 33. central java 52. west nusa tenggara 0 .2 .4 .6 .8 8 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 0 .2 .4 .6 8 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 0 .2 .4 .6 .8 8 10 12 14 log of wage/hour riil factual 2017 counterfact 2017 0 .1 .2 .3 .4 .5 8 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 0 .2 .4 .6 8 10 12 14 log of wage/hour riil factual 2017 counterfact 2017 0 .2 .4 .6 8 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 0 .1 .2 .3 .4 .5 8 10 12 14 log of wage/hour riil factual 2017 counterfact 2017 0 .2 .4 .6 8 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 0 .2 .4 .6 8 10 12 14 log of wage/hour riil factual 2017 counterfact 2017 0 .1 .2 .3 .4 .5 8 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 afebi economic and finance review (aefr) vol.03 no.02, december 2018 16 53. east nusa tenggara 65. north kalimantan 61. west kalimantan 71. north sulawesi 62. central kalimantan 72. central sulawesi 63. south kalimantan 73. south sulawesi 64. east kalimantan 74. south-east sulawesi 0 .1 .2 .3 .4 6 8 10 12 14 log of wage/hour riil factual 2017 counterfact 2017 0 .1 .2 .3 .4 .5 8 10 12 14 log of wage/hour riil factual 2017 counterfact 2017 0 .2 .4 .6 8 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 0 .2 .4 .6 8 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 0 .2 .4 .6 8 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 0 .1 .2 .3 .4 8 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 0 .2 .4 .6 8 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 0 .1 .2 .3 .4 .5 8 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 0 .2 .4 .6 8 10 12 14 log of wage/hour riil factual 2017 counterfact 2017 0 .1 .2 .3 .4 8 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 the impact of migration on the wage distribution in indonesia 17 75. gorontalo 82. north maluku 76.west sulawesi 91. west papua 81. maluku 94. papua 0 .1 .2 .3 .4 .5 8 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 0 .1 .2 .3 .4 8 10 12 14 log of wage/hour riil factual 2017 counterfact 2017 0 .1 .2 .3 .4 8 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 0 .2 .4 .6 8 10 12 14 log of wage/hour riil factual 2017 counterfact 2017 0 .1 .2 .3 .4 8 9 10 11 12 13 log of wage/hour riil factual 2017 counterfact 2017 0 .1 .2 .3 .4 .5 8 10 12 14 log of wage/hour riil factual 2017 counterfact 2017 analysis of income disparities in jambi province 2010-2017 51 analysis of income disparities in jambi province 2010-2017 rian destiningsih51*, rr. retno sugiharti2, and andhatu achsa3 1,2,3 universitas tidar, magelang, indonesia abstract economic growth does not reflect an increase in the welfare of society even though recorded in a high state. what occur now is economic growth is increase but disparities income is wider. the aims of this study to find out more about disparities income. this research used williamson index and theil entropy index and focused in jambi province in term of time 2010 – 2017. jambi province's has unique and strategic location, which is near to the ims-gt economic growth area (indonesia, malaysia, singapore growth triangle). because of the strategic location, jambi province should be able to achieve convergent conditions and become the highest province in economic gain among others province in indonesia. however, in reality the economy state of jambi province is opposite. the result of this research shows that jambi province's income disparity in 2010 2017 tends to decrease. but from the williamson index calculation, lifting income inequality in jambi province in 2010-2017 is a high inequality, this can be concluded from the williamson index value that’s more than 0.5. the main causes of disparity income in jambi province is differences in the structure of the economy. the difference in economic structure occurs due to differences in natural resources and human resources. in the other side, based on theil entropy index it was concluded that inequality in jambi province in 2010-2017 was classified as low, because the index value was close to 0. jel classification: d30, d31, d33 keywords: disparities, theil entropy index, williamson index 1. introduction regional disparity is one of the problems that occurs in developing country. when economic growth increases, the income distribution should be evenly distributed, and public welfare can be guaranteed. but, if the rapid increase of economic growth is not in line with income distribution, it will create a gap or income disparities. disparity in economic development is something that can’t be avoid. this driven by differences in natural resources and infrastructure owned by each region, although basically the development gap is inherent with the development process itself (amirudin, 1992). economic disparity is often used as an indicator of differences in average per capita income, between groups of income levels, between groups of employment, and between regions. disparities in regional development occurs quite a lot in developing countries. jambi province is one of the provinces on the island of sumatra. the position of jambi province is quite strategic because it strictly near to the ims-gt economic growth area (indonesia, malaysia, singapore growth triangle). this advantage is evidenced by the grdp of jambi province which occupies the 6th position, while in terms of gdp per capita jambi province occupies the 3rd position in sumatra. the dominant grdp contributing sector is the financial services sector, information and communication sector and the transportation and warehousing sector. in line with these conditions, poverty levels in jambi province is quite low, proved by position of poverty rate in the fifth place in the sumatra region, after bangka belitung, riau islands, west sumatra and riau. * corresponding author. email address: riandestiningsih@untidar.ac.id afebi economic and finance review (aefr) vol.04 no.01, june 2019 52 nonetheless, the fact above wasn’t accord with gini ratio. gini ratio was used to measure income inequality. the gini ratio ranges value from 0 to 1. zero means there is no gap in the country or region or evenness is perfect, while number 1 means that the area has high inequality. if the gini ratio number is more than 0.5, it means that there is a large imbalance in the area, while if it is below 0.5 this means that the gap is small. the gini ratio in sumatera shown in table 1 below: table 1 gini ratio in sumatera 2014-2016 province 2014 2015 2016 aceh 0,2257 0,2319 0,2313 sumatera utara 0,2229 0,2333 0,2215 sumatera barat 0,2319 0,2375 0,2299 riau 0,2451 0,2528 0,2410 jambi 0,2285 0,2507 0,2424 sumatera selatan 0,2771 0,2500 0,2417 bengkulu 0,2472 0,2611 0,2479 lampung 0,2410 0,2611 0,2528 kep. bangka belitung 0,2104 0,1965 0,1910 kep. riau 0,2792 0,2528 0,2458 source: badan pusat statistik nasional, 2017 from table 1, it can be concluded that income inequality in sumatra in high category of inequality (more than 0.5). inequality of income in jambi province reach 4th ranks in sumatra. income inequality between regions is caused by the unequal distribution of human resources and natural resources. this inequality is an addition to the differences in the availability of supporting elements (such as facilities and infrastructure) in human development as well as differences in investment allocations which have implications for emerging lagging regions (darzal, 2016). 2. literature study according to kuncoro (2006), differences in the level of economic progress between regions that are excessive can cause adverse effects (backwash effects) dominating the beneficial effects (spreads effects) on regional growth, in this case resulting in a process of imbalance. economic factors who have strength in the market, normally will tend to increase rather than decrease, but resulting in disparities between regions. arsyad (2010) explains in more detail about the factors that cause the emergence of backwash effects, such as: 1. the pattern of population movements (migration) to more developed areas. in general, migrants are a group of people who are relatively young, have a high morale and work ethic, and a better level of education than residents who choose to stay in poor areas. the displacement of the population will result in the scarcity of productive labor needed to develop economic sectors in these poor areas. 2. capital flow pattern. there are three things that cause poor areas to have difficulty in developing the market for their industrial products which results in slow economic development in the area. first, the lack of availability of capital in poor areas, second, the tendency that capital is more secure and able to generate higher income in more developed regions, and last patterns of trade dominated by industry in more developed regions. 3. better transportation networks. this condition happen in more developed areas then results in more efficient production and trade activities. spread effects or beneficial effects often in the form of increasing demand for products from poor regions, which usually take the form of industrial raw materials which needed by developed regions. products from poor regions usually was the major economic analysis of income disparities in jambi province 2010-2017 53 activities, such as agricultural products, and home industry products. although there are beneficial effects that can drive development from poor regions, spread effects are usually smaller than backwash effects. this makes development in more advanced regions always better so that poor regions will find it difficult to catch up with development. this encourages widening disparity and there is a gap in welfare between regions (arsyad, 2010). income disparity describes the difference in income distribution of people in an area or region at a certain time period. with differences in the rate of population growth, human resources, natural resources, unemployment and uneven investment, the development between regions is different and economic growth in increasing the welfare of the population in the regions is not the same. income disparity occurs due to several factors. kuncoro (2004) and sjafrizal (2016) explain the causes of disparities in economic development such as: 1. concentration of regional economic activities the high concentration of economic activity in certain regions is one of the factors that causes income disparity between regions. the high concentration of economic areas tends to grow rapidly. whereas regions with low economic concentration levels tend to have lower levels of development and economic growth. this is because there are differences in natural resources, limitations such as limited infrastructure, and lack of human resources which causes low levels of income for the community. 2. investment allocation differences in investment allocations make growth between regions different. investors tend to invest in more developed regions. on the contrary, the low investment in less developed regions makes economic growth and the level of people's income per capita in the area low because there are no productive economic activities. 3. differences in natural resources between regions economic development in rich natural resources areas will be more advanced and the community will be more prosperous than in areas that are resource-poor. in the sense that natural resources are seen as the initial capital for development, which in turn must be developed in addition, other important factors are technology and human resources. the increasing importance of mastering technology and increasing human resources, endowment factors will gradually become irrelevant. 4. differences in demographic conditions between regions such differences, for example in terms of number and population growth, population density, education, health, community discipline and work ethic. regions with good demographic conditions have higher productivity levels, so that they can increase investment and encourage economic growth, and vice versa. 5. lack of a smooth inter-regional trade the lack of inter-regional trade is an element in creating regional economic disparities. the lack of intra-trade is caused by limited transportation and communication. the flow of goods and services between regions affects the development and economic growth of a region. for example, due to transportation limitations, it is difficult for regions to get raw materials for the production process so that the economic activities of a region do not operate optimally. tambunan (2003) explain about kuznets hypothesis known as "reverse u hypothesis". this hypothesis is produced through an empirical study of the growth patterns of a number of countries in the world. in the early stages of economic growth, there is a trade-off between growth and equity. this pattern is due to the growth in the early stages of development tending to focus on the modern sector of the economy, which at that time was small in the absorption of labor. disparities are increasing because the disparity between modern and traditional sectors is increasing. this afebi economic and finance review (aefr) vol.04 no.01, june 2019 54 increase occurs because developments in the modern sector are faster than traditional sectors. but in the long run, when economic conditions reach maturity and assuming free market mechanisms and the mobility of all production factors between countries without the slightest obstacle or distortion, the difference in the rate of output growth between countries will tend to shrink along with the level of per capita income and the average growth rate are increasingly high in each country, which ultimately eliminates disparities (figure 1). t = 0 t = n figure 1 kuznet hypothesis curve source: tambunan (2003) some of previous study about disparities comes from several researcher. wang (2016) in the research entitled analysis on regional disparity in china and the influential factors analyzed regional income disparities in china from 1978-2014. the dependent variable of the research is regional economic growth and regional disparity, while the independent variables are government expenditure, infrastructure level, urbanization and education. with the theil entropy index approach with multiple linear regression analysis tools. the results of the regression analysis of government expenditure, the level of infrastructure, urbanization and education have a significant impact on increasing economic growth in the eastern region and decreasing regional disparity in china. caska & riadi (2012) in his research entitled growth and disparity of interregional economic development in riau province 2003-2005. the research variables are development inequality as the dependent variable and economic growth and gdp as independent variables. data were analyzed by quadrant systems, williamson index, theil entropy index and proof of the kuznets hypothesis. from the results of the study, it can be concluded that only pekanbaru city in the first quadrant (highest growth and income), areas categorized as high but low income are pelalawan, kuantan singingi, indragiri hulu and siak district, indragiri hilir, rokan hulu and kampar district can be categorized high-income areas but low growth, while low-categorized areas are rokan hilir, dumai and bengkalis. the williamson index and theil entropy index give different results. the results of the williamson index analysis, economic growth has an effect on increasing disparity in riau province, the results of the energy index analysis are just the opposite. kuznets's hypothesis is not proven in riau province. ginting (2015) in his research entitled the effect of inter-regional development disparities on poverty in indonesia 2004-2013. examining the influence of interregional development disparity on poverty in indonesia and analyzing the influence of inter-regional development disparity variables, grdp, investment and agglomeration on poverty reduction in indonesia. by using qualitative and quantitative approaches and data from 2004-2013, the results of his research show that the level of poverty in indonesia has decreased in line with the declining disparity in development between regions. this decrease in disparity is indicated by the decreasing williamson index for western and eastern indonesia. the results of quantitative analysis with data panel regression show that the variables of development disparity and agglomeration have a year / development level / per capita income level level of disparity / poverty analysis of income disparities in jambi province 2010-2017 55 positive and significant effect on poverty. while the grdp and investment variables have a negative and significant effect on poverty in indonesia. priyambodo, luthfi, & santoso (2015) in his research entitled analysis of district and city income disparities in east java province. research in this district / city in east java uses secondary gdp data to see growth patterns, how much the level of disparity occurred, and the leading sectors in developed regions in 2006-2011 with quantitative descriptive analysis tools. of the 29 districts and 9 cities, there are 22 districts and 1 city is relatively underdeveloped. the level of income disparity, using williamson index analysis (vw), the disparity between regions has increased while theil entropy index analysis (td) income disparity has decreased. research from aidar & syahputra (2015) entitled analysis of regional income disparities in aceh province using secondary data in the form of times series from 2002-2011. her research using a quantitative and qualitative analysis model with theil entropy index approach to measure the level of disparity between districts / cities in aceh province which grouped into three regional groups. the results showed that the difference in income per capita between districts/cities in aceh province was relatively high. theil entropy index is highest in the northeast region of aceh, followed by the central aceh region, and the smallest in the southwest region. research from aminah (2017) entitled analysis of interregional income disparities in jambi province 2011-2015 also analyze using secondary data from 20112015, then the data is explained quantitively by using the theil entropy index approach, grdp data and population. the results of the research obtained regionally, the development rate of gdp experienced average fluctuations in 2011-2015 of 6.79%. in the same period the highest average economic growth rate was sarolangun district 7.43%. theil entropy index during the period of 2011-2015 averaged 0.426, this value indicates a medium size disparity. from the explanation above, disparity refers to the relative standard of living of the entire community. disparities can be distinguished by region, region, income, and level of economic progress between regions. this disparity is caused by factors, including: different levels of development between regions and also types of economic development. in addition, the disparity between regions is due to the presence of economic actors who have market power which can increase disparity between regions. if the majority of the results of economic development in a region can be enjoyed by a large proportion of the population or community, then this condition is said to be that the level of income in the region is balanced. however, if the opposite is true, that is, most of the income is only enjoyed by a small portion of the population or the community, it is said that there is an imbalance or disparity in income distribution. this research will analyze disparities in jambi province in order to classify the disparities level in that area by using williamson index and theil entropy index. 3. research methodology 3.1 sources and data collection techniques data collection techniques are the most strategic step in research, because the main objective of the research is to obtain data. in this case the data collection technique used is documentary study by collecting data and analyzing documents, both written documents and drawings, articles, web sites and previous studies that are related to the problem under the topic. the object in this study is jambi province. the data used in this study are jambi province population data in 2010-2016, grdp and jambi province per capita grdp at constant 2010 prices (adhk) 2010-2017, collected from the publication of jambi province bps in 2010-2017. 3.2 data analysis methods the analysis used in this study are as follows: 3.2.1 williamson index afebi economic and finance review (aefr) vol.04 no.01, june 2019 56 theoretically the williamson index serves as a disperse measurement tool in descriptive statistical methods. the williamson index is used to measure regional income per capita disparity. williamson index is an approach to measure the degree of disparity between regions based on per capita grdp. this formula is basically the same as the usual coefficient of variation (cv) where the standard deviation is divided by the average (bappenas, 2015). to find out the income distribution between regions in jambi province can be analyzed using the williamson index introduced by jeffrey g. williamson, which is one measure to measure the level of regional disparity or income disparity in a region. in its calculation, the williamson index uses gross regional domestic product (grdp) per capita and population as basic data sjafrizal (2016). the williamson index formula is as follows: cvw = √∑ (𝑦𝑖−𝑦)𝑛𝑖=0 2 ( 𝑓𝑖 𝑛 ) 𝑦 (1) notes : yi : per capita grdp in districts / cities y : provincial per capita grdp fi : population in regency / city i n : population in the province the size of the williamson index is positive, the greater the value, the greater the level of disparity. williamson index numbers range from 0 to 1 where if close to 0 is evenly distributed, whereas if approaching 1 is more lame. if the iw value is less than 0.3, it means that regional economic inequality is low, the iw value between 0.3 to 0.5 means that the regional economic inequality is moderate, and if the iw value is more than 0.5, it means high regional economic inequality. 3.2.2. theil entropy index according to kuncoro (2006), the concept of theil entropy index is basically an application of the concept of information theory in measuring economic disparity and industrial concentration. theil entropy index is a spatial concentration index that provides a measure of the degree of concentration of spatial distribution in a number of regions and sub-regions within a country and between sub-units of regions in subregions at a point in time. the formula of theil entropy index is: 𝑇𝑑 = ∑ ( 𝑦𝑗 𝑌 ) 𝑋 log { 𝑦𝑗 𝑌 𝑥𝑗 𝑋 } (2) notes: yj : district and city per capita income j y : average provincial per capita income xj : population of regency and city j x : total population of the province the lower theil entropy index value means that there is a low disparity, and vice versa. the greater the value of theil entropy index, the greater the disparity that occurs. conversely, the smaller the value of theil entropy index, the more evenly distributed development occurs. the use of theil entropy index as a measure of disparity has certain advantages. first, this index can calculate disparities in regions and between regions at once, so that coverage becomes wider. second, using the theil entropy index can also calculate the contribution (in percentage) of each region to the overall regional development disparity so that it can provide important policy implications. another advantage is that theil entropy index can identify the structure of disparity, that is whether the regional disparity occurs between regions (within) or within (concerned) (sjafrizal, 2016). analysis of income disparities in jambi province 2010-2017 57 4. results the size of the inequality among regencies / cities provides an overview of the conditions and regional developments in jambi province. by using williamson inequality index and theil entropy index provides a better picture about disparities of grdp per capita. williamson's inequality index numbers are getting smaller or close to zero indicating that inequality is getting smaller as well or in other words more evenly distributed, and if getting higher from zero shows the widening inequality. the larger theilex entropy index means to show an increasingly large inequality, if the index gets smaller then the inequality will be even lower or in other words more evenly distributed. this is in line with the williamson inequality index. theil entropy inequality index does not have an upper or lower limit, only if the greater the value the more lame and smaller the more evenly distributed. table 2 williamson index and jambi province theil entropy index 2010-2017 year indeks williamson indeks entropi theil 2010 0,534 0,114 2011 0,521 0,112 2012 0,509 0,111 2013 0,502 0,111 2014 0,481 0,109 2015 0,420 0,101 2016 0,391 0,098 2017 0,403 0,102 average 0,470 0,107 table 2 shows the inequality index of gdp per capita between districts / cities in jambi province during the period 2010-2017, which is an average of 0.470. the jambi province williamson index for 2010-2017 tends to decrease every year. to find out the level of inequality of an area other than using the williamson index (iw) can also use the theil entropy index. basically. theil entropy index is the application of information theory concepts in measuring economic inequality and industrial concentration (kuncoro: 2004). from the analysis results, the theil entropy index value for the period of 2010-2017 is 0.108, see table 2. as in the williamson index, theil's entropy index also tends to decrease. there are several factors that influence inequality in jambi province, namely income, education, and accessibility. figure 2 per capita regency / city grdp in jambi province 2010-2017 0.00 100,000,000.00 200,000,000.00 300,000,000.00 400,000,000.00 500,000,000.00 600,000,000.00 700,000,000.00 r u p ia h city/district 2010 2011 2012 2013 2014 2015 2016 2017 afebi economic and finance review (aefr) vol.04 no.01, june 2019 58 in terms of income, the gdp per capita of regencies / cities in jambi province in 2010-2017 tends to increase every year. this indicates that welfare or income in regencies / cities in jambi province has increased. in terms of natural resources such as plantations, petroleum, natural gas and coal. there are several districts / cities in jambi province that have oil and gas natural resources such as in tanjung jabung barat, tanjung jabung timur, batang hari, muaro jambi, sarolangun, tebo and jambi city. table 3 mining production according to types of goods jambi province year 2010-2015 year crude oil (000 barel) natural gas (mmbtu) coal (ton) iron ore (ton) 2010 6.588 17.410 3.876.280 317.300 2011 6.403 16.090 7.224.490 434.182 2012 6.246 17.044 9.667.160 159.000 2013 4.326 11.872 4.012.600 2014 8.574 86.997.278 7.663.283 2015 7.622 84.745.300 4.604.967 source : badan pusat statistik provinsi jambi (2016) mining production in jambi province is dominated by crude oil, natural gas and coal (table 3). however, a significant increase occurred in natural gas and coal production in 2014 and 2015. this shows the unpredictability of mining production, as well as the price. darzal (2016) said that in the past few years the world oil and gas prices fluctuated, which had an impact on soaring oil and gas added value as well as the value of the gdp of the adhb in areas that have oil and gas. based on comparisons according to the three main sectors, the choice of working in the agricultural sector still dominates the labor market in jambi province with a percentage of 49 percent in 2016, which is followed by the trade sector with a percentage of 18 percent, and a social service sector of 15 percent. based on the level of education, especially the highest diploma in the regency / city in jambi province is classified as good. this is based on the percentage of 15-year-old residents who have the majority of the population having an upper junior high school diploma as much as 50.03 percent of the population aged 15 years and over in jambi province in 2010-2016. the population of 15 years and over who has the most s2 / s3 diplomas in jambi city is ranked first and batanghari regency is ranked second, each of which is 3,468 residents and 487 residents. whereas the population of 15 years and above who has the most s1 diplomas is in jambi city as the first rank and bungo regency as the second rank, each with 37,172 residents and 7.864. figure 3 persentase penduduk 15 tahun ke atas menurut ijazah tertinggi yang dimiliki di kabupaten/kota provinsi jambi tahun 2017 0 10 20 30 40 50 60 70 80 tidak/belum pernah bersekolah sd/mi smp/mts sma/ma perguruan tinggi analysis of income disparities in jambi province 2010-2017 59 the majority of workers in jambi province finish their education to the junior high school. less worker able to finish their education up to high school, moreover undergraduate. this low education state is one of the reasons of higher disparities level in jambi province. we can avoid that when a worker has higher education level the welfare level and income disparities surely getting smaller. 5. discussion based on the williamson index in jambi province in 2010-2017 it was concluded that the inequality is classified as high because the index value is more than 0.5 with a tendency to decrease the index value every year. the factors causing income disparity in jambi province are differences in economic structure caused by differences in natural resources and human resources. related to natural resources, for example there are several districts / cities in jambi province that have oil and gas natural resources. related to human resources, for example the productive age population who works is dominated by elementary school education down, this is in line with the data of productive age population who have a diploma which is also dominated by elementary education and below. in the other hand, based on the theil entropy index in jambi province in 2010-2017 it was concluded that inequality is classified as low because the indigo value is close to 0 with the tendency of the index to fall every year. this is evidenced by the increasing value of gdp per capita every year 6. conclusion as a public policy maker, measuring disparities must be precise and careful. each region has different characteristic, so the established policies must cover all differences between regions. which can be done by the government, especially the jambi provincial government, such as increased synergy between the central and regional governments related to the education sector by monitoring and evaluating the implementation of 12year compulsory education so that the population of jambi province can be more competitive in welcoming employment opportunities that are increasing in jambi province each year. besides, we have to remember that infrastructure with guaranteed quality and quantity can have a multiplier effect on various fields. jambi province should make improvements in terms of infrastructure so that investors from both domestic and foreign countries are increasingly interested in investing their capital. for example, with capital invested, it will reduce unemployment and poverty in the long run. by knowing the truly condition of income disparities in jambi province, we can identified determining factor of disparities in further research. references aidar, n., & syahputra, r. 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(2015). analisis disparitas pendapatan kabupaten dan kota di provinsi jawa timur. e-journal ekonomi bisnis dan akuntansi, 2(1), 28–36. sjafrizal, s. (2016). perancanaan pembangunan daerah dalam era otonomi. jakarta: rajawali pers. tambunan, t. (2003). perekonomian indonesia beberapa masalah penting. jakarta: ghalia indonesia. wang, f. (2016). analysis on the regional disparity in china and the influential factors. american international journal of humanities and social science, 2(4), 94–104. retrieved from www.cgrd.org impact of cash transfer on poverty 18 impact of cash transfer on poverty deden ferry kurniawan 2¹ ⃰ and hera susanti 2 1,2 universitas indonesia, indonesia abstract this research aims to generate empirical evidence on the impact of cash transfers on poverty on households in indonesia, using the indonesian family life survey (ifls) panel data in 2007 and 2014, and the method of difference-in-differences with propensity score matching. this study estimates the impact of relief and benefits that do not receive assistance on poverty. results are expected to find that the provision of assistance (cash transfers) has a significant impact on poverty in terms of beneficiaries and who does not receive assistance, or viewed from a total of two (beneficiaries and who are not receiving assistance). it is found that the provision of assistance to the people who were targeted as shown to improve the welfare of beneficiaries, but have not been able to exceed the group that did not receive aid. jel classification: i31, i32, i38 keywords: cash transfer, difference-in-differences, poverty, propensity score matching 1. introduction the issue of poverty in indonesia is very important because the number of poor people in indonesia is quite high, based on bps data on the development of the poor in indonesia in 2004-2012 the number of poor people has experienced a downward trend of 36 million in 2004, 35 million in 2005, increased to 39 million in 2006 and then continued to decline in the following year until in 2012 there were 29 million people (noroyono, 2013) .apart from these data, the success of poverty alleviation programs conducted can also be seen from the success of indonesia in cutting up to half of the total population living on $ 1 per day from 21% in 1990 to 6% in 2008 (lundine, hadikusumah, & sudrajat, 2013) . although the programs carried out were quite successful but the number of poor people still quite high, therefore poverty alleviation programs should always be a priority. in its implementation, government policies for intervention in the economic life of the community include: (a) subsidies, (b) maximum prices / immune min , (c) and quotas. among the three methods, the most common method is by subsidy . subsidies, especially in the case of fuel oil subsidies, are preferred by the government because they are relatively easier in budget allocation , subsidies do not need to sort and choose who will receive them . bysubsidizing public access to goods can be greater in the sense that people's purchasing power can be higher than when subsidies are not given. however, aside from the positive thing, there is a negative point from subsidies,namely those who should not receive assistance become recipients of assistance (get subsidies for goods that should be able to be purchased according to non-subsidized prices). subsidies often burden the state budget, as happened in 2005, 2009 and 2013 when the fuel price must be increased because if not then the value of the subsidy in that year will be increasingly swollen which results in a collapse of the state budget . the increase in bb m prices resulted in a shock in the community, so the government must keep up with a policy that still allocates certain funds in the apbn but the amount is smaller than the appeal must do subsidies . a budget location in the form of budget progra m b elp cash transfer (blt) / direct aid society meantime (blsm) which is * corresponding author. email address: deden_ferry@yahoo.com afebi economic and finance review (aefr) vol.03 no.02, december 2018 19 addressed directly to poor families and are expected to reduce the negative impact of rising fuel prices on the poor. the direct cash assistance program (blt) is a concrete example of the withdrawal of subsidies transferred in the form of cash assistance. the budget allocation for the blt program shown in table 1 shows that the relatively lower amount of the budget is compared with the reliance on subsidies as a means of maintaining public welfare. table 1 blt program in 2005, 2006, 2008 and 2009 , 2013 information 2005 2006 2008 2009 2013 total blt (rp. million) 4,487 18,619 13,966 3,844 3,800 rt recipient 15.4 17.7 19 18.8 18.5 number of months 3 9 7 2 9 amount of funds 100.000 100.000 100.000 100.000 100.000 source: world bank (2012) in general, the provision of subsidies and granting assistance in cash is a form of protection of the state against the community to be able to maintain the level of welfare by having sufficient purchasing power of goods that become basic needs. however, the protection of the state must be proportional to the needs of different people , so that people who are not eligible for assistance actually receive government assistance, this can happen if the government assistance is carried out in the form of subsidies. the purpose of financial assistance from the government is to protect the public from the possibility of social risk, improve the economic capacity and / or welfare of the community. in this case, r isk s osial is an event or events that may pose a potential kerentana n social borne by individuals, families, groups and / or communities as a result of the social crisis, economic crisis, political crisis, natural phenomena and natural disasters if not given social assistance will get worse and cannot live in reasonable conditions. (dit. papbn 2014 ministry of finance) in 2014 the government of indonesia was recorded as providing a program to improve the welfare of the community including: community and village government empowerment program in the ministry of internal affairs, program for provision and development of agricultural infrastructure and facilities at the ministry of agriculture, basic education programs in the ministry of education and culture, coaching activities , development of health care financing and assurance at the ministry of health, islamic education program at the ministry of religion, social welfare guarantee activities ( conditional cash assistance / family hope program) for very poor households (rtsm) at the ministry of social affairs, infrastructure development and development programs settlements (eg for the implementation of urban pnpm mandiri) at the ministry of public works, and natural disaster management activities for handling natural disasters. (ministry of finance's papbn, 2014). -program above program showed him right that giving cash assistance not only happen when there is a shock the economy such as rising fuel prices alone. a da also cash grant program which is a program that the government of its output routine is poverty alleviation, such as security event social welfare (conditional cash transfer / pkh) for very poor households (rtsm). the p rogram -program even without the rise in fuel prices is still being done by the relevant ministries. the policy of providing assistance directly to the poor is not only done by the indonesian government . this matter also been carried out by other countries such as brazil with bolsa familia, progresa in mexico, bono de dasarolo humano in ecuador, praf in hondura , path in jamaica and others. in general, government assistance is divided into 2 (two), namely policies in the form of cash transfer policies such as blt, pkh policies and goods transfer policies ( in kind transfer) such as rice for the poor (raskin). impact of cash transfer on poverty 20 policy transfer cash generating higher utility than in kind transfer policy ((rosen and gayer, 2010). where the use of a support greater flexibility obtained by recipients of cash transf er than in kind transfer recipient, the recipient of more plexible cash transfer in the use of aid for inkind transfer recipients , therefore research conducted uses cash transfer beneficiary data because it produces better benefits so that it can be considered to have a better impact on poverty than inkind transfers . in addition, previous research regarding the provision of assistance can also be used as a reference that the provision of assistance can provide a positive impact on the economic level of the community, including research bazzi, sumarto, and suryahadi (2013) by placing the direct cash assistance program (blt) as data variables in the granting of assistance with the results of research on the blt program implemented in 2005/2006 as a compensation for the increase in fuel could have an impact on the welfare of the poor. noroyono (2012) also conducted a study on the impact of the blt program on consumption, education, health and domestic work patterns, with the results of blt having a positive and significant impact on the deterioration of household welfare for the recipients. armando barrientos and jocelyn dejong ( 2006) found the fact that comparative studies on 3 (three) main types of cash transfers carried out with children targeted at poor households are effective instruments in reducing the amount of poverty because of the correlation between childhood and poverty. soares, fv et al (2006) using up to 7 (seven) types of assistance data and found that with the right cash transfer target, cash transfers could increase 4.6% of total family income. then there is also the study of skoufias, e., & maro, v. d. (2006) who found the effect of poverty reduction is stronger in the poverty gap and measure the depth of poverty provide heaviest burden on the poorest sections of the poor and proved that estimamsi poverty measurement is robust to the choice of poverty line yan g different. research research above shows a positive impact on poverty, increased welfare and income. the reduction of subsidized fuel oil (bbm) is feared to have an impact on the welfare of the poor for the government to create a compensation program in the form of cash assistance programs for affected communities where the purpose of the compensation program is to maintain the level of welfare by having sufficient purchasing power for goods goods that become basic needs. the success of other countries in implementing the policy of providing direct cash assistance to the poor also becomes a strong basis for the government to take this method rather than continuing to maintain subsidies as an effort to improve / maintain the welfare of the community, for example by the brazilian government with bolsa familia, progresa in mexico, bono de dasarolo humano in ecuador, praf in honduras, path in jamaica and others. based on the explanation above, it can be assumed that the provision of assistance can have a positive impact on poverty, giving assistance will automatically increase income per capita and then will have different effects on each household depending on the characteristics of the beneficiary household. therefore a number of questions arise, including : first, whether providing assistance to poverty in providing assistance can improve the welfare of the poor ; second, what is the impact of giving assistance to the level of welfare of beneficiaries and those who do not receive assistance ; third, is there a difference or not. this study aims to look at the impact of providing guidance to poverty so that it can be known whether the provision of assistance is an effective policy in alleviating poverty. specific objectives in this study are analyze the impact of providing assistance on per capita expenditure and poverty, and compare the impact of providing assistance to households that receive assistance with households that do not receive assistance. afebi economic and finance review (aefr) vol.03 no.02, december 2018 21 2. literature study there are several sections of the literature review that will be used in this research, the first is the theoretical foundation which will be discussed about theoretical theory that will be used or related to this research in this case will be discussed about poverty measurement, impact analysis, and the concept of financial assistance. then the second will discuss the empirical review, namely the previous research which is the reference for this study, especially about the methods that will be used in this study. 2.1 theoretical platform 2.1.1 poverty the poverty line used can be different because of differences in location and standard of living needs. the central statistics agency (bps) uses a poor limit of the amount of rupiah spent per capita a month to meet the minimum food requirements used by 2,100 calories per day , while the world bank makes an absolute poverty line of 1 us dollar and 2 us dollars ppp ( purchasing power parity / parity purchasing power) . 2.1.2 poverty measurement foster, greer and thorbecke, (1984) convey the poverty index namely: first, headcount index (po), headcount index is the most widely used poverty index, which is simply the proportion of the population classified as poor from the entire population. in the mathematical form the headcount index is written as follows: …………… (1) where p0 = headcount index, n p = number of poor population, n= total population second, poverty gap index (p1) the poverty gap index measures the depth of poverty in an area relative to the poverty line . in a mathematical form, the poverty gap index is formulated as follows:  =       = np i i z g n p 1 1 1 ……………… .. (2) where p1 = poverty gap index, g1 = poverty gap; poverty line minus income poor people to i, z = poverty line third, poverty severity index, the poverty severity index measures the severity of poverty, which is a weighted index of poverty gap with the weighted number is the poverty gap itself. formally the poverty severity index is written as follows: 2 1 2 1  =       = np i i z g n p …………… (3) where p2 is the poverty severity index fourth,fgt index, the three kinds of poverty indices described above are headcount index, poverty gap index and poverty severity index are index families known as fgt index so that they can be written in the same formulation.mathematically the fgt index is written as follows (foster, greer and thorbecke, 1984): )( 1 1 zyi z yz n p i n i i p       − =  =   …………… .. (4) where a = 0, 1, 2. if a = 0 then the index value is the same as the headcount index, a = 1 obtained poverty gap index and a = 2 will get the poverty severity index 2.1.3 impact analysis in this study the method used is a combination of matching method, propensity score method (psm) and double difference method (dd) , therefore the methods to be discussed further are the two methods. impact of cash transfer on poverty 22 propensity score matching (psm) builds a statistical comparison group based on the probability model of the group participating in the program using the characteristics of groups that are not affected by the program.participants are then matched based on this probability, or propensity score , on nonparticipants ants. the average treatment effect of this program was then calculated as the average difference in results in these two groups. psm validity depends on two conditions: (a) conditional independence , that is, the factors that are not observed do not affect participation, and (b) the general support is large enough or overlaps in the propensity score ofall participants and nonparticipant. a different approach is used to match participants and non-participants based on an propensity score . among them are nearest neighbor matching (nn), caliper and radius matching, stratification and interval matching, and kernel matching and linear local matching (llm). regression-based method in the sample of participants and nonparticipants by using propensity score as a load, can produce more efficient estimates. psm is a useful approach if only the characteristics observed are believed to influence program participation. whether this belief really depends depends on the unique features of the program itself, in terms of targeting and taking individual programs. with the assumption that the choice of the observed characteristics is strong enough to determine program participation, the basic data of various characteristics before the program will enable participation based on the observed characteristics to be more precisely specified. several tests can be carried out to assess the level of selection bias or participation in unobservable characteristics. there are four matching methods in the propensity score matching (psm) namely: stratification matching, this procedure divides general support to different strata (or intervals) and calculate the impact of the program in every interval. specifically , in each interval, the effect of this program is the difference in averageresults between participants and controls. nearest neighbor matching, one of the most commonly used matching techniques is nn matching , where each processing unit is suitable for comparison with the closest tendency score , usually 5 (five) closest neighbors are used caliper or radius matching, one problem with matching nn is that difference in the trend score for participants and their closest neighbors who are nonpar participants maybe still very high. this situation causes poor installation but can be avoided by imposing a threshold or "tolerance" on the maximum trend score range (caliper). therefore this procedure involves matching with replacements, only between propensity scores in a certain range. kernel matching, one of the risk by the method just described is that only a small percentage of nonparticipants will eventually fulfill the criteria to enter general support and then build counterfactual results , for that kernel matching uses an average weighting of the non-participants to build counterfactuals for program participants then do the next method the difference in difference, advantages of the method of difference-in-differences compared with the estimator standard mounting in the levels is a method of difference-in-differences can eliminatethe differences in the variables to be observed related to the effects of time-invariant unobservable (unobserved time-invariant effect ). in other words, the difference-in-difference method controls the selection of both observed and unobserved time invariants, while the standard installation method only controls the observable selection . method of difference-in-differences can be combined with psm as long as there's enough for the data both in the region and in the area of control treatments. the purpose of this combination is to better match households that are used as controls when the assistance program is provided. applying psm can help match the treatment unit with the control unit which is similarly observed before estimating the impact of d iff in diff, psm will be applied to the base year then the diff in diff method in the unit that is at the same support ( common afebi economic and finance review (aefr) vol.03 no.02, december 2018 23 support ). by controlling observation based on propensity score, it will produce very efficient estimators ( hirano, imbens, and ridder , 2003 ). because effective psm is influenced by rich base year data. 2.2 empirical study skoufias (2006) conducted a study based on the difference in difference estimation, where this estimator compares the differences between group treatment and controls before and after the start of the program. this estimation offers the advantage that the difference before the start of the program at treatment and group control does not exist in the estimated impact. under the assumption that any hetrogenity that is not observed between the treatment group and the control is fixed over time, the differencein-differences estimator removes this heterogeneity. the study considers a case where there is data availability for control and treatment households before and after the program runs, limiting the sample to available households only, the regression equation used is being able to collect various "differences" estimators that can control individuals, households and characteristics of observation locality: the conclusion of the study is that the effect of poverty reduction is stronger on the poverty gap and the size of the depth of poverty which gives the heaviest burden to the poorest group of the poor and it is evident that the estimation of poverty measurement is robust in different poverty line choices. bazzi, sumarto, and suryahadi in 2013 also conducted a study with the difference in difference method that placed the direct cash transfer program (blt) in 2000 and 2006 as a variable in providing assistance, the study wanted to see how the timing of assistance affected household expenditure and response labor supply, then to see how household expectations shape the interpretation of the response. the conclusion from this study is that the average beneficiary household that received two full transfer stages in early 2006 did not differ much from comparison households that did not receive the benefits of transfers in terms of growth in per capita expenditure and changes in the supply of adult labor, but beneficiaries who are still awaiting a second transfer report a lower growth in expenditure growth of 7% and a reduction in the supply of workers of 1.5 hours / person / week, the difference in expenditure disappeared in early 2014, several months after the last transfer received by beneficiaries. then variations in per capita transfers are used to identify small amounts of marginal propensity to consume from income through transfers (around 0.10) fabio veras soares et al (2006) conducted a study entitled cash transfer in brazil: impact on inequality and poverty by using up to 7 (seven) types of assistance data and with methodological sequences using questionnaire data, comparison of past program data with administrative record data, separation of income components by looking at 2 conditions, namely when receiving assistance, and if not receiving assistance. the conclusion of the study found that with the target of providing the right cash transfer, cash transfers can increase 4.6% of total family income. armando barrientos and jocelyn dejong (2006) conducted a study entitled reducing child poverty with cash transfers: a sure thing, where the study was divided into 3 parts, first focusing on issues relating to the design of targeted cash transfers for children consisting of reduction efficiency poverty by categorizing cash transfers, distribution of resources in the household, and consumption effects due to the cash transfe, the second discusses three main types of programs that identify the above issues which consist of cash transfers to children in south africa, family income in economic transition, and cash tarsnfer is stipulated in latin america, and the three conclusions arising from the comparative study are finding the fact that comparative studies on 3 (three) main types of cash transfers that are targeted at children in poor households are effective instruments in reducing poverty due to a correlation between childhood and poverty. impact of cash transfer on poverty 24 finally, research from cuong, nguyen viet (2009), this research is used as the main reference in the selection of methodology and the selection of research variables where the research uses the combined method of psm and diff in diff. research cuong takes migration as the main independent variable, while the other independent variables are family income, education of the family head and partner, gender and marital status of the head of the household, household composition, education of household members, home and land ownership, and characteristics of the place stay, while the dependent variable is per capita expenditure, poverty and inequality. the results of the study on damak migration on welfare, poverty and inequality showed positive results for these three things even though the numbers were quite small. of all the previous studies, no studies have used newer data (all using data before 2014), it is hoped that this study will use the indonesian household life survey panel data (sakerti) in 2016 and 2014 to provide new findings in research that discusses cash transfer direct assistance. 3. research methodology 3.1. data source the type of data used in this study is secondary data derived from household life survey (sakerti/ifls) in 2007 and 2014 in the form of expenditure data per family, cash assistance data received per family, educational background data, amount per family data, child labor, family investment (education), assets and others. for observation data is limited by per capita expenditure for the control group, where households whose per capita expenditure is greater than the largest per capita budget of the treated group are not included in the observation. 3.2. method of analysis the method of analysis follows the method carried out by cuong, nguyen viet (2009). namely with the following stages: 3.2.1 propensity score matching in the impact evaluation literature, the average treatment effect on the treated (att) can be defined by: att = (y1-y0 | d = 1) = e (y1 | d = 1) -e (y0 | d = 1) ….(5) where: e is an expected value; y1 is the value of the dependent variable after assistance; yo is a value dependent variable before granting assistance; d = 1 is a group of treatments; and d = 0 is the control group however, to get the expected value value from the group of treatments before trea t , in this case giving assistance or e (y0 | d = 1), it cannot be directly done. using the propensity score matching method, you can try a kind of control group, by pairing and matching households with or without giving assistance to a number of observation variables so that the two groups can be compared. the first thing to do is identify the probability ( propensity score ) of the variables that are thought to affect the household of the beneficiary and who do not receive assistance with the logit model p (d it = 1) = f (x it-1 ) ……. (6 ) where: d it = 1, if the household receives assistance d it = 0, if the household does not receive assistance x it-1 = other demographic factors that are assumed to affect poverty that is age of head of household, gender of household head , education of head of household , work of head of household , number of elderly in the family , number of adults in the household ,number of children in the household , job status of the pair of head of household ,number of children afebi economic and finance review (aefr) vol.03 no.02, december 2018 25 working in household, possession ruma h, use of electricity, access to water resources are protected, location of residence, number of family members who are school, family b total membership ekerja, burden member household that work. then the installation is done to pair each recipient's family with the comparison family. the installation estimator is defined by: `………(7) where μ is the att value; pi is an opportunity to enter a group of treatments i; pj is an opportunity to enter the control group j; yi is a dependent variable in the treatment group (based on sakerti data in 2014); yj is the dependent variable in the control group (based on sakerti 2014); and the function g gives weight to the control family in forming comparisons with the families of the beneficiaries i. because this study uses longitudinal data that is based on sakerti data in 2007 and 2014, the matching estimator that will be used is the estimator of the difference matching differences modeled as follows. …….(8) with the same equation to see differences in variables as =yi = differences in outcomes in the household group a aid recipients (treatment group) in 2007 and 2014. jyj = differences in outcomes in household groups without assistance (control group) in 2007 and 2014. 3.2.2 impact of giving aid to poverty for the measurement of poverty is done with 3 poverty index foster − green − thorbecke which can be done with the following formula (foster − green − thorbecke, 1984): )5.3.....(.......... 1 1    =       − = pn i i z yz n p …….(9) where y is consumption per capita for people i, z is pove rty line, n is the total number of people in the population, q is the number of poor people, k is α = 0, we have headcount index, which measures the proportion of the population below the poverty line. when α = 1 and α = 2, we get a poverty gap (p overty gap), which measures the depth of poverty, and the poverty gap squared p2 that measures the severity of poverty. the impact of assistance on the household poverty index is calculated as follows: ∆pα = pα (y 1 a | d = 1) pα (y 0 a | d = 1) ............... (10) where the first term on the left side is a measure of the poverty of the household beneficiary from the results of assistance , the second on the right is a counterfactual measure of poverty, that is, the poverty index of beneficiary households if they do not receive assistance. 3. 3 definitions of operational variables the following is an operational explanation of the variable variables used in this study: 3.3.1 dependent variables impact of cash transfer on poverty 26 dependent variable in this study is expenditure per capita, then when calculating the impact on poverty which is dependent variable is the poverty index forster greer thorbecke. selection of variable per capita expenditure as a dependent variable follows researches such as study , nguyen viet (2009), soufias (2006), and bazzi, sudarto, suryahadi (2013). the use of per capita expenditure as the dependent variable is to measure the level of household welfare, and also household expenditure shows in more real financial allocations in the household. per capita expenditure variable is used as a limitation for the observation group, where the biggest per capita group treatment expenditure becomes the maximum limit for per capita expenditure of the control group, so control households whose total per capita expenditure is greater than the largest number of treatment group per capita expenditure is not included in the observation, this was done to equalize the economic capacity between the treatment group and the control group. 3.3.2 independent variables the main independent variable is the provision of assistance, a combination of aid programs carried out by the government namely blt in 2007 and blsm in 201 4 then education funds, and pkh and the other four assistance funds namely aid funds in addition to the three assistance but still an aid cash from the government. , while the control variable is a vector of household characteristics such as: table 2 research variable variable explanation cashtrf dummy variable for beneficiary = 1 if receiving assistance age_h age of head of household sex_h gender of household head educ_h education of head of household job_h work of the head of the household old number of elderly people in the family> 60 years adult number of adults in a household> = 15 <60 child number of children in household <15 years job_s job status of the couple's head of household job_c number of children working in the household house home ownership = 1 if you own a house electric use of electricity = 1 to use water access to protected water sources = 1 if yes urban residence location = 1 if you are in urban areas hhms number of family members who are attending school hhmw number of family members who work hhmb the burden on members of the household who work, namely the number of working family members divided by the number of family member source sakerti: 2007-2014 the use of variable dependent variable above is based on a study of previous studies, for example bazzi, sudarto, suryahadi (2013), cuong, nguyen viet et al (2009) using variables such as household composition, from the education kepa la family, gender head of the family, education level of the head of household, location of residence, house ownership, and also access to electricity and water, while other variables are modifications of existing variables, such as the burden of household members, household members who attend school, and household members working. the age of the head of the household shows the ability of the head of the household to work and invest, the gender variable of the head of the household to show the gender of the household head of each household.the level of education of the head of the household shows the capability of the head of the household in the field of afebi economic and finance review (aefr) vol.03 no.02, december 2018 27 education, the meaning is, the area of origin of each household, the ownership of the house, access to electricity and water to see the possibility of a cost burden if the house is not owned, then the variable another addition is basically also to see the potential cost burden from households. 4. results this chapter will explain the estimation results of the model, including the description of the data. the first part will explain the description of the sakerti data used, the second part will explain the results of estimating the propensity score matching with various types of matching methods in this case will be carried out on per capita expenditure, the third part will explain the results of diff in diff from providing assistance to per capita expenditure , then on the fourth will be described h acyl diff in diff from relief to poverty. 4.1 description of statistics statistical description will explain about the data used in this research is data from sakerti 2007 and 2014, at deskrifi these statistics are divided into four blocks of variables, first variable outcome the expenditure per capita, both characteristics of the head of household to show maturity in decision the decision is composed of age, sex, and education, third household characteristics to see the potential positive or negative expenditure burden in the household consists of the number of household members both elderly, adults or children, assets, etc., the fourth is become dependent variable, namely participation in assistance programs. more fully can be seen in table 3: table 3 statistical description variable 2007 2014 name explanation mean sd mean sd a. outcome expenditures per capita rupiah 620039 598402 806928 347340 b. characteristics of family heads age of head of household year 43.99 15.35 45.13 14.56 gender of household head male = 1, female = 0 0.816 0.386 0.834 0.371 education of head of household 0 = no school, 1 = not graduating from elementary school, 2 = graduating from elementary school, 3 = graduating from junior high school, 4 = graduating from high school, 5 = graduating from college 2.53 1.51 2.54 1.40 work of the head of the household 1 = works, 0 = does not work 0.81 0.34 0.83 0.37 c. household characteristics number of elderly people in the family more than 60 years old 0.30 0.58 0.32 0.60 number of adults aged> = 15 and <60 2.33 1.31 2.37 1.24 number of children <15 years old 1.10 1.08 1.24 1.04 job status of the couple's head of household 1 = works, 0 = does not work 0.44 0.49 0.48 0.49 impact of cash transfer on poverty 28 number of children working in the household the child works <= 15 0.013 0.13 0.010 0.10 home ownership 1 = owning a house, 0 = rent etc. 0.69 0.45 0.72 0.44 use of electricity 1 = use, 0 = no 0.96 0.19 0.99 0.099 access to protected water sources 1 = yes, 0 = no 0.89 0.30 0.88 0.32 location of residence 1 = city, 0 = village 0.54 0.49 0.54 0.49 number of family members who are attending school person 0.75 0.92 0.87 0.93 number of family members who work person 1.77 1.09 1.83 1.05 expenses of members of the household work the number of members of the household works divided by the number of family members 0.51 0.28 0.48 0.26 d. assistance program recipient of the assistance program 1 = accept, 0 = not accept 0.28 0.44 0.30 0.46 source: sakerti 2007 and 2014, processed from these data it can be seen that there are variables that on average have increased and some have experienced a decline among those who experienced an increase was per capita expenditure where it was seen that the increase was quite large, namely ham pir 30 percent, while the other variables were not too large as the number of family members currently in school, assets, location of residence, beneficiaries, etc. then the variable which on average experiences a decrease in him is the burden of the household member working, the number of children working in the household, the work of the head of the household and others. 4.2 propensity score matching in this psm method you can get att ( average treatment on the treated ), which is the average received by the treatment group due to treatment . in table 4 can be seen various att values from various matching methods : first, using the nearest neighbor method obtained the value of att difference of -119 in 2007 and -60 in 2014. this can be explained that the provision of cash assistance in 2007 had an impact on the decline in the average per capita expenditure growth of cash recipients receiving cash 22.5 percent. whereas in the year 20-14 it shows a decrease in the average growth of expenditure of per capita rts receiving better cash assistance, namely 7.5 percent. second, using the stratification method yields att difference values of -114 in 2007 and -62 in 2014. this can be explained by the fact that the provision of cash assistance in 2007 had an impact on the decline in average per capita expenditure growth of cash recipients receiving 22 , 2 percent. whereas in 2014 showed a decrease in the average growth of expenditure per capita of rt recipients of better cash assistance, namely 7.75 percent. third, using the radius method yields att difference values of -290 in 2007 and -103 in 2014. this can be explained that the provision of ban cash in 2007 had an impact on the average decline in the average per capita expenditure growth of cash recipients receiving cash 41.2 percent. whereas in 2014 showed a decrease in the average growth of expenditure per capita of rt receiving a better cash assistance of 12.2 percent. afebi economic and finance review (aefr) vol.03 no.02, december 2018 29 then fourth, using the kernel method produces att difference values of -118 in 2007 and -67 in 2014. this can be explained that the provision of cash assistance in 2007 gave an impact on the reduction in average expenditure growth per rt of cash recipients receiving cash at 22.2 percent. whereas in 2014 showed a decrease in the average growth of expenditure per capita of rt recipients of better cash assistance, namely 8.3 percent. table 4 att calculation results with several methods matching method 2007 2014 treated control diff treated control diff nearest neighbor 412 532 -119 737 797 -60 stratification 412 526 -114 737 799 -62 matching radius 412 703 -290 737 840 -103 kernel matching 412 531 -118 737 804 -67 remarks: in thousands of rupiah source: author estimates from the 2007 and 2014 sakerti data panels. judging from table 4 groups of beneficiaries were still under the non-beneficiary group despite receiving assistance but it was also seen that the difference had begun to diminish, this was caused by the basis of treatment groups which constituted a poverty line, different from treatment groups that are relatively more prosperous. 4.3 impact of giving aid to expenditures per capita the first thing to do is look for the propensity score ( pscore ) with logit regression, where the pscore value will be used when doing the difference in difference method , and the results obtained that the pscore range is between 0.0 45 0, 849 with 10 (ten) pscore block , the block shows the pair between treated and counterfactual groups . table 5 results of the propensity score recapitulation inferior of block of pscore cashtrf total 0 1 0.0 45 1,188 76 1,264 0,1 1,032 105 1,137 0.1 2 5 811 130 941 0, 15 1,195 261 1,456 0.2 1,898 6 53 2,551 0.3 1,396 826 2,222 0.4 880 698 1,578 0.5 417 493 910 0.6 158 251 409 0.8 3 1 0 13 in table 6 it can be seen that the number of beneficiaries is less than the group that did not receive assistance, in 2007 the treatment group numbered 2631 households compared to those who did not receive assistance totaling 5322 households, in 2014 the number of beneficiaries rose to 2818 households and those who did not receive aid dropped to 4081 households. the greater number of control groups is a natural thing because basically the poor are indeed fewer than the non-poor, apart from the lack of assistance both on a budget and other causes, there are poor people who cannot get help. the addition of the number of treatment groups is caused by the increase in the number of recipients of education funds, while the other types of assistance are relatively stable and some even decline like blt recipients. impact of cash transfer on poverty 30 table 6 recapitulation of total treatment group data that has a pair with a control group group 2007 2014 control 5322 4081 treatment 2631 2818 total 7953 6899 source: sakerti 2007 and 2014, processed to find out the impact of giving assistance to per capita expenditure of each household using the difference in difference method , the results can be seen in table 7 : table 7 calculation results difference-in-differences giving assistance to expenditures per capita variable 2007 2014 treated control diff treated control diff diff in diff expenditures per capita (thousand rupiah) 346 4 2 0 74 730 794 64 10 *** *** description: *** p <0.01 source: author estimates from the 2007 and 2014 sakerti data panels . as a comparison, the difference in difference calculation that does not use pscore can be seen in table 8 . table 8 calculation results difference-in-differences giving assistance on per capita expenditure without pscore variable 2007 2014 diff in diff treated control diff treated control diff expenditures per capita (thousand rupiah) 340 470 -130 730 830 -100 30 *** *** *** description: *** p <0.01 source: author estimates from the 2007 and 2014 sakerti data panels . with diff in diff using pscore, the impact received by treatment groups in 2007 was 74 or lower by 17.6 percent compared to the control group, while in 2014 the impact received by the treatment group was 64 or 8 percent lower, while in diff in diff an increase of 10 or in other words the provision of assistance has an impact on the average per capita expenditure of household treatment increased by 10 thousand between 2007 and 2014 or only increased by 2.9 percent. although there is an increase but is not statistically significant, it can therefore be concluded that the provision of assistance does not have a significant impact on per capita expenditure. while using diff in diff without pscore the impact received by the control group in 2007 was -130 or 27.6 percent lower than the control group, while in 2014 the impact received by the treatment group was -100 or lower 12 percent, while in diff in diff an increase of 30, or in other words membe aid offered are the average impact per capita household expenditure treatment increased by 3 0 thousand between 2007 to 2014, an increase of 8,8 percent. afebi economic and finance review (aefr) vol.03 no.02, december 2018 31 it appears that there are differences in the difference in difference results , in diff in diff without pscore it has a better impact than those using pscore, however the implications are still the same, there is an improvement on the treated group , even though in diff in diff with pscore it has no effect significant. 4.4 for giving aid to poverty the impact of aid provision still does not look better for beneficiaries compared to the control group seen from the three poverty indexes of forster green thorbecke which shows that the index value of the treate d group remains lower than that of the treatment group. in poverty headcount index (p0), in 2007 the difference between the recipient group and those who did not receive assistance was 6 percent and then decreased in 2014 to only 2 percent, diff diff diff from 2007 to 2014 a decrease of 4 percent. then in the poverty gap index (p1), the difference between beneficiary groups and those who did not receive assistance in 2007 was 0.010, then decreased in 2014 to 0.006, and in diff in diff from 2007 to 2014 there was a decrease 0.005. the poverty severity index (p2), for 2007 the difference between beneficiary groups and those who did not receive assistance was 0.003, then decreased in 2014 to 0.002, and in diff in diff from 2007 to 2014 a decrease of 0.001. table 9 difference calculation results in difference giving assistance to poverty ( kernel matching with pscore ) variable 2007 2014 treated control diff (tc) treated control diff (tc) diff in diff percentage p0 (%) 11.6 6.1 5 , 5 6.2 4, 4 1.8 3.7 31 *** *** *** p1 0.022 0.012 0.010 0.013 0.00 8 0.00 5 -0.004 18.1 *** *** * p2 0.007 0.004 0.003 0.00 5 0.002 0.002 -0.001 14.2 *** *** description: *** p <0.01; ** p <0.05; * p <0.1 from table 9 can be seen that : 1. the biggest impact of assistance is found in the poverty headcount index (p0) , where there is a decrease of 31 percent, while the impact on the poverty gap index (p1) and poverty severity index (p2) has decreased by 18.1 percent and 14 , 2 percent. 2. the impact received as a result of the assistance is only found in the headcount index (p0) and the poverty gap index (p1) whereas in the poverty severity index (p2) the impact of providing assistance is relatively insignificant, this can happen because the number of beneficiaries is really poor relatively little so that it has little impact on the severity of poverty (p2). 3. in 2007 and 2014, not all beneficiaries were poor, where in 2007 the total number of beneficiaries who were really poor was only 11.6 percent, and in 2014 the truly poor beneficiaries declined to 6.2 percent. this situation can mean 2 (two) things, first, that the aid program has succeeded in reducing the number of poor people and, secondly, it can also mean that there is aid that is not right on target where the recipient of the assistance is in fact the majority are not really poor people. 4. but there are also poor people who do not receive aid, amounting to 6.1 percent in 2007 and by 4, 4 pe rsen in 2014, indicating an error in identifying the beneficiaries, however these errors can be corrected with a fewer percentage of the population poor who are not downloading e rima help. impact of cash transfer on poverty 32 5. in general, improvements were made to groups of beneficiaries in the entire poverty index even though the improvements were not able to make it better than the group that did not receive assistance. as a comparison, we show the results of the impact of giving assistance with diff in on ff without using pscore as in table 10: table 10 difference calculation results in difference giving assistance to poverty without pscore variable 2007 2014 treated control diff (tc) treated control diff (tc) diff in diff p0 (%) 11, 6 4.5 7.1 6.2 4, 0 2.2 4.9 *** *** *** p1 0.022 0.0 09 0.01 3 0.013 0.008 0.005 -0.00 8 *** *** * ** p2 0.007 0.003 0.004 0.00 5 0.002 0.00 2 -0.002 *** *** ** description: *** p <0.01; ** p <0.05; * p <0.1 source: author estimates from the 2007 and 2014 sakerti data panels. from the two tables, it can be seen that there are differences in each difference in difference result , in diff in diff without pscore it has a better impact than those using pscore, however the implications are still the same, there is an improvement on the treated group side . 5. discussion in this study the provision of cash assistance from the government has succeeded in reducing the gap between the targeted households who received cash assistance and those who did not receive assistance, this is different from the findings of bazzi, sumarto, and suryahadi in 2013, who found that cash assistance was provided it does not have too different impacts on the beneficiaries and those who do not receive benefits, whereas in this study it can be seen that the beneficiaries have a positive impact by reducing the per capita expenditure gap with those who do not receive benefits. 6. conclusions and recommendations a. conclusion the provision of cash assistance from the government has succeeded in reducing the gap between the target households of recipients of cash assistance and those who did not receive assistance, in more detail as follows: first, the results obtained from this study are that the beneficiary group is still unable to be able to increase the growth of recipient expenditure to a level comparable to that of non-beneficiaries, this is because aid provision still acts as a "safety net" to prevent some poor families from decreasing purchasing power the big one . there is also an inaccuracy in the determination of beneficiaries where the recipients of assistance are in fact mostly people who are not really poor, besides that there are also poor people who actually do not get assistance. and the second is the impact of providing assistance is more visible in the poverty headcount index (p0) and poverty gap index (p1), preferably on per capita expenditure and poverty severity index (p2), the impact that occurs even though there is insignificant. b. suggestions for policies the aid program is a government program to be able to maintain the welfare of certain households that are vulnerable to shocks to have a positive impact on welfare. even though the program is relatively successful, improvements are still needed, namely: first, the program which has only been a safety net to prevent the poor from being affected more deeply by a policy, requires a more continuous program so that the afebi economic and finance review (aefr) vol.03 no.02, december 2018 33 impact felt by the poor more significantly, secondly, the need for more comprehensive data preparation so that the target households are truly households that are entitled to receive assistance. c. suggestions for next research research conducted by the author is limited to looking at the impact of providing cash assistance on per capita expenditure and poverty so that other research can be done that looks at the impact of providing assistance on for example assets, health, education and others, then research can also take a regional approach and culture for example separating the results between the islands of java and outside java to see the differences in the characteristics of the two regions. references analysis team. 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(2006). conditional cash transfers, adult work incentives, and poverty. impact evaluation series, 5. analysis of infrastructure effect on indonesia's economic growth year 2007 2014 121 analysis of infrastructure effect on indonesia's economic growth year 2007 2014 rismanto irawan 1) , deden dinar iskandar 2)* 1,2 department of economics, faculty of economics and bussines, universitas diponegoro, indonesia abstract a production process requires inputs to be used to produce output. the input according to solow is the capital and labor described in the cobb – douglas function. infrastructure can be said as capital in an effort to increase productivity, since labor requires supporting facilities that can increase their productivity. therefore infrastructure is seen as having an important role in driving economic growth, so that adequate infrastructure is expected to have a positive impact on economic growth. this study aims to analyze the influence of the availability of infrastructure that is divided into economic infrastructure, social infrastructure and institutional infrastructure, on the economy in indonesia which is described by the gdp. this study uses secondary data in 33 provinces in indonesia in 20072014. this study uses panel data regression using the fixed effect model and correction of heteroscedasticity and autocorrelation consistent (hac). based on the results of econometric regression, it is known that the variables of road, electricity, education, health and capital expenditure have a positive and significant effect. while the employee expenditure variable has a positive but not significant relationship. in addition, it is known that telephone variables have a negative and insignificant relationship. the results of this study also show that electricity infrastructure has the biggest influence on economic growth.. keywords: infrastructure, economic growth, indonesia, data panel regression, fixed effect, 1. introduction development is intended to improve the economy of an area to encourage better community welfare. the government as a regulator as well as a driver of development has an important role in order to improve the welfare of society and economic growth in the country. todaro smith explained that economic growth has several components, namely capital accumulation which includes investment in production factors, human resources through improvements in education and health. growth in population which can then lead to growth in the workforce so as to encourage the level of productivity in a country. this has also been explained in the solow growth theory based on the cobb-douglas function. capital accumulation is the first step to increase and encourage production activities. the capital accumulation occurs due to investment or investment, followed by an increase in production. the increase in production was supported by the presence of infrastructure. in addition to capital production factors which have an important role, labor factors also play a role in the production process. the availability of quality labor will drive productivity in the economy which will drive economic growth. improving the quality of the workforce is done through improvements in education and health. *corresponding author. email address: deden.dinar@gmail.com afebi economic and finance review (aefr) volume 4, no 02 (2019) 122 infrastructure has an important role in economic growth. infrastructure as an accelerator in economic growth can increase productivity. infrastructure can be said as an economic wheel for a country, because some infrastructure sectors such as telecommunications, electricity and water are used as inputs in the production process in almost all sectors in the united states and japan(world bank 1994). infrastructure is not only used for final consumption, but is also used to encourage productivity such as through reducing the time and effort made to get access to clean water, bringing crops to the market. in addition, the company can reduce the cost of distributing goods. the availability of infrastructure will make it easier to connect between regions with existing integrated regions and will further reduce production costs. infrastructure development will increase employment and other economic activities, reduce production costs through ease of transportation and connectivity. increased productivity by providing better connections to the market or access to other economic facilities. so with the limited availability of infrastructure that has been experienced so far, it causes obstacles to maximize opportunities in increasing economic activity which then causes high logistics costs and makes economic costs high and leads to an increase in prices of goods and services. this will impact on the reduced level of competition in economic activity. based on reports from the world economic forum, indonesia's position is below that of singapore, malaysia and thailand in the asean sphere. looking at data from the world economic forum, although indonesia is still lagging behind the three neighboring countries namely singapore, malaysia and thailand but when compared with 2016 2017, indonesia has increased in the following year with a score that also increased to 4.5 in the 52nd rank from the previous 4.2 in the 60th rank. this can illustrate that indonesia's infrastructure development is still a challenge that must be faced and continues to strive to improve infrastructure performance. the problems in the infrastructure sector in indonesia are still quite a lot, especially the problems regarding the quantity, quality, capacity to the even distribution of infrastructure development. indonesia's economic activities are still concentrated in western indonesia, especially on java. this can be seen from the contribution of java island grdp which dominates more than 50% of the total indonesian gdp. the capacity and availability of adequate infrastructure will help drive the economy and competitiveness in the region. the problems described above can illustrate the important role associated with the availability of infrastructure in the course of economic activities and the impact of infrastructure on development in an area. this makes the problem of the availability of infrastructure against the running of the economy in indonesia a thing that deserves further investigation. 2. literatur study the solow growth model is designed to show how growth in capital stock, labor and technological developments interact in an economy and how it affects the total output of national goods and services (mankiw 2000). an important modification of the harrod-domar growth model is that the solow model allows for a substitution between capital and labor. the aggregate production function, y = f (k, l) is assumed with a constant returns to scale. as in the case of the function known as the cobb-douglas production function, at time t is obtained 𝑌(𝑡) = 𝐾(𝑡)𝛼 (𝐴(𝑡)𝐿(𝑡))1−𝛼 where y is the national output, k is the stock of capital that includes both physical capital and human capital, l is labor and a (t) is labor productivity that grows continuously at an exogenous level. infrastructure in general can be understood as anything that is used as the main support to be able to do a process. infrastructure is generally known as public facilities such as roads, bridges, hospitals and so on. based on the routledge dictionary of economics infrastructure analysis of infrastructure effect on indonesia's economic growth year 2007 2014 123 is a basic service or social capital of a country, which enables the implementation of social economic activities by providing transportation, health and education facilities and buildings for community activities(rutherford 2002). railways, hospitals, roads, schools and sanitation systems and reservoirs are the basic types of social capital. solow's growth theory explains that productivity is influenced by labor and capital and technology as exogenous factors. any change in either an increase or decrease in output will be affected by changes in the level of labor and capital(canning 1999). in this study, capital is represented by the availability of infrastructure which is categorized into three namely, economic infrastructure, social infrastructure and institutional infrastructure. economic infrastructure consists of the length of roads, electricity distribution and the number of telephone users. social infrastructure consists of the number of hospitals and puskesmas and the number of secondary schools (sma). institutional infrastructure consists of capital expenditure and employee expenditure. the availability of infrastructure will then affect the grdp growth of each province in indonesia and share infrastructure with labor as an assumption of productivity levels. the growth marked that there was an increase and development in various sectors with infrastructure as a driver in the economy. economic infrastructure roads become one of the important infrastructures in the economy for accessibility between one region and another. especially in economic activities in terms of the distribution of factors of production and production results (goods and services). road and ravallion(2002)found that increased road density had a positive and significant effect on household agricultural consumption expenditure in poor areas in china. as welldémurger (2001)examining the role of infrastructure in growth performance in 24 provinces in china, he concluded that infrastructure support together with openness of reform and location is geographically significant to see differences in growth performance in the provinces. then, the study states that transportation facilities are the key differentiating factor to explain the growth gap. electrical energy that can be distributed to the community illustrates how much availability of an area's access to electrical energy that can be used to drive the economic activities of the area. electricity infrastructure as both consumer goods and intermediate goods is related to income growth so that the causality relationship between infrastructure and income may be related both ways. incook (2011)huang's research groups countries by income to examine the relationship between energy consumption and growth. the study found a two-way relationship between electricity consumption and growth. low-income countries do not have a causal relationship between electricity consumption with growth, middleincome countries economic growth leads positively to electricity consumption while highincome countries are negatively related. during the last few decades there have been rapid developments in the world economy that began as an industrial society shifted to an informative society. this is driven by the development of technological advancements which then increase the role of information in human life has changed the pattern of business activities carried out in various sectors.canning (1999)found elasticity related to telephone stock of around 0.14 holding capital stock constantly, which means there is a big impact from the increase in telephone stock. in addition, these results indicate that there are large externalities to telecommunications infrastructure in both developing and under-developed countries. the fact in this study that the telephone has a higher productivity than other types of capital in the study. social infrastructure social infrastructure has a role in the economy to be able to improve the quality of human resources themselves. according tohall and jones (1999)social infrastructure such as education and health is very important to promote better use of physical infrastructure and human resources and improve quality of life. economic development cannot be ruled out by afebi economic and finance review (aefr) volume 4, no 02 (2019) 124 education. likewise according to myrdal injhingan (1993)to start a national development program without regard to the education of its inhabitants is futile. through education the government can increase the effective stock of workers and the productive capacity of the nation. primary and secondary education needs to be provided so that every school-age child can enjoy educational services. institutional infrastructure an better economy an institution will have an impact on increasing economic efficiency and performance. a good institution will reduce the uncertainty in economic activities. economists have long recognized that economic growth is related to the ability of society to increase its human resources, physical capital and technology. in this case, technology is not only related to techniques available to companies, but also in production organizations which implies that several countries will use resources efficiently(acemoglu and robinson 2010). the role of institutions can also be seen from the amount of expenditure made by the government to finance government activities to encourage economic activity. researchcome on (2005)examining the relationship between government spending and economic growth in the united kingdom between 1830-1993, the results of causality granger shows that government spending causes growth. as government spending increases (as part of gdp), gdp growth also increases. in the aspect of institutional infrastructure, this study will use indicators of capital expenditure and employee expenditure. the use of capital expenditure indicators is intended to show how efficient an institution is in using available resources, in this case capital expenditure to be able to improve the performance of economic activities. while employee expenditure indicators are intended to show how efficient an institution is to encourage economic performance through employee incentives. this study will look at the effect of economic and social infrastructure and institutional infrastructure on economic growth using the basic theory of solow economic growth with the cobb-douglas model in which infrastructure is assumed as capital. the hypothesis that will be tested in this study are: a. road infrastructure is thought to have a positive influence on indonesia's provincial grdp b. electricity infrastructure is thought to have a positive influence on the provincial grdp in indonesia c. telephone infrastructure is thought to have a positive influence on the provincial grdp in indonesia d. health infrastructure is thought to have a positive influence on the provincial grdp in indonesia e. education infrastructure is thought to have a positive influence on the provincial grdp in indonesia f. capital expenditure infrastructure is thought to have a positive influence on indonesia's provincial grdp g. employee expenditure infrastructure is thought to have a positive influence on indonesia's provincial grdp. 3. research methodology research variable the variables used in this study consisted of the dependent variable and the independent variable. the dependent variable is the variable that is affected or that is the result, because of the independent variable (independent). the independent variable is the variable that influences or which causes the change or emergence of the dependent variable (bound). meanwhile, the control variable is a variable that is thought to have a close relationship in influencing the dependent variable. in this study, gross regional domestic product (grdp) is used as the dependent variable. while the other seven independent variables consist of infrastructure variables analysis of infrastructure effect on indonesia's economic growth year 2007 2014 125 which are divided into three groups, namely economic infrastructure (road length, number of electricity distribution and number of telephone and cellular phone users), social infrastructure (number of hospitals and health centers and number of high schools), and institutional infrastructure (capital expenditure and employee expenditure). this research is in the period of eight years, 2007 2014 and uses samples in 33 provinces in indonesia. analysis method the approach used to see the condition of infrastructure on economic growth of this study uses fixed effect analysis with panel data regression with the help of the eviews 9. panel data (pooled data) is a combination of time-series and individual data (cross-section) . although the fixed effect regression model has different intercepts for each observation, each interception in each observation does not change over time, this is what is meant by time-invariant. in addition, the fixed effect assumes that each coefficient (slope) of each independent variable does not differ for each individual or intertemporal. this model is also known as the least square dummy variable model panel data regression analysis this study analyzes the effect of infrastructure on the economy in indonesia. the approach in this study uses the cobb-douglas function, with a model that has been used by previous research (david canning, 1999) 𝑌𝑖𝑡 = 𝐴𝑖𝑡 𝐾𝑖𝑡 𝛼 𝐿𝑖𝑡 𝛽 𝑈𝑖𝑡 where, y is the output proxied by grdp, a is the total factor of production, k is capital for infrastructure, l is labor, i is an index for the province, t is an index for the year and u is the error term. equation (2) is used to estimate the effect of infrastructure on grdp, where infrastructure in this case acts as capital. so we get a research model that will be used as follows: 𝑙𝑛𝑃𝐷𝑅𝐵𝑖𝑡 = 𝑙𝑛𝛼0𝑖 + 𝑙𝑛𝛼1𝑟𝑜𝑎𝑑𝑖𝑡 + 𝑙𝑛𝛼2𝑒𝑙𝑒𝑐𝑡𝑟𝑖𝑐𝑖𝑡 + 𝑙𝑛𝛼3𝑡𝑒𝑙𝑒𝑝ℎ𝑜𝑛𝑒𝑖𝑡 + 𝑙𝑛𝛼4ℎ𝑜𝑠𝑝𝑖𝑡𝑎𝑙𝑠𝑖𝑡 + 𝑙𝑛𝛼5ℎ𝑖𝑔ℎ𝑠𝑐ℎ𝑜𝑜𝑙𝑖𝑡 + 𝑙𝑛𝛼6𝑏𝑚𝑜𝑑𝑎𝑙𝑖𝑡 + 𝑙𝑛𝛼7𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑖𝑡 + 𝜇𝑖𝑡 where, ln pdrb : grdp above 2010 constant prices per labor ln road : long length of paved roads regardless of road conditions (km) per worker work ln electric : ln amount of electricity distributed (gwh) per workforce ln telephone : ln number of telephone and cellular (soul) users per workforce ln hospitals : ln number of hospitals and puskesmas (units) per workforce ln high school : ln the number of physical high schools (units) per workforce ln bmodal : ln amount of capital expenditure (billion rupiah) per labor ln employee : ln amount of employee expenditure (billion rupiah) per workforce 4. result and discussion infrastructure conditions the condition of infrastructure in indonesia in 2007 2014 in general continued to increase. based on bps data on economic, social and institutional infrastructure, there is an increasing development even though some types of infrastructure experience fluctuating developments in several provinces. roads are one of the important physical facilities in the field of land transportation. roads have a strategic function in connecting one area to another. in addition, the road functions as a link between production centers and marketing areas, the existence of road facilities is considered to have benefits in improving the economy. infrastructure development in indonesia continues, this is seen from the development of the length of roads which have tended to increase over the past few years. national road length grew by 7.78% over the last six years to 295,878 km in 2014. afebi economic and finance review (aefr) volume 4, no 02 (2019) 126 electrical energy that can be distributed shows how much ease of access to get electrical energy. every year the electricity consumption in indonesia is increasing along with the development of society, both in terms of the number of customers and the amount of production. this can be seen from the data that shows an increase in the distribution of electricity every year. national electricity distribution shows an increasing trend in the past six years by 40.6% in 2014 with a total of 189,028 gwh. the development of technology is growing rapidly, especially in the development of telecommunications. this technology will facilitate the community in communicating so that it will be more efficient which then increases productivity. the development of telecommunications in indonesia continues to show an increase, seen from the development of cellular subscribers in indonesia which reached 325 million subscribers in 2014 and the number increased from the previous year of 3.43% based on the 2015 indonesian data pocket book and ict trends report. high school is one of the formal education programs that carry out education at the level of secondary education as a continuation of basic education such as junior high, mts, or other forms of equivalent. based on bps data the number of school buildings shaded by the ministry of education and culture, has increased every year. although several provinces experienced a decline in the number of school buildings, nationally the number of high school buildings in 2014 increased by 13.38% over the past six years which was 12,513 high school units. the hospital is one form of service in the health sector, with the existence of hospital services expected to provide good health services so as to improve the level of public health. good health will reduce the death rate in the community caused by poor health. this makes the government to continue to accelerate development. health services consisting of hospitals and puskesmas have an upward trend. nationally, health services in 2014 increased by 33.56% in the last five years. based on attachment iii of the minister of finance regulation number 101 / pmk.02 / 2011 concerning the classification of the budget, capital expenditure is an expenditure for the acquisition of assets and / or adds value to fixed assets or other assets that can provide benefits over one accounting period and exceed the minimum capitalization limit fixed assets / other assets that have been determined by the government. based on the calculation of capital expenditure data in 2010 nationally has increased by 44.49% over the past five years while growth in employee spending has increased by 49.22% in the same period. influence of infrastructure on economic growth the model estimation uses panel data regression analysis which produces the fixed effect model as the best model based on the chow test and the hausman test. the results of the panel data regression estimation of each independent variable, namely roads, electricity, telephone, health, education, capital expenditure and employee expenditure on economic growth (grdp). table 1. panel data regression estimation results with fixed effect model dependent variable: lnpdrb variable coefficient t-statistic prob. education 0.248348 3.25991 0.0013 telephone -0.03669 -0.83773 0.4031 electricity 0.281973 5.118042 0.0000 health 0.196425 2.085675 0.0381 street 0.09812 2.047902 0.0417 employee shopping 0.055051 1.100587 0.2723 capital expenditures 0.052034 4.284844 0.0000 source: data processing results, 2018 analysis of infrastructure effect on indonesia's economic growth year 2007 2014 127 regression coefficient values for each variable can be written into the following equation: 𝑙𝑛𝑃𝐷𝑅𝐵 = 4.152 + 0.098 ln 𝑟𝑜𝑎𝑑 + 0.282 ln 𝑒𝑙𝑒𝑐𝑡𝑟𝑖𝑐 − 0.036 ln 𝑡𝑒𝑙𝑒𝑝ℎ𝑜𝑛𝑒 + 0.196 ln ℎ𝑒𝑎𝑙𝑡ℎ + 0.248 ln 𝑒𝑑𝑢𝑐𝑎𝑡𝑖𝑜𝑛 + 0.052 ln 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑒𝑥𝑝𝑒𝑛𝑑𝑖𝑡𝑢𝑟𝑒 + 0.055 ln 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒 𝑠ℎ𝑜𝑝𝑝𝑖𝑛𝑔 + 𝜇𝑖𝑡 road regression coefficient, electricity, health, education, capital expenditure and employee expenditure have a positive direction, while the telephone regression coefficient has a negative direction. in addition, the variables of roads, electricity, health, education and capital expenditure all have a significant effect on economic growth, while the telephone and employee expenditure variables have no significant effect on economic growth in 33 provinces in indonesia in the 2007-2014 period. furthermore, a test the statistics shown in table 2 follows: table 2. determination regression coefficient test results estimasi nilai r-squared 0.990551 adjusted r-squared 0.988906 s.e. of regression 0.064024 sum squared resid 0.918205 log likelihood 372.6897 f-statistic 602.1086 prob(f-statistic) 0,00000 source: data processing results, 2018 table 2 shows that the r-squared value in this study was 0.990551. this means that 99% of economic growth in 33 provinces can be explained by the variation of the seven independent variables together, namely roads, electricity, telephone, health, education, capital expenditure and employee expenditure. while the rest is explained by other variables outside the model not included in this study. this is reinforced by the f-statistic probability value that is 0,000 less than the degree of trust (α = 0.05), and the f-statistic value that is 602.1086 which is greater than the f-table of 2.134. thus the ability of independent variables is able to provide almost all the information needed to predict the dependent variable. road variables have a positive and significant effect on grdp in 33 provinces, seen from the t-statistic greater than the t-table value (2.047> 1.651) with an elasticity value of 0.098, where each 1% increase in the road will increase economic growth by 0.098 %. the results of this study are in line with researchkeusuma and suriani (2017) which states that road infrastructure has a positive impact on economic growth. electricity distribution variable statistically has a positive and significant effect on grdp in 33 provinces, seen from the t-statistic greater than the t-table value (5.118> 1.651) with an elasticity value of 0.282 where each 1% increase in electricity distribution will increase economic growth by 0.282%. these results indicate that efforts to increase electricity distribution have an impact in increasing economic growth, and the results are in line with existing theories, that by adding capital in the form of electrical energy can increase the level of gdp output. this agrees with the empirical facts in huang's previous research in cook (2011) which states that electrical energy has a relationship with economic growth. variable fixed telephone users and cellular users have a negative and not significant relationship to grdp in 33 provinces, seen from the t-statistic smaller than the t-table value (-0.83 <1,651). these results illustrate that the increase in fixed telephone users and cellular telephones does not have an impact on increasing economic growth, this can occur because fixed telephones are beginning to be restricted in their use and cellular telephones that are less describing have an effect on productivity. today many economic sectors are supported by the afebi economic and finance review (aefr) volume 4, no 02 (2019) 128 internet which makes it easy to carry out economic activities through an integrated system with the internet. these results are not in line with research conducted by canning (1999) that telephones have the highest level of productivity, the available health variables have a positive and significant effect on grdp in 33 provinces, seen from the t-statistic which is smaller than t-table (2.08> 1.651) with an elasticity of 0.196 where when there is a 1% increase in health services will increase economic growth amounted to 0.196%. these results state that the availability of health drives the level of output, this is in line with the theory which states that health will drive the level of productivity. the variable number of high school buildings (sma) has a positive and significant effect on grdp in 33 provinces, seen from the t-statistic (3.25> 1.651) with an elasticity of 0.24 where when there is a 1% increase in high school building services it will increase economic growth of 0.24%. these results illustrate that the availability of secondary education will help increase productivity. this is in line with existing theories, that workers' education will increase their productivity. the estimation results of the two social infrastructure are in accordance with the theory which states that an increase in human capital through education and health will be able to increase the level of output. this is also consistent with previous research,kumari and sharma (2017)which states that social infrastructure has a positive impact on the economy. capital expenditure variable has a positive and significant relationship to grdp in 33 provinces, seen from the t-statistic is greater than t-table (4.28> 1.651) with an elasticity of 0.052 where when there is an increase of 1% capital expenditure will increase growth economy of 0.052%. this result states that institutions that can manage their resources in and have an influence in driving economic performance so that it can help increase productivity, in other words capital expenditure services influence in stimulating various sectors to encourage performance in economic activity. this result is in line with empirical facts in yuk's (2005) research that government spending will have an impact on economic growth. employee expenditure variable has a positive relationship, but it is not significant to grdp in 33 provinces, seen from the t-statistic is smaller than t-table (1.10 <1.651). these results indicate that the institution has no influence in driving economic performance so it is less able to increase economic productivity. 6. conclusion based on the results of the analysis that has been done, it is known that the condition of indonesia's infrastructure continues to experience growth even though it must continue to improve infrastructure services in indonesia. in addition, the results of the panel data regression analysis showed that road length, electricity distribution, health, education and capital expenditure in 33 provinces had a positive effect on economic growth. the regression results show the coefficient of electricity distribution has the greatest elasticity with an elasticity value of 0.281. then followed by the education variable with an elasticity value of 0.24 and health variable of 0.196, the road length variable of 0.098 and capital expenditure of 0.05. while the telephone and capital expenditure variables do not have an influence on economic growth. based on the description of these results in general it can be concluded that infrastructure has an important role on output in this case grdp. where the role of economic and social infrastructure has a more crucial role in increasing output. this is based on the contribution of the magnitude of the elasticity of economic infrastructure and social infrastructure in the top four positions that affect the grdp namely electricity distribution (economic infrastructure) has the biggest role in this research, then followed by the number of health and education services (social infrastructure) and finally occupied by the economic infrastructure variable again, namely the length of the road. the government deserves to pay attention to infrastructure development, especially towards economic and social infrastructure development without reducing attention to the quality of institutions. because the economic and social infrastructure that has a large analysis of infrastructure effect on indonesia's economic growth year 2007 2014 129 influence among the three types of infrastructure in this study so that the government can pay attention to the addition of electricity energy production capacity so that electricity that can be distributed can be increased then is expected to encourage economic growth acceleration. government attention is also needed to develop institutional infrastructure, especially in terms of institutional quality and not only to concentrate on economic and social infrastructure. based on the estimation results, employee expenditure has a positive relationship to output but it is not statistically significant, this indicates that so far workers, especially civil servants (pns) have not been able to improve their performance to help encourage economic growth. in addition to paying attention to economic acceleration, economic equality cannot be forgotten by the government. because broad interconnection of infrastructure can encourage economic growth rather than concentrated in a particular region, by encouraging the development of inter-island connecting infrastructure in indonesia. the variables in this study still use a little scope of infrastructure although they have tried to explain by classifying infrastructure, even though there are still many types of infrastructure that are interesting to study further because today indonesia is encouraging infrastructure development. various types of infrastructure that are interesting to study include airports, railroad routes, ports, irrigation, sanitation, fiber optics, universities, libraries, to political quality. thus the various infrastructures can be comprehensively impacted on the economy. so that further research is expected to examine other infrastructure that is no less important for the economy. references acemoglu, daron, and james robinson. 2010. the role of institutions in growth and development. review of economics and institutions. vol. 1. https://doi.org/10.5202/rei.v1i2.1. canning, david. 1999. 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infrastruktur dasar terhadap pertumbuhan ekononomi di indonesia.” ecosains: jurnal ilmiah ekonomi dan pembangunan 4/1 (may 2015). kumari, anita, and a. k. sharma. 2017. “physical & social infrastructure in india & its relationship with economic development.” world development perspectives 5: 30– 33. https://doi.org/10.1016/j.wdp.2017.02.005. mankiw, n. gregory. 2000. teori makroekonomi. edited by yati sumiharti. 4th ed. jakarta: erlangga. rutherford, donald. 2002. routledge dictionary of economics second edition. world bank. 1994. world development report 1994: infrastructure for development. world development. vol. 26. https://doi.org/10.1016/s0305-750x(98)90001-8. afebi economic and finance review (aefr) volume 4, no 02 (2019) 130 yuk, wing. 2005. “government size and economic growth: time-series evidence for the united kingdom, 1830-1993.” department of economics, university of victoria, …. http://www.web.uvic.ca/econ/research/papers/pdfs/ewp0501.pdf. the effect of co2 emissions, energy consumption, coal consumption on gross domestic product per capita in indonesia 18 the effect of co2 emissions, energy consumption, coal consumption on gross domestic product per capita in indonesia wahyu aji wijaya1)*, imam aditya2), syamsurijal a kadir3), abdul bashir4) 1,2,3,4department of economics, fakultas ekonomi, universitas sriwijaya, palembang abstract energy consumption in driving the industrialization of the economy in its development must be accompanied by regulatory policies that support so that this energy can be used efficiently. this study aims to determine the effect of co2 emissions, energy consumption, and coal use on per capita economic growth in indonesia. secondary data used are time series sourced from the world bank, the central bureau of statistics, and related agencies during the period 1985 to 2019. the analytical tool used in this study is multiple linear regression based on ordinary least square (ols) along with statistical tests and classical assumption test. the estimation results conducted show that the co2 emission variable has a significant effect and has a positive relationship to gross domestic product (gdp) per capita in indonesia and the variables of coal consumption and energy consumption have a negative correlation to gdp per capita and seen from the probability value of the variable coal consumption statistically does not have a significant effect on gdp per capita in indonesia. keywords: emission co2, energy consumption, coal consumption, gross domestic product per capita. 1. introduction an indicator that is often used to measure a country's economic performance is economic growth. economic growth is not spared from economic activity by the community, especially since the population of indonesia has increased from year to year. data from the central statistics agency shows that in 2020 the total population of indonesia will reach 271 million people. the rapid population growth has an impact on aspects of human life, one of which is the use of energy resources. currently, economic activity is inseparable from the use of natural resources, especially natural resources that produce energy. economy and energy are two things that are interrelated in today's economy. the nature of energy is very complex and dynamic in the economy for consumption needs in the household and industrial sectors in their production activities. this was revealed by stern (2003) that the use or consumption of energy is a means to drive economic industrialization. it is further stated that energy consumption is a means of accumulating development capital, either complementary or substitution in producing outputs in the economy. the policies that regulate energy consumption in indonesia, which have included an energy diversification program to reduce the consumption of fuel oil (bbm) from the total energy consumption in indonesia, are still difficult to see the results (bappenas, 2012). the failure of energy diversification policies in indonesia can be reflected in the * coressponding author. email address: wijayawahyuaji27@gmail.com mailto:wijayawahyuaji27@gmail.com afebi economic and finance review (aefr) volume 6, no. 1 (2021) 19 slow growth of new and renewable energies and the high consumption of fossil energy. meanwhile, maintaining economic growth requires energy consumption to convert basic materials into goods and services to meet people's needs (budiarto, 2013). the use of coal fossil fuels continues to increase, but is still far below its exports. concerns that high exports under consumption will rapidly deplete coal reserves in indonesia (ministry of energy and mineral resources, 2014). energy problems, namely the use of renewable energy which is still relatively small due to various factors, including high investment costs, bureaucracy, subsidies, and the higher selling price of renewable energy end products compared to fossil energy. another issue that needs attention is the issue of co2 emissions in indonesia. dependence on fossil fuels has a serious impact on the environment. carbon dioxide (co2) emissions released by fossil fuels are the main cause of global warming (oztunk and eventsvci, 2010). the main sectors that use energy are the power generation, industry and transportation sectors, while the rest comes from households and other sectors (ministry of energy and mineral resources, 2014). energy use in this sector has an increasing trend following population growth and economic growth. the view that economic growth ultimately benefits the environment makes economists argue that maintaining economic growth is important because the most effective way to improve the environment is to get rich (beckman, 1992) in bowo (2009). this thinking implies that environmental problems are temporary problems because technological growth and innovation are able to solve environmental problems. the implication of the importance of energy in indonesia can be seen from its effect on economic growth. as stated by stern (2003) that energy is also an important factor in production. this study aims to determine the effect of co2 emissions, coal consumption, and energy consumption on economic growth per capita in indonesia. the implication of this research is expected to be input for high quality energy regulatory policies so as to encourage economic growth. 2. literature study economic growth neoclassical growth theory was introduced by robert m. solow and t.w swan (1956) in mankiw (2007). the solow-swan model as a model of economic growth provides a static analysis of the relationship between capital accumulation, population growth and technological development and the effect of these three on the level of output production. economic growth depends on the increasing supply of production factors (population, labor, and capital accumulation) and the level of technological progress. this view is based on the assumption underlying the classical analysis, namely that the economy will continue to experience full employment and capital equipment capacity will remain fully utilized at all times. in other words, the extent to which the economy will develop depends on population growth, capital accumulation, and technological advances. the theory of economic growth with energy tverberg (2011) explains that the general assumption states that most resources have an elastic supply, where a higher price will cause more resources to be produced. but in the case of energy, such as oil, the production or supply of oil did not increase much in spite of fluctuating prices. economists call it inelastic supply, where the shape the effect of co2 emissions, energy consumption, coal consumption on gross domestic product per capita in indonesia 20 of the supply curve is vertical, which means that when prices are high, no more energy is produced. brendt and wood (1975) were the first to see the linkage of energy to other inputs and to long-term economic growth in the united states. this research results in the finding that it is possible to substitute energy input with non-energy input even in limited conditions. more specifically, he found that: (1) energy demand is very responsive to the elasticity of the energy price itself, (2) energy and labor have a slightly substantive relationship, (3) while energy and capital are complementary. the long-term model used is a modification of the neoclassical model and the development of a resource model to become y = f (k, l, e, m) where y is the gdp of america which is influenced by capital (k), labor (l), energy (e) and other material inputs (m). according to griffin and steele (1989) in yusgiantoro (2000), the relationship between the energy economy and macroeconomics and economic growth can be seen from the empirical evidence that has occurred. the world energy crisis in the 1970s at least shows this connection. the united states at that time experienced various events that turned out to be significant with the world crisis. the 1970s saw the first decline in us real income per capita since the 1930s. at the same time, there was a stagflation / state of inflation which was always stagnant and could not change for the better. the unemployment rate also looks high. this phenomenon does not only occur in the united states, but also spreads to almost all industrialized countries. according to maunasinghe (1987) in yusgiantoro (2000) the energy crisis also has an impact on developing countries. the economic development of developing countries, especially energy exporting and importing countries, during the last ten to fifteen years since the world energy crisis has clearly shown the linkage of energy to economic growth. energy consumption elasticity calculation by realizing that energy consumption is closely related to gdp, it can be estimated that some increase in consumption is needed to obtain certain output. the magnitude of the increase in energy consumption required to increase one unit of output can be determined by calculating the elasticity of energy consumption against national output. the elasticity (e) can be formulated as follows: e = (δec/ec) / (δpdb/pdb) information: e = elacity of energy consumption δec = incremental energy consumption at specified intervals ec = energy consumption for a certain time δpdb = incremental gdp at certain intervals (pdb2-pdb1) pbd = gross domestic product at a certain time apart from being an indicator that can be used as a basis in the development strategy decision-making process, energy elasticity can also be used to measure the extent to which the efficiency and stage of a country's industrialization are. the smaller afebi economic and finance review (aefr) volume 6, no. 1 (2021) 21 energy elasticity illustrates that the production structure is more efficient and energy has a large added value to national production. however, this small elasticity can sometimes represent misleading information. such elasticity figures are usually found in countries that are still based on agriculture. meanwhile, high elasticity does not mean bad either. great elasticity is usually found in developed industrial countries. large elasticity also does not always indicate that the country's industry is advanced, but perhaps because this country is too wasteful to use the available energy. environmental kuznet curve economists suggest a relationship between changes in income and environmental quality, this relationship is known as the environmental kuznets curve which is a standard measure in technical discussions about the environment according to grossman and krueger (1991) in bowo (2009) environmental kuznets curve describes the relationship between environmental quality which is expressed as pollutant emissions and per capita income. the relationship between various indicators of environmental damage and per capita income forms an inverted u. this illustrates the basic idea of the income distribution theory introduced by kuznet which found that the shape of the u curve is inverted (inverse u) between an indicator of inequality and the level of income. when consuming, people use a lot of natural resources and dirty technology, causing environmental damage without any mitigation efforts. on the kuznet curve it is also seen that when people's income starts to increase, the quality of the environment will be better and the marginal utility of consumption will decrease. this suggests that the community is starting to appreciate the better the quality of the environment. from the kuznet curve it can be seen that the increase in people's income, which means economic growth, will initially cause pollution. however, in the end it will improve the quality of the environment again because the longer the community tends to reduce economic activities that cause externalities, and with the increase in community income, it will tend to increase awareness of the environment through the use of environmentally friendly technology. according to mark (2006) in umniati (2015) co2 emissions have the resulting economic impact, namely (1) co2 emissions change income and reduce the value of production by climate change and (2) co2 emissions result in additional costs for emission reduction. an efficient economic policy chooses a mix of emission reductions and adjustments in which the marginal benefit of reduced ghg concentrations from reducing greenhouse gas concentrations (greenhouse gases) equals the marginal cost. such as a policy that has the lowest cost to reduce greenhouse gas emissions (greenhouse gases). previous research the results of research conducted by (bashir et al., 2019) shows that there is no causal evidence of human capital, per capita energy consumption, and per capita co2 emissions to real gdp per capita, in both long and short term causality. therefore, the indonesian government's policy of conservative energy policies and policies to reduce co2 emissions in the long term without hampering economic growth. chor foong tang, bee wah tan, iihan ozturk (2015), the results show that there is a stable and the effect of co2 emissions, energy consumption, coal consumption on gross domestic product per capita in indonesia 22 long-term equilibrium relationship between economic growth and its determinants (namely energy consumption, fdi, capital, etc.). in general, energy consumption, fdi and capital positively affect economic growth in vietnam. the results of research conducted by loesse jacques esso, yaya keho (2016), the results of the granger causality test show evidence that in the short term economic growth causes co2 emissions in benin, democratic republic of congo, ghana, nigeria and senegal. this implies that economic expansion cannot be achieved without affecting the environment. the results of research conducted by dalia streimikien, rafal kasperowiz (2016), fmols panel and dols estimator reveal that the relationship between energy consumption, gross fixed capital and positive economic growth. shaojian wang, qiuying li, chuanglin fang, chunshan zhou (2016), impulse response analysis (which describes the reaction of each variable as a function of time in response to external shocks) found that the impact of co2 emission shocks on economic growth or energy consumption had only a slight significant impact. the results of the research by irina dolgopolova, qazi adnan muhhamad hye, iyala tam stewart (2012) show that there is a long-term relationship between real gdp, labor, real capital, oil consumption, electricity consumption, gas consumption and coal consumption. 3. research methodology data in this study, the data source used was secondary data obtained from the world bank, the central statistics agency (bps), and related agencies. secondary data used is the indonesian timeseries data from 1985-2019 (35 years), in the form of co2 emission data (metric ton), coal consumption (metric ton), energy consumption (per capita), and real gdp per capita. model specifications the analytical tool in this study uses multiple linear regression analysis based on ordinary least square (ols) with time series data along with statistical tests and classical assumption tests which aim to determine whether the data is worth estimating and to see the effect simultaneously on the dependent variable. the data processing tool used is the e-views 9.0 program. the following regression equation model is used: gdpkt = β0 + β1logemst + β2logcocot + β3ecot + e which : gdpk = economic growth per capita β0 = intercept / regression constant β1, β2, β3 = estimation coefficient ems = co2 emissions coco = coal consumption eco = energy consumption e = random error afebi economic and finance review (aefr) volume 6, no. 1 (2021) 23 4. result and discussion multiple linear regression test table 1. multiple linear regression output variable coefficient std. error t-statistic prob. c 1902.864 549.4581 3.463165 0.0016 logems 31.74115 10.27980 3.087720 0.0042 logcoco -745.4305 729.4699 -1.021880 0.3147 eco -454.4053 144.1565 -3.152167 0.0036 r-squared 0.940494 mean dependent var 1730.569 adjusted r-squared 0.934735 s.d. dependent var 1304.497 source : processed data, e-views 9.0 based on the result of statistical calculations as in table 1 we obtain the results of multiple linear regression for the per capita economic growth variable are as follows: gdp = 1902.86 + 31.741ems -745.430coco -454.405 + ei the coefficient results show the coefficient value for the co2 emission variable (ems) is 31,741 and has a positive relationship, which means that when the co2 emission variable increases, it will increase per capita economic growth by 31,741 with a probability value of 0.0042 <0.05 degree of error 5% so that it is statistically significant to our economic growth. the coefficient results for the variable coal consumption (coco) and energy consumption (eco) are -745,430 and -454,405, both of which have a negative relationship, if the variable coal consumption decreases it will increase per capita economic growth by -745,430, and if the energy consumption variable increases it will increase reduce per capita economic growth by -454,405. the probability value of the two variables is 0.3147 (coco) and 0.0036 (eco) with a degree of error of 5% (0.05), so that statistically the energy consumption variable is not significant to economic growth per capita and the energy consumption variable is statistically significant on per capita economic growth. residual normality test the normality test used in this study was the jarque bera test. the results of the residual normality test in the attachment show that the jarque fallow value is 1.914306 with a p value of 0.383985 where> 0.05. so that h0 is accepted, which means that the data distribution residuals are normal. multicollinearity test table 2. multicollinearity test output coefficient uncentered centered variable variance vif vif c 301904.2 95.14159 na logems 105.6743 4090.230 816.8021 logcoco 532126.3 326.0621 144.6150 eco 20781.09 3080.476 308.7030 source : processed data , e-views 9.0 the effect of co2 emissions, energy consumption, coal consumption on gross domestic product per capita in indonesia 24 the data above shows that the centered vif value for both the co2 emission variable, coal consumption, and energy consumption is above or greater than 10, so it can be stated that there is a multicollinearity problem in the model. heterokedastisitas test (breusch-pagan dan white) table 3. the output of the breusch-pagan & white heteroscedasticity test heteroskedasticity test: breusch-pagan-godfrey f-statistic 2.237559 prob. f(3,31) 0.1036 obs*r-squared 6.229834 prob. chi-square(3) 0.1009 scaled explained ss 4.668707 prob. chi-square(3) 0.1977 heteroskedasticity test: white f-statistic 1.312476 prob. f(9,25) 0.2798 obs*r-squared 11.23076 prob. chi-square(9) 0.2602 scaled explained ss 8.416457 prob. chi-square(9) 0.4928 source : processed data, e-views 9.0 the heteroscedasticity test in this research model uses two tests, namely the breusch-pagan test and the white test. in the first test of heteroscedasticity, namely the breusch-pagan test, it can be indicated by the value of prob. chi square (3) at obs * rsquared which is equal to 0.1009 or p value 0.1009> 0.05 then h0 is accepted or which means the regression model in the breusch-pagan test is homocedasticity or in other words there is no problem with the assumption of non-heterocedasticity. and so on the white test, it was found that the value prob. chi square (9) on obs * r-squared is 0.2602, where the critical value is a = 0.05, so that h0 is accepted, and it can be said that the model does not contain heteroscedasticity problems. linieritas test (with ramsey test) table 4. linearity test output value df probability t-statistic 0.666141 30 0.5104 f-statistic 0.443743 (1, 30) 0.5104 likelihood ratio 0.513909 1 0.4735 source : processed data, e-views 9.0 the linearity test in this study used the ramsey reset test, with the p value shown in the probability column of the f-statistic row of 0.5104 where> 0.05, so it can be concluded that the independent variable is linear with the dependent variable. determination coefficient test (r2) from the results of the calculation of multiple linear regression analysis, it can be seen that the r2 coefficient value is 0.94 which is almost close to 1. this means that the per capita economic growth in indonesia during the 1985-2019 period can be explained by around 94% by the variable co2 emissions, coal consumption, and energy consumption. while the remaining 6% is explained by other variables which are not included in this research model. f test statistics afebi economic and finance review (aefr) volume 6, no. 1 (2021) 25 the f test aims to determine the effect of all independent variables together (simultaneously) on the dependent variable. table 5. output f-statistics f-statistic 163.3175 durbin-watson stat 0.649756 prob(f-statistic) 0.000000 source; processed data, e-views 9.0 in the results of the table above, it is found that the f-count value with a significance level of 5% or 0.05 is 163.3175> f-table (0.343) and the f-count probability value is 0.000 <0.05, so it can be concluded that h1 is accepted, that the independent variable is simultaneously (together) affect the dependent variable. co2 emissions based on the kuznet environmental curve theory, it can be seen that the increase in people's income, which means economic growth, will initially cause pollution. however, in the end it will improve the quality of the environment because the longer people tend to reduce economic activities that cause externalities, with increasing income, people will tend to increase awareness of the environment through the use of environmentally friendly technology. according to stern (2003) co2 emissions have a strong correlation to gdp. as a result, since 1850, north america and europe have produced about 70% of all co2 emissions due to energy production, while the remainder is generated by developing countries. much of the growth in emissions in the future will come from developing countries today, due to their faster population and gdp growth and the increasing number of their energy-intensive industries. for the conditions in research in indonesia, an increase in co2 emissions is followed by an increase in energy consumption. when consuming, people use a lot of natural resources and dirty technology, causing environmental damage without any mitigation efforts. it can be seen that the increase in people's income will have an impact on economic growth which will initially cause pollution. the kuznet curve also shows that when people's income starts to increase, the quality of the environment will be better and the marginal utility of consumption will decrease. so at the same time energy consumption causes high co2 and is followed by economic growth caused by energy consumption. however, recently the indonesian government has begun to aggressively issue new policies in an effort to reduce the use of co2 emissions. this policy is an emission tax policy imposed on motorized vehicles. coal consumption coal is a source of energy used in various countries that plays a role in economic growth. the findings of this study point to the relationship between coal consumption (in metric tonnes) and per capita economic growth in indonesia. the results of this study indicate that coal consumption has a negative relationship with per capita economic growth, that is, if an increase in coal consumption occurs, it will reduce per the effect of co2 emissions, energy consumption, coal consumption on gross domestic product per capita in indonesia 26 capita economic growth and vice versa. statistically, it is seen from the significance value with a threshold of the degree of error of 5% (0.05) that coal consumption does not have a significant effect on per capita economic growth in indonesia. the results of this study are in line with those conducted by li and li (2011) with the state objects of india and china. the results obtained indicate that in china there is a unidirectional causality of gdp and coal consumption. according to (aprilia et al., 2018) that economic growth has no significant effect on coal consumption. one of the efforts to ensure continuity and renewal is to choose resources that can be renewed. attachment to the non-renewable economic sector can also serve as a potential energy source that can endanger economic growth. energy consumption one of the components that affect economic development is the amount of energy use nationally. the increasing use of energy encourages the industrialization process. the energy demand in the manufacturing industry to run machines is indeed very high. on the other hand, energy contribution support, especially in export revenue and government revenue, is a means of accumulating development capital. by realizing that energy consumption is closely related to gdp, it can be estimated how much increase is needed to get a certain level of output. according to (humbatova et al., 2020) explaining the relationship between energy consumption and economic growth can play an important role in setting and adjusting energy policies. given the close relationship between energy consumption and economic growth in certain countries, determining the quality of the relationship between these two variables helps to explain effectively energy sector policies. this study examines the causal relationship between energy consumption and economic growth in azerbaijan using annual data covering the period 1990-2015 in the vector autoregressive framework (var). applying a modified version of the granger causality test due to toda and yamamoto, we find a two-way causality between energy consumption and economic growth. if a two-way causality is found, economic growth may demand more energy whereas more energy consumption can drive economic growth. energy consumption and economic growth can complement each other and energy conservation measures can have a negative impact on economic growth. based on the findings, we therefore recommend that policies that promote energy consumption and economic growth be introduced. according to (carfora et al., 2019) there are different results between countries in asia. especially in the countries of india and indonesia in the causality analysis that energy does not generate income. in the results, it is explained that why energy does not generate income, that is, the countries analyzed in this study over the last twenty years have experienced major changes that have an impact on the relationship between income and energy. these changes were caused by the financial crisis in asia and caused a very serious economic slump. in recent decades indonesia has experienced an economic downturn, particularly in terms of income, energy prices and energy consumption. the efficiency of the policy which caused this decline did not have a positive relationship to income because the policy in terms of removing state control over the monopolistic oil and gas supplier led afebi economic and finance review (aefr) volume 6, no. 1 (2021) 27 to an increase in gasoline and diesel prices. the relationship between income and energy consumption needs to consider energy policy settings and changes and how to discuss policies for controlling environmental pollution and protecting energy efficiency, which will have a perspective of sustainable income and economic growth in the future. 5. conclusion based on the results of the above research, it can be concluded that co2 emissions have a positive and significant effect on economic growth per capita. energy consumption and coal consumption variables have a negative correlation, but energy consumption statistically has a significant effect on per capita economic growth in indonesia in 1985-2019. coal consumption and energy consumption have a negative relationship to economic growth. if there is an increase in coal and energy consumption, economic growth will decline. in recent decades indonesia has experienced an economic downturn, particularly in terms of income, energy prices and energy consumption. the efficiency of the policy that caused this decline did not have a positive relationship to income due to policies in terms of lifting state control over monopolistic oil and gas suppliers which led to an increase in gasoline and diesel prices and made policies on industrialization of machines using technology that was low in emissions and could reduce pollution levels environment. the relationship between income and energy consumption needs to consider setting changes in renewable energy policies and how to discuss policies on environmental pollution control and protection of energy efficiency. co2 emissions are related to economic growth and have a positive correlation. which means that if there is an increase in co2 emissions, economic growth will occur. the things that encourage these activities can occur due to the high level of industrialization that still uses low technology, which in fact will have an impact on the quality of the environment or negative externalities on the environment. one of the efforts to ensure continuity and renewal is to choose resources that can be renewed. attachment to the non-renewable economic sector can also cause it to become a potential source of energy that can endanger economic growth and damage the environment. reference aprilia, f., sasana, h., destiningsih, r., ekonomi, f., & tidar, u. 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management,24:101–118. wang, s., li, q., fang, c., & zhou, c. 2016. science of the total environment the relationship between economic growth, energy consumption, and co2 emissions: empirical evidence from china. science of the total environment, the, 542, 360– 371. http://oilprice.com/energy/energy-general/energypolicies-and-oil-supply potential loss of pbb-p2 revenue as regional tax in sambas regency 43 potential loss of pbb-p2 revenue as regional tax in sambas regency yarlina yacoub 1*4, safari 2 , and nindya lestari3 1 universitas tanjung pura, indonesia 2 goverment of sambas regency, sambas, indonesia 3 universitas gadjah mada, indonesia abstract this study aims to identify the potential loss in the receipt of rural and urban land and building taxes (pbb-p2) as regional taxes in sambas regency. this research uses descriptive method by describing events in the field using survey methods and questionnaires which will then be processed using the swot method. the data used in this study consisted of two data. based on the results of interviews on questionnaires given to sample taxpayers to find out the reasons and factors that caused taxpayers to take tax evasion actions, it was found that there were the taxpayers do not know / do not understand, not very important about pbb-p2. in an effort to minimize the level of potential loss various efforts made by the government at that time both those that have been carried out and those that will be carried out in the future. there are several relevant strategies to be implemented in an effort to optimize pbb-p2 revenues as local taxes in sambas regency, among others: utilizing regional autonomy policies to implement regional regulations more firmly (law enforcement); repairing and completing facilities and infrastructure facilities to support regional revenue management, especially supporting facilities for increasing pbb-p2 revenues; providing incentives for pbbp2 collection so that officers get additional motivation in an effort to optimize pbb-p2 revenues; utilizing the willingness and awareness of taxpayers to pay taxes in order to increase pbb-p2 revenues by implementing programs and activities well and orderly. responding to the enactment of law no. 28 of 2009 with initiative and creativity in the management of pbb-p2 which in the end was able to increase regional original revenue (pad) towards regional financial independence. jel classification: h20, h21, h24 keywords: fiscal, potential loss, revenue 1. introduction the existence of regional autonomy makes the administration of government and development tasks which were originally controlled by the central government to turn into regional authority, including financial management. providing so much authority to the regions, on the other hand contains consequences for local governments, especially related to the implementation of government functions such as service, empowerment and regulation, all of which must be able to be handled by the regional government. government failures in regional development are due to the lack of optimal roles and functions of local government in providing services and welfare to the community. in the implementation of regional autonomy, the financial aspect has a very important role, kaho (2001) explains that the financial aspect is one of the basic criteria to be able to know the regional capabilities in managing their own household. to carry out government functions, financial factors are very important because there are almost * corresponding author. email address: yyarlina@gmail.com afebi economic and finance review (aefr) vol.03 no.02, december 2018 44 no government activities both administrative activities and development activities that do not require costs. the success of regional development is largely determined by the role of the regional government in providing sufficient funds to ensure the implementation of the development process. the availability of these funds is an important indicator for a region in implementing the government. availability of funds (financial capacity) can be met if the regional government continues to explore and optimize the potential of regional revenues from various sources, especially regional real income (pad). pad according to law number 32 of 2004 and law number 33 of 2004 pad is one source of regional revenue other than the balancing fund and other legitimate regional revenues. in the era of autonomy, pad is expected to be the main pillar of regional revenue in supporting and financing development activities in the region. according to sidik (2002) the main feature that shows an autonomous region capable of autonomy lies in the financial capacity of the region. in this era local governments are expected to be able to explore and optimize potential (local finance), especially pad, where one potential source of pad is local tax. the enactment of law number 28 of 2009 concerning tax reform especially regional taxes is an implementation of the implementation of regional autonomy. after that, the sources of regional tax were gradually transferred, which were originally the central taxes that were distributed, which are now purely regional taxes, one of which is the land and building tax (pbb). this means that the regency / city government with the enactment of law no. 28/2009 can fully manage the imposition of the united nations and make it a regional tax. with this transfer, it is expected that the un will become one of the potential sources of pad. with the issuance and enactment of law number 28 of 2009 concerning regional taxes and regional retributions in lieu of law number 34 year 2000 concerning amendments to law number 18 year 1997 concerning taxes and regional levies, the authority of regional governments increases especially in addition to sources -source of pad originating from regional taxes. with law no. 28 of 2009, the regional government has the authority to manage 11 (eleven) types of regional taxes compared to when still referring to law no. 34 of 2000 which is only given the authority to manage 7 (seven) types of regional taxes. the composition of the addition of new authority consists of 1 (one) new type of tax, 1 (one) transition from the provincial government and 2 (two) transfers from the central government. one type of tax transferred from the central government to the regional government is the rural and urban land and building tax (pbb-p2) and a component of regional taxes (article 2 of law number 28 of 2009). this is a real implementation of regional autonomy in an effort to improve service to the community and regional independence as well as the expansion of the object of regional taxes in an effort to improve regional financial capacity to accelerate regional development. pbb-p2 transfer from central tax to regional tax is a strategic step in the effort to implement fiscal decentralization. this step will be able to increase regional tax revenues as one of the sources of revenue for pad. pbb-p2 transfer from the center to the regions is also in line with law number 32 of 2004 concerning regional government (which has been amended several times the latest by law number 12 of 2008) and law number 33 of 2004 concerning financial balance between government center and regional government, the implementation of regional government is carried out by providing the broadest authority accompanied by the granting of rights and obligations to carry out regional autonomy. sambas regency is one of the developing regions in west kalimantan, which in fact also relies on regional financial independence, namely pad to support regional financial capacity. regional taxes, especially those sourced from the united nations, especially pbb-p2, are a potential source of regional income. for sambas regency, the transfer of authority for pbb-p2 collection to become a source of regional taxes has been implemented starting january 1, 2014, taking the last dead line in which pbbpotential loss of pbb-p2 revenue as regional tax in sambas regency 45 p2 must have become a regional tax throughout indonesia. as a regional tax, pbbp2 collection in sambas regency is regulated separately from other types of regional tax, namely by the regional regulation of sambas regency number 6 of 2012 concerning rural and urban land and building taxes, while for technical instructions the implementation is regulated by sambas regent regulation number 18 year 2013 concerning implementation guidelines for collection of rural and urban land and building taxes. the realization of pbb-p2 revenue as a regional tax when compared to pbbp2 as a central revenue-sharing fund has decreased with a very large gap. when as a profit sharing fund the distribution of pbb-p2 is equal to 80% with details of 16% for the provincial region, 64% for the producing regency / city area and 20% of the government's share of pbb-p2 revenues are shared with the same portion for all districts and city. from the above division it can be said that the district government only receives net disbursement of pbb-p2 funds from the center. when it was still a revenue-sharing fund, the realization of pbb-p2 revenues in the 2012-2013 period had increased. whereas in the implementation of pbb p2 as regional tax, the district government is required to make efforts to intensify so that pbb-p2 revenues can be realized to the maximum extent possible. seeing the data above that there has been a decline in the realization of pbb-p2 receipts as regional taxes in sambas regency. there is an increase every year since 2014-2016 and the highest revenue in 2016 with realization reaching 130.25%. although they already have a legal umbrella in their collection, various problems remain in their implementation. the sambas regency government, in this case the regional finance agency, still found that the revenue from the pbb-p2 sector was not optimistic, especially with the potential for lost revenues (potential loss). the potential loss of pbb-p2 revenue occurs because there are efforts made by taxpayers to minimize their taxes by carrying out tax evasion such as (1) submitting inaccurate data when registering new tax objects, especially for the condition of building objects, (2 ) have many objects but those that are registered as pbb-p2 objects are only 1 (one) object, (3) report or register tax objects where reported only in the form of vacant land while the factual conditions on the land are buildings, (4) not leaked or register earth objects and buildings owned. this condition is certainly very detrimental to the region because a lot of potential pbb-p2 revenues that should have been obtained according to the existing potential that has been mapped will be lost due to the behavior of dishonest taxpayers. economically, the high number of potential losses, especially those originating from pbb-p2 revenues, will ultimately cause a loss of potential (potential loss) in increasing overall regional revenues. based on the problems described, the potential for a decline in pbb-p2 revenues experienced by the regional government could occur. if this continues, then the purpose of tax collection to increase pad will not be achieved. on this basis, this study aims to identify the potential loss in the receipt of rural and urban land and building taxes (pbb-p2) as regional taxes in sambas regency. 2. literature study according to law number 33 of 2004, regional original revenue (pad) is regional income derived from local taxes, regional levies, management of separated regional wealth and other pad in accordance with statutory provisions. according to halim (2004) local revenue is revenue received by the region from sources within its own territory which are collected based on regional regulations in accordance with the applicable laws and regulations. according to mardiasmo (2002) local revenue is revenue derived from the sector of local taxes, regional retribution, the results of regionally owned companies, the results of the management of separated regional assets, and other legitimate local revenue. whereas according to nurcholis (2007) regional original income is income earned by regions from regional tax revenues, afebi economic and finance review (aefr) vol.03 no.02, december 2018 46 regional retributions, regional company profits, and others that are legitimate. taxable capacity refers to the predicted tax-to-gross domestic product ratio that can be estimated empirically, taking into account a country’s specific macroeconomic, demographic, and institutional features, which all change through time (le et.al, 2012). pad is an important component as a source of regional revenue. insukindro et al (1994) suggest that local revenue can be seen as one of the indicators or criteria for measuring the level of dependence of a region on the central government. the fundamental changes that occurred in the governance of the republic of indonesia gave freedom to the regions in the form of regional autonomy and decentralization. this change gives consequences to the regions that local governments must be able to manage and manage their own areas including the ability and independence of regional finances. regions must be able to explore all forms of potential from various sources so that they can support regional income needed to finance government and development activities in the region. but in its implementation there were problems experienced by the region in order to increase pad caused by several factors. according to mahi (2000), the problem of pad has not been relied on by the regions as a source of financing because: (1) the administrative capacity of collection in areas that are still low; (2) weakness of planning and financial supervision. kaaho (1997) states administratively the management of pad cannot be managed optimally because the executors or government apparatus in carrying out their duties have not been able to fulfill administrative order, whereas according to basri (1995) barriers to managing pad are lack of capacity and capability of officials, weak collection systems and mechanisms and the need for administrative systems and procedures. regional governments need efforts to get around the problem of the low contribution of this pad to regional finance. the effort according to kuncoro (2004) is (1) increasing the role of bumd; (2) increasing regional revenues; (3) change the pattern of subsidies; (4) increasing regional loans. meanwhile, according to halim in tunliu (2010) what needs to be done by local governments is (1) expanding the revenue base; (2) strengthening the collection process; (3) improve supervision; (4) improve administrative efficiency and reduce collection costs, (5) increase acceptance capacity through better planning. the application of patterns of intensification and extensification by paying attention to the principles of financing (effective and efficient) is expected to increase pad and ultimately strengthen regional financial independence. according to widayat (1994) in general there are 2 (two) ways to strive to increase pad, namely intensification and extensification. intensification of pad is an action or efforts to increase revenue by conducting more active, strict and rigorous collection. whereas the extension of pad is efforts to explore new pad sources. according to sidik in tunliu (2010) efforts to increase (growth) pad can also be done by intensifying the collection of existing regional taxes and retributions. in addition to the intensification of efforts that can be taken by the regions to increase pad is by extending taxes, namely through government policies to provide greater taxing power to the regions in the future. for regencies / cities, it is necessary to give authority to set a tax base and tariffs to a certain extent. on the other hand, based on law number 28 of 2009 concerning regional taxes and regional retributions, pbb-p2 is a tax on land and / or buildings that are owned, controlled and / or utilized by individuals or entities, except the area used for business activities plantation, forestry and mining. the tax object of pbb-p2 is all objects or buildings which are included in the definition of land and / or buildings subject to tax, unless used by the regional government for administering the government, used solely for the public interest, used for graves, ancient relics and the like, protected forests and the like, used by diplomatic or consular representatives with reciprocal principles and used by bodies or representatives of international institutions determined by the minister of finance potential loss of pbb-p2 revenue as regional tax in sambas regency 47 regulation. while the subject of pbb-p2 is an individual or entity that has the right and / or obtains, possesses, controls and / or obtains benefits for the earth and / or the building. the applicable tax rates in each region are determined by regional regulations with a maximum tariff of 0.3%. similarly, the non-taxable tax object selling value (njoptkp) is determined by a regional regulation of at least rp 10,000,000. in pbbp2 there are also several components such as tax object number (nop) as the identity of each tax object consisting of 18 digits and njop as the basis for calculating tax assessments. the amount of the outstanding debts is obtained from tariff multiplication with njop after being reduced by njoptkp. the amount of the pbb owed in one tax year is informed in the sppt. pbb-p2 taxpayer is an individual or entity that has rights and / or obtains benefits for the land and / or has, controls, and / or benefits from the building. taxpayers have the obligation to pay the pbb owed annually. land and building tax (pbb) has long been a source of regional revenue. even though the united nations is central tax revenue, the regions receive revenue sharing funds (dbh), which in the apbd structure are grouped into regional revenue from tax sharing. previously regulated by law number 12 of 1994, land and building tax constitutes an improvement in law number 12 of 1985. in the law the object of the un is divided into 5 (five) sectors namely rural, urban, mining, forestry / forestry and plantations . but since the enactment of law no. 28 of 2009 concerning regional taxes and regional retributions, the united nations rural and urban areas (pbb-p2) has turned into regional taxes while the united nations mining, forestry and plantation sector (pbb-p3) is still the authority of the central government. delegation of pbb-p2 collection authority is mandated by law number 28 of 2009 concerning regional taxes and regional retributions, which is then followed up with joint decree of the minister of finance number 213 / pmk.07 / 2010 and minister of home affairs number 58 of 2010 concerning stages preparation for transfer of rural and urban land and building taxes as regional taxes. pbb-p2 has been implemented in full, and is expected to have positive implications for pad. but there are still problems, namely the loss of potential (potential loss) of pbb-p2 revenues due to taxpayers' dishonesty and taxpayer behavior. while the understanding of potential loss according to zain (2009) is the difference between the potential tax with the realization of tax revenue, this can be caused by (1) the provisions of applicable tax laws; (2) losses due to tax authorities; and (3) losses due to taxpayer actions. the first loss is referred to as tax expenditure. in essence, this tax expenditure is a subsidy to individuals or bodies through exemptions and deductions according to applicable tax laws and regulations. losses due to the actions of the tax authorities can be caused by extensification and intensification activities and other activities of the tax apparatus without proper procedures, which are essentially to enrich themselves and result in not achieving the target of acceptance. while the loss due to taxpayers can be caused by the existence of tax-free countries (tax haven countries), tax avoidance and tax evasion both bilaterally and unilaterally. the low level of public trust as taxpayers to the government on the one hand and on the other hand is still low awareness and compliance of taxpayers in paying taxes can also cause potential loss. according to harinurdin (2009) the notion of tax compliance (tax compliance) is the taxpayer has a willingness to fulfill his tax obligations. fulfillment of tax obligations must be in accordance with applicable regulations without the need for checks, obtrusive investigation, warnings, threats, and the application of legal and administrative sanctions. compliance with taxpayers fulfilling their tax obligations will increase state revenues and in turn increase the size of the tax ratio. the potential loss of pbb-p2 receipts occurs because there are efforts made by taxpayers to minimize their taxes by making tax evasion. tax evasion is an illegal act afebi economic and finance review (aefr) vol.03 no.02, december 2018 48 that minimizes or escapes not paying taxes in accordance with the amount of tax to be paid. yunarti et al (2016) shows that procedure and regulation for determining the tax object selling value (njop) of bumi in malang regency are appropriate. however, with the difference in selling value reporting, malang regency lost its potential by 54%. this means that an adjustment of 54% is needed to reflect the real price by considering existing factors such as justice, social, economic, political factors and people's mindset. 3. methodology this research uses descriptive method by describing events in the field using survey methods and questionnaires which will then be processed using the swot method. the data used in this study consisted of two data. first, the primary data obtained from the results of field observations are mainly data relating to njop and the most up-to-date data on building objects. second, secondary data is data taken from available data. this secondary data is obtained from government agencies, especially the regional finance agency of sambas regency. the type of data used is time series data, which are data collected from time to time concerning the data on the revenue of the sambas regency in the last 5 (five) years. the population in this study is all tax returns on land and rural and urban land tax (sppt pbb-p2) in 2016 which have been paid in full by the pbb-p2 taxpayer, where a portion of sppt pbb-p2 which has been fully paid will made as a sample. the sampling technique is done by the simple random sampling method which is included in the probability sampling category, which is to give equal opportunity to each member of the population by using random without regard to the strata in the pupulation members. in this study, the authors took a sample by giving the same percentage of the population that is taking a sample of 1% of the population of 6 (six) sub-districts that have been determined namely selakau district, pemangkat district, tebas district, sambas district, teluk keramat district and district jawai. to find out whether there is a potential loss of pbb-p2 receipts, in this study field observations will be carried out to verify the data on land and / or building tax objects. if the results of the observation show that there is a difference between the existing data (data that becomes the basis for calculating the tax principal) and the latest tax object data, then it can be ascertained that there is a potential loss of pbb-p2 revenue. then, to find out how much value the potential loss occurs, data processing will be obtained from the results of field observations on the current state of the land and building tax object. the magnitude of the value of potential loss can be known by comparing the realization of revenue with the actual potential of the results of observations. potential loss pbb-p2 = pbb-p2 potential pbb-p2 realization this study also uses a swot analysis to determine the efforts (strategies) that have been and will be carried out by the government of sambas regency in order to optimize pbb-p2 revenues. swot analysis is the identification of various factors systematically to formulate a company's strategy (rangkuti, 2000). this analysis is based on logic that can maximize strengths and opportunities, but simultaneously can minimize weaknesses and threats. rahmana et al (2012) revealed that to carry out a swot analysis as an initial step is to determine the analysis of internal and external factors namely internal factor analysis summary (ifas) and external factor analysis summary (efas). the stages in compiling the internal factor analysis summary (ifas) and external factor analysis summary (efas) are (a) determining the factors that become strengths and potential loss of pbb-p2 revenue as regional tax in sambas regency 49 weaknesses as well as opportunities and threats, (b) giving the weight of each factor in which all the weights are the amount does not exceed the total score of 1.00, (c) calculates the rating for each factor by providing a scale ranging from 1 to 5; rating 5: very important, rating 4: important, rating 3: quite important, rating 2: not important and rating 1: very important, and (d) calculate the score which is the multiplication of weights and ratings. rating values of strengths and weaknesses are always the opposite, as are rating and opportunity values. the results of mapping the factors between the internal and external environment will produce a number of strategic issues, by integrating the internal and external factors that have been identified previously. the mapping of interactions and strategic issues produced is as follows: • the interaction between strength and opportunity (s-o) is called the growth strategy. the results of s-o interactions become a strategic issue, namely: using force by exploiting the opportunities that exist. • the interaction between strength and threat (s-t) is called the diversification strategy. the results of s-t interactions become a strategic issue, namely: using force by overcoming threats. • the interaction between weakness and opportunity (w-o) is called a stabilization strategy. the results of the w-o interaction become a strategic issue, namely: reducing weaknesses by taking advantage of opportunities. • the interaction between weakness and threats (w-t) is called a devoted strategy. the results of w-t interactions become a strategic issue, namely: reducing weakness by avoiding threats. 5. results and discussion the realization of the sambas regency pbb-p2 revenue in 2016 was rp. 2,543,656,193 from the target of rp. 4,115,705,747 or realized at 61.80% originating from all sub-districts in sambas regency. realization of rp. 2,543,656,193 mostly from 5 (five) potential sub-districts, namely sambas district, pemangkat district, teluk keramat district, tebas district and subah district. the accumulated pbb-p2 realization in the 5 (five) sub-districts is rp. 1,542,538,768 or reaching 60.64% of the total realization of the sambas regency pbb-p2 in 2016. the realization of pbb-p2 acceptance in sambas regency in 2016 is based on the number of sppts paid in full by the taxpayer, namely as many as 121,004 sppt sheets. the most paid sppt comes from teluk keramat subdistrict, which are as many as 17.144 sppt sheets with the realization of receipts of rp. 223,545,615 while the least from east selakau district is only 1,232 sppt sheets with the realization of revenues of rp. 17,341,547. when viewed from the nominal realization of sambas regency pbb-p2 revenue in 2016, sambas subdistrict gave the largest contribution of rp. 466,571,267 and the smallest contribution came from the district of east selakau district, which was only rp. 17,341,547. furthermore, when viewed from the percentage of achievement of revenue realization compared to the target set, sejangkung subdistrict is in the highest position with a realization achievement of 96.29% where the target is rp. 56,074,298 can be realized in the amount of rp. 53,991,620. whereas the east selakau district is at the lowest achievement position, which is only reached 31.01% or realized at rp. 17,341,547 of the target set at rp. 55,919,476. in addition to using secondary data, primary data collection is also used by conducting observations and verification in the field regarding land prices and building conditions in several sub-districts which are used as sample districts. as stated earlier, the sub-districts designated as sample areas were 6 (six) sub-districts from 19 (nineteen) sub-districts in sambas district namely pemangkat district, tebas district, sambas district, sajingan besar district, teluk keramat district and jawai district . afebi economic and finance review (aefr) vol.03 no.02, december 2018 50 before knowing the potential loss of pbb-p2 receipts from the sample subdistricts data processing was carried out as contained in appendix 1 s.d attachment 6 of this study. in processing this data several components are used as supporting material as the information data listed in the sppt pbb-p2 as follows include: (1) tax object number (nop); (2) tax subject name; (3) tax object selling value (njop) land and buildings; (4) non-taxable objects selling value (njoptkp) and (5) tax rates. while other supporting material is the result of observation and field verification in sample districts such as the size and condition of the latest buildings and land value zones that will determine the njop of land and actual buildings that are potential revenue. from the processing of this data obtained the difference between njop factual observation in the field with njop before observations that have become un-p2 provisions in 2016, this difference is what the writer termed as a potential loss of pbbp2 revenue. in carrying out calculations / processing data from sample districts, the author uses several assumptions, especially those concerning the market price of tax objects (land and buildings), namely: 1. for land prices, the results of observations included in the attachment to data calculation / processing are market prices with the average value per m2 based on the value that has been set for bphtb transactions that have occurred in the vicinity of the area. 2. for the price of building observation results, the price per m2 of buildings that is generally applicable at the time of observation was carried out in 2017, where the price has taken into account the price of building materials and wages of labors. the calculation results with the components and supporting material above can then produce a potential loss value of pbb-p2 receipts in the sample districts as in the table below: table 1 shows how big the loss potential of pbb-p2 receipts in sambas regency in 2016 is based on the results of data processing by comparing the realization and results of observations of tax objects (sppt) of 1% of the total sppt issued in 2016 to sub-districts which are regions samples, can be explained as follows: 1. the realization of pbb-p2 revenue in pemangkat subdistrict from the paid sppt sample in 2016 is rp. 856,154. however, after processing data from observations, it can be seen that the potential revenue is rp. 4,466,902, resulting in a potential loss of rp. 3,610,749 or 80.83%. 2. the realization of pbb-p2 revenue in tebas subdistrict from the paid sppt sample in 2016 is rp. 2,271,416. however, after processing data from observations, it can be seen that the potential revenue is rp. 11,619,267, resulting in a potential loss of rp. 9,347,851 or 80.45%. 3. the realization of pbb-p2 revenue in sambas district from the paid sppt sample in 2016 is rp. 1,061,878. however, after processing data from observations, it can be seen that the potential revenue is rp. 5,046,577 resulting in a potential loss of rp. 3,984,699 or 78.96%. 4. the realization of pbb-p2 revenue in sajingan besar subdistrict from the paid sppt sample in 2016 is rp. 324,651. however, after processing data from observations, it can be seen that the potential revenue is rp. 12,677,119 resulting in a potential loss of rp. 12,352,468 or 97.44%. 5. the realization of pbb-p2 revenue in sajingan besar subdistrict from the paid sppt sample in 2016 is rp. 2,139,344. however, after processing data from observations, it can be seen that the potential revenue is rp. 44,984,921 resulting in a potential loss of rp. 42,845,577 or 95.24%. 6. the realization of pbb-p2 revenue in jawai district from the paid sppt sample in 2016 was rp. 943,514. however, after processing data from observations, it can be seen that the potential revenue is rp. 13,030,882, -, resulting in a potential loss of rp. 12,087,368, or 92.76%. potential loss of pbb-p2 revenue as regional tax in sambas regency 51 table 1 potential loss of pbb-p2 revenue in the sample district of 2016 (in rupiah) no sub-district realization potential potential loss nominal percentages (%) 1 pemangkat 856,154 4,466,902 3,610,749 80.83 2 tebas 2,271,416 11,619,267 9,347,851 80.45 3 sambas 1,061,878 5,046,577 3,984,699 78.96 4 sajingan besar 324,615 12,677,119 12,352,468.1 97.44 5 teluk keramat 2,139,344 44,984,921 42,845,576.6 95.24 6 jawai 943,514 12,030,882 12,087,368 92.76 total 7,596,956 91,825,668 84,228,711 91.73 source: regional finance agency of sambas regency (data after processing, 2017) based on the results of the calculation / processing of observational data in 6 (six) sample districts and 554 (five hundred fifty four) sheets of sppt samples obtained the potential value of pbb-p2 revenue in 2016 of rp. 91,825,668 compared to the realization of pbb-p2 revenues which entered the regional treasury only in the amount of rp. 7,596,956 thus there is a potential loss of pbb-p2 receipts in the sample districts in 2016 of rp. 84,228,711 or 91.73%. it is also known that the highest potential loss of revenue occurred in sajingan besar subdistrict which reached 97.44%, this was influenced by a drastic increase in land prices and a very fast growing economy in the area after the opening of the aruk national park, where tax objects were sampled is the tax object around the aruk national park. while the lowest potential loss in sambas subdistrict is 78.96%, this is because the price of land in the sample area, pendawan village is quite high, only needs a little adjustment, the focus of the research is that many buildings have not been registered as tax objects. as an illustration, the value of a very large potential loss occurred only in 2016, taking 6 (six) samples from 19 (nineteen) districts in sambas regency and only 1% (one percent) of the paid sppt paid as samples . from this, it can be explained that when observations are made by comparing existing conditions (data that form the basis of the principal calculation of tax assessments in 2016), most of them are not in accordance with the present conditions starting from land prices per m2, area and price of buildings and the existence of buildings on land objects, where in the 2016 sppt is only a tax payable for vacant land only, but based on the results of the observation the land already has a building. the development of a tax effort index, relating the actual tax revenues of a country to its estimated taxable capacity, provides us with a tempting measure which considers country specific fiscal, demographic, and institutional characteristics. taxable capacity and tax efforts present significant deviations across countries, income groups and regions, as well as overtime. but overall, developing countries seem to have more limitations to expand the scope for taxation, which is determined by their taxable capacity. on the one hand, countries with a low level of actual tax collection and low tax effort may have more room to increase tax revenues in order to reach their taxable capacity without causing major economic distortions or costs. on the other hand, lowincome countries with a low level of tax collection but high tax effort have less opportunity to increase tax revenues without possibly creating distortions or high compliance costs (le et.al., 2012) for some locations, the price of land itself is still priced at only rp. 1,700/ m2, rp. 1,200/ m2 / even the lowest is only rp. 910/m2. this is the duty of the tax officers, especially the regional finance agency of sambas regency to immediately make adjustments to the price per m2 up to areas far from the silk route. the condition of the building at the time of observation of the object of tax has also been very far from the initial data which is one of the bases for determining the tax payable. the difference in the state of the building can be seen from the rehabilitation year of the building, the number of floors, building materials afebi economic and finance review (aefr) vol.03 no.02, december 2018 52 (foundations, walls, roofs, ceilings, etc.) and building area. for this reason, awareness of taxpayers is required to report on the current state of the building that has become a unit with land objects, including reporting the land on which the building has been built, where previously the sppt was only empty land as the basis for calculating the tax payable. the results of observations on the price per m2 of buildings also have very far differences. the price per m2 of building at the time of observation in 2017 which is generally applicable in sambas regency for a standard house of 1 (one) floor must be at least between rp. 375,000/m2 until rp. 450,000/m2, while for houses with 2 (two) floors ranging from rp. 450,000/m2 until rp. 500,000/m2. whereas in the un assessment (sample sppt) the price per m2 of the highest building is only rp. 310,000/m2 and even the lowest rp. 71,000/m2. from the calculation / processing of data the results of observations in appendix 1 to attachment 6 of this study indicate that there has been a potential loss in pbb-p2 receipts as regional tax in sambas district in 2016. this is due to the tendency of taxpayers not to deliver / report the actual state of the tax object such as the condition of the current building (if the tax object is land and buildings) and vacant land which is now above the building and has not reported the land and / buildings owned as pbbp2 objects. this is one way for taxpayers to avoid high taxes and tax assessments, even though taxpayers actually know it is wrong and an indication of tax evasion. this potential loss on the one hand is caused by the taxpayer's own behavior which was intentionally carried out in order to obtain a mild tax assessment, on the other hand it was also caused by weaknesses that were still possessed by the sambas regency government. there are two types of potential loss: first, potential loss caused by taxpayer actions. as explained previously, that the attitude of taxpayers who are dishonest, tends to disobey and avoid taxes is one of the causes of the potential loss of pbb-p2 revenues. the actions of taxpayers that reflect such non-compliance and dishonesty that occur in pbb-p2 collection include: (1) not submitting/reporting the actual state of the tax object such as the condition of the current building, (2) not reporting the existence of buildings, while taxpayers it is known that the components which are the basis of the tax assessment are only in the form of vacant land and (3) do not report the land and / buildings owned as pbb-p2 objects. this tax awareness and compliance issue is a classic problem faced by almost all countries that adhere to the taxation system. this is in accordance with what was stated by andreoni in hutagaol, et al. (2007). the issue of tax compliance itself is important because simultaneous noncompliance will lead to efforts to avoid taxation, such as tax evasion and tax avoidance, which results in reduced deposit of tax funds to the state treasury / regional treasury. jamin (2001) revealed that the level of compliance of corporate taxpayers is higher than that of individual taxpayers (wpop). this can happen because corporate taxpayers are more likely to use consultants or employ employees who specifically deal with corporate tax issues. individual taxpayers tend to take care of their own tax problems. second, potential loss caused by local. there is still a lack of the number of pbbp2 hr managers in the regional finance agency (regional revenue service in the study year), both the number of hr as a whole and experts from certain disciplines in this case the assessors. with the vast condition of sambas regency with 19 (nineteen) sub-districts and 193 (one hundred and ninety three) villages, a sufficient number of personnel is needed to be able to manage pbb-p2 well, especially in minimizing the amount of potential loss of pbb-p2 receipts. the adequate number of personnel is needed in order to make adjustments to the land price per m2 so that land prices are always updated from time to time at least every 3 (three) times. as additional information that until 2017, the regional finance agency only has 1 (one) appraiser. during the year of research, pbb-p2 was the task and function of the rural and urban land and building tax technical implementation unit (upt pbb-p2) which consisted of 9 (nine) civil servants and 5 (five) non-permanent employees. potential loss of pbb-p2 revenue as regional tax in sambas regency 53 one of the causes of the potential loss of pbb-p2 receipts in sambas regency is the existence of tax evasion actions carried out by taxpayers to minimize the amount of the tax. the actions that lead to tax evasion actions are (1) not conveying/reporting the actual state of the tax object such as the condition of the current building, (2) not reporting the existence of the building, while the taxpayer knows that the component that is the basis of the tax assessment is only empty land and (3) not reporting land and / buildings owned as pbb-p2 objects. while based on the results of field observations, there are many reasons and factors that cause taxpayers to take tax evasion actions. to find out these factors, the author conducted a question and answer and used a simple media questionnaire containing the default questions made by the author. the number of taxpayer samples questioned was determined to be 10% of the total paid sppt sample in each sample sub-district with a total of 54 (fifty four) taxpayers with details of pemangkat district 6 (six) taxpayers, tebas district 11 (eleven) taxpayers, sambas subdistrict 12 (twelve) taxpayers, sajingan besar district 1 (one) taxpayer, teluk keramat district 17 (seventeen) taxpayers and jawai district 7 (seven) taxpayers. in other side, countries could possibly be grouped by similar economic, cultural or institutional characteristics which may have similar factors influencing tax revenue. legal characteristics or membership of trade blocs can also lead to fiscal mechanisms which prevent higher tax collection (piancastelli, 2001). as many as 19 (nineteen) taxpayers or 35.19% of the total samples did not know/did not understand about pbb-p2, as many as 6 (six) taxpayers or 11.11% of the total samples answered pbb-p2 is not too important, as much as 4 (four) taxpayers or 7.41% of the sample answers difficult in the management process, as many as 9 (nine) taxpayers or 16.67% of the total sample answered there were no sanctions if they did not report and 16 (sixteen) were required tax or 29.63% of the number of samples answered in the other columns. the data shows that most people in terms of taxpayers lack or do not even understand what pbb-p2 is and its functions in development, especially in the development of sambas regency. the results of question and answer and answers to questionnaires given to taxpayers to find out the reasons for taking tax evasion actions can be seen in table 2 as follows: table 2 questionnaire answer reasons for taxpayers to take tax evasion actions source: data after processing basically, this potential loss can occur in each type of revenue, including the pbb-p2 revenue. the potential loss of pbb-p2 revenue in sambas regency has occurred since pbb-p2 is still the authority of the central government through the directorate general of tax of the ministry of finance in the area managed and carried what is the reason for you not reporting pbb-p2 sajingan teluk tax object data / reporting tax object data incorrectly besar keramat a. don't know / don't understand about pbb-p2 2 7 1 5 4 19 35.19 b. pbb-p2 is not very important 3 2 1 6 11.11 c. difficult in the management process 1 3 4 7.41 d. there are no strict sanctions 1 2 4 2 9 16.67 e. etc 3 2 3 1 5 2 16 29.63 6 11 12 1 17 7 54 total % questions total pemangkat tebas sambas jawai sub-district sample afebi economic and finance review (aefr) vol.03 no.02, december 2018 54 out by the tax service office (kpp) singkawang, where the area only helped deliver and do billing, including sambas regency. in sambas regency itself, pbb-p2 transfer has become regional authority and regional tax since january 1, 2014. since the first year until 2016, there is always a potential loss on pbb-p2 revenues with different nominal and percentage rates. in this case, of course, the regional revenue service at that time from year to year always tried to suppress and minimize the number of potential loss that occurred. the following are the efforts that have been and will be carried out by the sambas regency government to suppress the potential loss of receipt of rural and urban land and building taxes (pbb-p2). since it first received delegation of authority for pbb-p2 management and became a regional tax and even a year earlier during the preparation period for the transfer, the sambas regency government through the regional revenue service has made various efforts in order to optimize pbb-p2 management and revenue including efforts trying to suppress the number of potential losses that always occur every year, as follows: 1. in 2013, which was the year of preparation for the pbb-p2 transfer to become regional tax in sambas regency, all equipment was prepared as a support in pbbp2 management starting from hardware to software. 2. preparing the need for human resources in pbb-p2 management, namely by sending 3 (three) employees to study at the state accounting college in jakarta with a concentration of 2 (two) un assessors (d1) and concentration of operator console (d1) as many as 1 (one) person. but at the selection stage, 1 (one) person sent for the un appraisal concentration (d1) does not pass the entrance selection. 3. to minimize the number of potential loss of pbb-p2 revenues, the government has carried out activities to update tax object data (land and buildings) through third parties. however, the data updating activities are only in 5 (five) sub-districts given the availability of funds. the sub-districts are sambas subdistrict, teluk keramat district, jawai district, tekarang district and tebas district. from the results of updating the data in these sub-districts all of them cannot be used, because there are still many that are not in accordance with the factual data in the field. furthermore, the government will continue to make efforts to reduce the potential loss rate including: 1. will continue to strive to increase the number of un assessors to at least 3 (three) people considering the vast sambas regency, where up to now there are only 1 (one) un assessment staff. including in the long term will prepare the staff of the bailiff. 2. submitting an increase in the number of personnel to be placed in the regional finance agency especially at upt pbb-p2 to the personnel and human resource development and regional apparatus agency (bkpsdmad). this is intended to support the updating of tax object data that is carried out self-managed without having to be with a third party, there is a possibility that the results may be more accurate if implemented in a self-managed manner. 3. will continue the data updating activities for the remaining sub-districts that have not been updated in previous activities. however, for future data updating activities, it is likely that it will be self-managed. 4. reassessment of land price. 5. continuing the socialization with the theme of the importance of the contribution of pbb-p2 revenue to development, the obligation to submit correct data in reporting taxes, sanctions for dishonest acts in reporting taxes and other themes that can increase the awareness of taxpayers so that they can properly report taxes and according to the facts in the field. in this study to find out the efforts made by the sambas district government in this case the regional finance agency in optimizing pbb-p2 revenues, swot analysis was used. the swot analysis used by the author in this study refers to the potential loss of pbb-p2 revenue as regional tax in sambas regency 55 application used by kuncoro in rahmana, et al (2012: 14-21) where to carry out the swot analysis as the first step is to determine the analysis of internal and external factors namely internal factor analysis summary (ifas) and external factor analysis summary (efas). the internal and external environmental factors are determined based on observations and information obtained from several employees of the sambas regency regional finance agency, as follows: 1. internal factor analysis summary (ifas): strengths and weaknesses a. strength analysis 1) the program and annual activities of skpd in pbb-p2 management. this makes the efforts to be carried out in pbb-p2 management can be planned as well as possible every year. 2) the existence of rewards for performance and results achieved in the management of pbb-p2 as regional taxes in the form of regional tax collection incentives in this case pbb-p2. this incentive has been stipulated in the government regulation of the republic of indonesia number 69 of 2010 concerning procedures for granting and utilizing incentives for collection of regional taxes and regional levies. 3) facilities and infrastructure to support the management of pbb-p2 as a tool in conducting monitoring and supervision of community buying and selling transactions. 4) regional regulation as the legal basis for pbb-p2 management in sambas district. in implementing pbb-p2 management as regional tax in sambas regency, it is covered by the regional regulation of sambas regency number 6 of 2012 concerning land and building taxes for rural and urban areas. 5) the determination of the annual pbb-p2 revenue target must be achieved. this target is a measure of ability that will ultimately determine the success of performance in pbb-p2 management. b. analysis of weaknesses 1) limited human resources with technical expertise in the management of pbb-p2, especially un assessors. this un appraiser is very important in updating land and building data. 2) there is no clear standard operating procedure (sop) regarding service standards. 3) not all of the njop database and tax object data can be updated, so there is still a lot of data that is no longer relevant to the current situation, which will affect the low pbb-p2 revenue. 4) information technology (it) applications are still inadequate. 5) determination of pbb-p2 revenue targets that are not yet in line with the existing potential because this target setting is not a simple process that requires accuracy in analyzing potential so that this will affect the measurement of performance success. 2. external factor analysis summary (efas): opportunities and threats a. opportunity analysis 1. prices of land and buildings tend to rise from time to time considering their non-renewable nature besides that land prices move in parallel and interdependence with regional growth and development. 2. collaboration between institutions in pbb-p2 management such as cooperation with the directorate general of taxation of the west kalimantan regional office or through the pratama tax office (kpp) singkawang especially in terms of knowledge transfer and assistance of specialized expertise in pbb-p2 management that may not be occupied by regions, considering that previously pbb-p2 was the central authority. afebi economic and finance review (aefr) vol.03 no.02, december 2018 56 3. economic growth that describes the progress of economic development in a region has a positive effect on changes in pbb-p2 revenues, the higher the economic growth, the pbb-p2 revenues will also be higher. 4. the purpose of the pbb-p2 enrollment as mandated in law no. 28 of 2009 is the right policy from the central government to improve the fiscal capacity of regional governments. 5. the willingness and awareness of the community in paying taxes is a very good added value in an effort to increase pbb-p2 revenues b. threat analysis 1. low understanding of the community as taxpayers on the importance of the tax function for development, especially pbb-p2. 2. the intervention of certain parties in the determination of pbb-p2 management policy will affect the objectivity of decision making towards the valuation of an object of tax, both land and buildings. based on the results of the swot analysis by generating an interaction between the analysis of strength and opportunity (so) or what is called the growth strategy, there are several relevant strategies to be implemented in an effort to optimize pbb-p2 revenues as local taxes in sambas regency, among others: 1. utilizing regional autonomy policies to implement regional regulations more firmly (law enforcement). 2. repairing and completing facilities and infrastructure facilities to support regional revenue management, especially supporting facilities for increasing pbb-p2 revenues. 3. providing incentives for pbb-p2 collection so that officers get additional motivation in an effort to optimize pbb-p2 revenues. 4. utilizing the willingness and awareness of taxpayers to pay taxes in order to increase pbb-p2 revenues by implementing programs and activities well and orderly. 5. responding to the enactment of law no. 28 of 2009 with initiative and creativity in the management of pbb-p2 which in the end was able to increase regional original revenue (pad) towards regional financial independence. this is similar with piancastelli (2012); shihab (2014); and pfister (2009) which states that the role of the government in setting regulations is important for the creation of an increase in tax value and good goverment spending will increase the revenue of taxes. the swot diagram is presented in figure 1 below: figure 1 swot diagram of sambas district pbb-p2 management (stabilization) (growth) weakness strenght (1,85) (+ 2.05) (defensive) (diversification) threats (1,85) (+ 0,20) (+ 0.20) opportunity (+ 2,00) potential loss of pbb-p2 revenue as regional tax in sambas regency 57 6. conclusion that there was a potential loss for pbb-p2 receipts in sambas regency in 2016. this can be seen from the results of field observations of data on land and / or building tax objects. there is a difference between existing data (data that becomes the basis for calculating tax principal) with the latest tax object data. based on the calculation and processing of observational data there is a huge potential loss of pbb-p2 receipts in the sample sub-districts. based on the results of interviews on questionnaires given to sample taxpayers to find out the reasons and factors that caused taxpayers to take tax evasion actions, it was found that there were the taxpayers do not know / do not understand, not very important about pbb-p2. in an effort to minimize the level of potential loss various efforts made by the government at that time both those that have been carried out and those that will be carried out in the future. there are several relevant strategies to be implemented in an effort to optimize pbb-p2 revenues as local taxes in sambas regency, among others: utilizing regional autonomy policies to implement regional regulations more firmly (law enforcement); repairing and completing facilities and infrastructure facilities to support regional revenue management, especially supporting facilities for increasing pbb-p2 revenues; providing incentives for pbb-p2 collection so that officers get additional motivation in an effort to optimize pbb-p2 revenues; utilizing the willingness and awareness of taxpayers to pay taxes in order to increase pbb-p2 revenues by implementing programs and activities well and orderly. responding to the enactment of law no. 28 of 2009 with initiative and creativity in the management of pbb-p2 which in the end was able to increase regional original revenue (pad) towards regional financial independence. references badrudin, r. 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(2008). efektifitas evaluasi potensi pajak daerah sebagai sumber pendapatan asli daerah. jurnal akuntansi dan keuangan, 7(2), 162-173. the description of the impact of the covid-19 pandemic on msme: some fall, some prevail 143 the description of the impact of the covid-19 pandemic on msme: some fall, some prevail sri palupi prabandari* universitas brawijaya, indonesia abstract the significant drop on the number of customers due to the covid-19 pandemic has led micro, small, and medium-sized enterprises into difficult days. the decline of customer’s purchasing power was caused by multiple problems. as respondents’s aggregate income decreases, the major-scale social distancing aimed at minimizing the virus spread hinders the ongoing business activities. this study aims to see the real condition of micro, small, and medium-sized enterprises amidst the pandemic from the aspects of finance, human resource, human resource’s welfare, and the business’ sustainability. based on the results of the analysis and the discussion, some conclusions concerning the impact of covid-19 pandemic on indonesian msme can be drawn. first, the income of msme has decreased, 35% of them experienced a decrease not more than 10%, and 38% of them dropped their income for 10 to 50%. second, in order to survive, they change their selling media. they started to use social media to offer and sell their product and service as they perceive that the media are helpful to keep their business open even during the pandemic. third, although the msme cannot avoid the significant drop of income that force them to close their business, some of the owners still pay their employees in full, but some of them reduce the salary. fourth, in order to help msme survive the crisis caused by the pandemic and to restore the economy of the owners, government should play their role by providing efficient aids for them and creating policies that support the sustainability of their business. keywords: small business enterprises, pandemic, covid-19, human resource, market adaptation 1. introduction the high transmission rate of the covid -19 has forced respondents to limit their activities, particularly those that have high virus spreading risk. the limitation imminently affects business activities such as trade, production, and marketing. the economic lockdown, an effort to prevent the virus spread, in fact, has put business and trade activities in the frontlines of economic shock due to the decreasing consumer’s purchasing power. soetjipto (2020), in his research on the tenacity of micro, small, and medium-sized enterprises (msme) in east java to survive the covid-19 pandemic, found that 2020 is the hardest year for entrepreneurship. he selected 12 regions in east java as the sample through incidental sampling resulting in 52 msme that were still operating during the pandemic; all of which were struggling to find their way out of the crisis, but their sales income continued to drop drastically. setiono (2020), in his study on the defensive strategy for msme in overcoming the pandemic-caused crisis, found that 96% of msme have felt the negative impact of the pandemic; 75% of them have experienced a significant reduction in their sales. the government through the ministry of cooperative and msme opened the 1500 587 hotline service on the mid of march 2021 to gather data of msme affected by the pandemic, based on which programs to counter the impact of the pandemic are prepared. the newest ones are stimulating the purchasing power of msme and cooperatives, promoting purchases in neighbor’s shops, restructuring loan interest, including micro sector in pre-work card (kartu prakerja) program, providing direct cash aid, and entitling msme with tax relaxation. based on the problems above, comprehensive studies on the impact of the covid-19 pandemic on the sustainability of msme in indonesia are required. it is expected that, *coressponding author: palupi@ub.ac.id mailto:palupi@ub.ac.id afebi economic and finance review volume 6, no 2 (2021) 144 following the acquirement of valid data, representation and description about the condition of msme amidst the pandemic can be obtained, and their roles for the national economy can be restored. 2. research methodology this research uses qualitative descriptive method, which enables the researcher to present the research sample through description in order to respond to a certain phenomenon. the library research used in this study enables the researcher to harvest the data without going down directly to the field. instead, references that support the study were used. this research uses purposive sampling, in which the sample is selected based on certain criteria. in this regard, the researcher selected the sample based on observations through questionnaires distributed to owners of msme affected by the pandemic. the criteria are as follows. • having employees of less than 100 • having monthly income of lower than idr 30 million • running the business mostly on personal capital the data of this research was collected by distributing questionnaires online using google form to msme owners. this research was conducted within five months, from july to november 2020. 3. result and discussion the followings are the data generated from questionnaires distributed online to 100 respondents. recapitulation of the survey data employment figure 3.1. chart of the employment of 100 respondents result: o part time = 26 respondents o full time = 74 respondents o total =100 respondents this survey was conducted on msme owners, mostly work full time. 74% 26% full time part time the description of the impact of the covid-19 pandemic on msme: some fall, some prevail 145 age figure 3. 2 chart of respondents’ age comparison result: o aged 17-22 = 35 respondents o aged 23-30 = 21 respondents o aged 31-40 = 18 respondents o aged 41-50 = 14 respondents o aged >51 = 12 respondents o total =100 respondents this survey was completed mostly by young entrepreneurs with the age range of 17 to 30 years (56 respondents). the remaining 44 respondents are entrepreneurs with the age of above 30 years old. monthly income before the pandemic figure 3. 3 chart of respondents monthly income before the pandemic 35% 21% 18% 14% 12% 17-22 years old 23-30 years old 31-40 years old 41-50 years old >51 years old 13% 24% 22% 13% 8% 10% 10% <1.000.000 1.000.000-3.000.000 3.000.000-5.000.000 5.000.000-7.000.000 7.500.00-10.000.000 10.000.000-15.000.000 >15.000.000 afebi economic and finance review volume 6, no 2 (2021) 146 result: o income of less than idr 1 million = 13 respondents o income between idr 1 million and 3 million = 24 respondents o income between idr 3 million and 5 million = 22 respondents o income between idr 5 million and 7.5 million = 13 respondents o income between idr 7.5 million and 10 million = 8 respondents o income between idr 10 million and 15 million = 10 respondents o income of more than idr 15 million = 10 respondents o total = 100 respondents one month before being affected by the pandemic, the monthly income of msme that were surveyed varied, mostly between idr 1 and 3 million monthly income after the pandemic figure 3. 4 chart of respondents monthly income after the pandemic result: o income of less than idr 1 million = 39 respondents o income between idr 1 and 3 million = 24 respondents o income between idr 3 and 5 million = 15 respondents o income between idr 5 and 7.5 million = 9 respondents o income between idr 7.5 and 10 million = 1 respondents o income between idr 10 and 15 million = 7 respondents o income of more than idr 15 million = 5 respondents o total = 100 respondents one month after the pandemic, the income of msme decreased. most of them have the income between idr 1 and 5 million, and 39 respondents only got less than idr 1 million. the fact that one month prior to the pandemic most respondents earned between idr 1 and 3 million signifies the drop of msme’s income (discussed further in question 8). 39% 24% 15% 9% 1% 7% 5% <1.000.000 1.000.000-3.000.000 3.000.000-5.000.000 5.000.000-7.500.000 7.500.000-10.000.000 10.000.000-15.000.000 >15.000.000 the description of the impact of the covid-19 pandemic on msme: some fall, some prevail 147 type of business before the pandemic (respondents can choose more than one business) figure 3. 1 chart of business type before the pandemic result: o culinary = 52 respondents o fashion = 21 respondents o service = 26 respondents o others = 23 respondents o total = 100 respondents most msme in malang city work in culinary business, a type of business highly sensitive to economic changes due to the pandemic. some of them combined two different business, e.g. fashion sales and tailor business or clothes customization. number of employees before the pandemic figure 3. 2 chart of number of employees before the pandemic result: o no employee = 58 respondents o not more than 10 = 13 respondents o between 10 and 30 = 26 respondents o more than 30 = 3 respondents o total =100 respondents 51.50% 20.80% 25.70% 22.80% culinary fashion service others 58% 13% 26% 3% no employee not more than 10 between 10 and 30 more than 30 afebi economic and finance review volume 6, no 2 (2021) 148 most of the surveyed msme are small-scale business which have employees of not more than 30 respondents before the pandemic. number of employees after the pandemic figure 3. 3 chart of number of employees after the pandemic result: o no employee = 60 respondents o not more than 10 = 29 respondents o between 10 and 30 = 8 respondents o more than 30 = 3 respondents o total =100 respondents after being struck by the pandemic, employees hired by msme in malang city decreased as the number of msme that do not have any employee rises for 2% and the number of which who hire not more than ten employees also rises to 16%. it signifies that most msme that employed ten to 30 respondents have reduced their employees doing the pandemic. the cause of the layoff and the subsequent welfare of the staff will be discussed in the next questions. the impact of the covid-19 pandemic on msme owners figure 3. 4 chart of income increase or decrease (in percent) 60% 29% 8% 3% no employee not more than 10 between 10 and 30 more than 30 the description of the impact of the covid-19 pandemic on msme: some fall, some prevail 149 income decrease or increase (percent) result: o increased less than 10% = 8 respondents o increased between 10 and 50% = 4 respondents o increased more than 50% = 2 respondents o decreased less than 10% = 35 respondents o decreased between 10 and 50% = 38 respondents o decreased more than 50% = 13 respondents o total =100 respondents the survey result indicates that the msme affected by the pandemic experienced a decline in their income, mostly less than 10% (35%) and between 10 and 50% (38%). do you use social media to sell your products? (the use of instagram or facebook) figure 3. 5 chart of the usage of instagram or facebook result: o yes = 65 respondents o no = 36 respondents o total = 101 respondents the survey revealed that most msme used social media such as instagram and facebook for selling (64%), and the remaining 36% did not use them. do you use e-commerce platforms such as tokopedia, shopee, bukalapak, and olx? figure 3. 6 chart of e-commerce platform usage afebi economic and finance review volume 6, no 2 (2021) 150 result: o yes = 29 respondents o no = 71 respondents o total = 100 respondents the survey result indicates that most of the msme (70%) do not use e-commerce platforms such as tokopedia, shopee, bukalapak, and olx, so only 29% of them who use such platforms in their sales when being affected by the pandemic. does online selling help your business during the pandemic? figure 3. 7 chart of the effect of online selling (yes/no) result: o yes = 70 respondents o no = 30 respondents o total = 100 respondents the survey revealed that 70% of msme owners perceive that online selling helps their business, and the remaining 30% believe the opposite. respondents’s solution following business closure figure 3. 8 chart of solution taken following the business closure the description of the impact of the covid-19 pandemic on msme: some fall, some prevail 151 result: o employees not paid = 8 respondents o employees paid with reduction = 3 respondents o employees fully paid = 2 respondents o total =13 respondents the survey result shows that, after the business was closed during the pandemic, 62% of the msme owners did not pay their employees, 23% paid their employees with some reduction, and 15% fully paid their employees. respondents solution following business continuation (respondents can choose more than one solution) figure 3. 9. chart of solution taken following the business continuation result: o change the product = 27 respondents o change the selling media = 58 repondents o total =73 respondents the result indicates that msme owners who still run their business or stick to the plan of opening new business applied new strategies such as changing their product and changing the way they sell their product. based on the chart above, 68% of them change the media used for selling, and 32% change their product. does the business makes innovations? figure 3. 10 does the business makes innovations? (yes/no) afebi economic and finance review volume 6, no 2 (2021) 152 result: o yes = 71 respondents o no = 14 respondents o total = 85 respondents the survey result shows that 84% of the msme owners innovate to survive from the pandemic, and the remaining 16% do not innovate. what area of innovation is made? figure 3. 11 chart of innovation made result: o new market = 46 respondents o new product = 63 respondents o new supplier = 20 respondents o total = 13 respondents the survey reveals that 49% of msme owners innovate by making or releasing new products in overcoming sales problems due to the pandemic, 36% entering or creating new markets, and 15% look for new suppliers. finance sector financial record figure 3. 12 chart of financial record usage (yes/no) the description of the impact of the covid-19 pandemic on msme: some fall, some prevail 153 result: o yes = 81 respondents o no = 17 respondents o total = 98 respondents the survey result shows that 83% of the msme owners keep their financial record and 17% of them do not. cash sufficiency for operation figure 3. 13. cash sufficiency for operation (yes/no) result: o yes = 67 respondents o no = 33 respondents o total = 100 respondents the result of the survey shows that 67% of the msme owners have enough money to run their business, but not the remaining 33%. loan figure 3.18 chart of loan applied (yes/no) result: o yes = 41 respondents o no = 59 respondents o total = 100 respondents afebi economic and finance review volume 6, no 2 (2021) 154 the survey reveals that 41% of the msme lend some money and the remaining 59% did not. source of loan figure 3. 14. chart if funding source result: o bank = 37 respondents o cooperative = 11 respondents o individual money lender = no respondents o fintech = 1 respondent o other = 29 respondents o total = 69 respondents (respondents can choose more than one financing sources) the survey reveals that 48% of msme owners who decided to take loans applied loans offered by banks, 14% applied the loans to cooperatives, 1% to fintech companies, and 37% of them chose other financial sources. knowledge about government aid figure 3. 15 chart of knowledge about government aid (yes/no) result: o yes = 49 respondents o no = 50 respondents o total = 99 respondents the description of the impact of the covid-19 pandemic on msme: some fall, some prevail 155 the result of the survey shows that 49% of msme owners are informed about aids provided by the government, but the remaining 51% are not. government subsidy (social security for employee, subsidy for msme, etc.) figure 3. 16 chart of the acceptance of aid form of subsidy provided by the government (yes/no) result: o yes = 31 respondents o no = 68 respondents o total = 99 respondents the survey result indicates that, of 99 respondents, 31% of the msme owners have received subsidy from the government, but the remaining 69% have not. 4. conclusion msme are considerable providers of employment in addition to that thy serve as he economic foundation for indonesia. therefore, their performance and effort during the pandemic need to be identified and analyzed. based on the results of the analysis and the discussion, some conclusions concerning the impact of covid-19 pandemic on indonesian msme can be drawn. first, the income of msme has decreased, 35% of them experienced a decrease not more than 10%, and 38% of them dropped their income for 10 to 50%. second, in order to survive, they change their selling media. they started to use social media to offer and sell their product and service as they perceive that the media are helpful to keep their business open even during the pandemic. third, although the msme cannot avoid the significant drop of income that force them to close their business, some of the owners still pay their employees in full, but some of them reduce the salary. fourth, in order to help msme survive the crisis caused by the pandemic and to restore the economy of the owners, government should play their role by providing efficient aids for them and creating policies that support the sustainability of their business. the use and the optimization of various social media can certainly help msme owners increase their sales and business income, and the use of correct strategies can keep their business running. afebi economic and finance review volume 6, no 2 (2021) 156 implication of research most indonesian msme experienced a decrease in their performance, as found by soetjipto (2020) and setiono (2020). however, there is a small number of the enterprises that increase their performance although the improvement is insignificant. challenges arising during the pandemic can become an opportunity to improve the business by responding to the occurring market changes. msme can serve as the spearhead of the economy if they are provided with more attention from the government and the community. suggestion 1. for msme owners, they need to strengthen their motivation and entrepreneurial characteristics so that they are readier in facing future challenges and uncertainties. in addition, they need to improve their managerial skill particularly in financial administration and digital marketing. 2. next researchers need to elaborate factors that have helped msme in their success of gaining profit and surviving the crisis due to covid-19 pandemic. 3. the government should create more technical policies to support and enhance the capacity of msme owners in facing the decelerating economy, for example policies regarding assistance in digitalization, marketing, product quality assurance, etc. 4. community as the market should support the sustainability of the msme by increasing their love to local products and giving suggestion for product development process. reference a. bartik, m. brtranz, z. cullen et al (2020). the impact of covid-19 on small business outcomes and expectations. proceedings of the national academy of sciences of the united states of america. 117(30): 17656-17666 agus setiono, beni (2020). strategi bertahan bagi umkm hadapi krisis akibat covid-19. dspace hang tuah. 4(1): 6475. http://dspace.hangtuah.ac.id/xmlui/handle/dx/1008 h. le, t. nguyen, c. ngo et al. (2020). policy related factors affecting the survival and development of smes in the context of covid 19 pandemic. management science letters. 10(15):3683-3692 r. w. fairlie (2019). the impact of covid-19 on small business owners: evidence of early-stage losses from the april 2020 current population survey. journal of chemical information and modeling. 53(9):16891699 r. w. fairlie (2019). the impact of covid-19 on small business owners: the first three months after social-distancing restrictions. journal of chemical information and modeling. 53(9):1689-1699 soejipto, noer. (2020). ketahanan umkm jawa timur melintasi pandemi covid-19. yogyakarta: penerbit k-media. thaha, abdurrahman firdaus (2020). dampak covid-19 terhadap umkm di indonesia. journal brand. 2(1): 147-153 who (2019) https://www.who.int/emergencies/diseases/novel-coronavirus-2019/questionand-answers-hub/q-a-detail/q-a-coronaviruses y. lu, j. wu, j. peng et al. (2020). the perceived impact of the covid-19 epidemic: evidence from a sample of 4807 smes in sichuan province, china. environmental hazards. 19(4):323-2-340 http://dspace.hangtuah.ac.id/xmlui/handle/dx/1008 https://www.who.int/emergencies/diseases/novel-coronavirus-2019/question-and-answers-hub/q-a-detail/q-a-coronaviruses https://www.who.int/emergencies/diseases/novel-coronavirus-2019/question-and-answers-hub/q-a-detail/q-a-coronaviruses public perception of the vehicle ownership transfer fees (bbnkb) increment policy in bandar lampung 36 public perception of the vehicle ownership transfer fees (bbnkb) increment policy in bandar lampung nairobi 1*4 1 universitas lampung, bandar lampung, indonesia abstract the aim of the study is to estimate the number of vehicles with lampung outside police numbers operating in lampung and to find out the public perceptions of the lampung provincial government's policy through local regulations number 2 of 2011, regarding the increase in vehicle ownership transfer fees (bbnkb) from 10 percent to 12.5 percent, along with willingness to pay from the policy. this research applies survey method in bandar lampung city with the population of the people who are the owner of new motor vehicles including the four-wheeled and twowheeled which were purchased starting in 2012 outside the province of lampung. the sampling method used is cluster sampling, meaning that the population is divided into several clusters. as the population of vehicles which have no be police number operating in lampung is unknown, then the number of the sample is set to 100 respondents. based on the result of the survey, it is unravelled that there are 18 percent of cars which have non-be plate number operating in lampung, and for motorcycles, there are only 4 percent. another finding shows the fact that respondents buy vehicles outside the province of lampung because the price difference is quite significant and they do not do second bnkb in lampung province in accordance with its operational area. from the willingnes to pay, all respondents approve that if the rate of bbnkb decreases back to 10 percent, most of them will return to buy a new vehicle in lampung due to the fact that there will be smaller price difference between the price of a new car purchased in lampung province and new car purchased outside lampung province. bbnkb tariff reduction will provide opportunities for trade of vehicles in lampung province to be more competitive, thus, they can develop better. moreover, there will be more exciting investments and more job fields in the automotive sector. jel classification: h20, h21, h24 keywords: bbnkb tariff, public perception, willingness to pay 1. introduction background the application of regional autonomy gives authority to local governments to regulate their own households with the aim of bringing the welfare of the community in their area into realisation. regional autonomy is in the form of giving authority to manage finances more broadly. for example, the implementation of law number 28 of 2009 concerning regional taxes and regional retributions, the central government transfers some of the taxes which was originally withdrawn by the central government to regional taxes. one of them is motor vehicle tax (pkb) and vehicle ownership transfer fees (bbnkb). pkb and bbnkb become potential sources of regional original income (pad) and become a mainstay in receiving pad. although there are still different opinions about the influence of bbnkb on pad, wahfar et al. (2014) found that there is a positive effect of bbnk rates on pad in pidie district, nangroe aceh darussalam province, while wijaya et al (2016) found different things, in which * corresponding author. email address: nairobi.saibi@gmail.com afebi economic and finance review (aefr) vol.04 no.01, june 2019 37 bbnkb rates negatively affect pad in central java. on the contrary, anggraini et al. (2014) actually see no influence of bbnk on pad in south sumatra. one of the freedoms given by the central government in the management of bbnkb and pkb is the giving of authority to the provincial regions to set the bbnkb and pkb rates in accordance with applicable regulations. the tariff setting is based on economic conditions and local government policies to regulate transportation facilities and infrastructure. the government of lampung province through perda no. 2 of 2011, stipulates the increase of transfer fees for motorized vehicles (bbnkb) and the implementation of progressive taxes. bbnkb rates for four-wheeled vehicles or new private cars changed from 10 percent to 12.5 percent. bbnkb two-wheeled vehicles or motorbikes also changed to 15 percent, while cars for the public amounted to 7.5 percent. this tariff setting is different from the bbnkb tariff that applies in neighboring lampung province, such as the provinces of south sumatra, bengkulu and dki jakarta, in which stipulate bbnkb to 10 percent. the bbnkb tariff difference, in absolute terms, will increase revenue from bbnkb by 2.5 percent multiplied by the sales volume of new cars, or an increase of 5 percent multiplied by the sales volume of new motorcycles. with the increasing cost of motorized vehicles in lampung province, it is expected that the number of vehicles can be reduced, thereby it can reduce congestion in lampung province. however, revenues from bbnkb are expected to increase, and pad will not decline. bbnkb tariff differences in practice lead to various problems in the acceptance of bbnkb and pkb in lampung province. high bbnkb tariff causes rational economic actors to try to avoid tax avoidance by purchasing new vehicles in other provinces, such as in dki jakarta which imposes the first bbnkb tax of 10 percent, then they rename or do second bbnkb in lampung province. the impact is that lampung province does not get a share of bbnkb. more ironically, vehicle owners who buy vehicles outside lampung do not carry out the second bbnkb in lampung province. as a result, the number of vehicles increases, leading to the higher congestion levels on the road. table 1 shows the contribution of bbnkb and pkb receipts received by the lampung provincial dispenda before the tariff was applied at 12.5 percent for cars and 15 percent for motorcycles from 2008 2013 table 1 bbnkb and pkb contributions to total tax revenues in lampung province year bbnkb (%) pkb (%) other taxes (%) 2008 40,47 28,40 31,13 2009 34,88 34,71 30,41 2010 43,21 31,26 25,53 2011 45,78 29,94 24,27 2012 47,67 30,36 21,97 2013 44,48 31,84 23,68 source: bps, 2014 based on table 1.1, it can be seen that the increase in bbnkb rates in 2012 turned out to only increase the contribution of bbnkb which was relatively small compared to year of 2011. in 2013, the role of bbnkb declined significantly from 47.67 percent to 44.48 percent. likewise, in pkb, although there was an increase after the enactment of new tariffs, the increase in contributions from pkb was relatively small, which was below one percent. increased acceptance of bbnkb and pkb in lampung province was also aided by government policy to stop bbnkb for vehicles with lampung outside police numbers who wanted bbn to lampung numbers, as well as suspending pkb payments for vehicles that had previously no longer paid pkb. public perception of the vehicle ownership transfer fees (bbnkb) increment policy in bandar lampung 38 research problem the policy of increasing bbnkb rates in lampung province from 10 percent to 12.5 percent for the purchase (first handover) of cars and 10 percent to 15 percent for motorcycles, was initially expected to have a positive impact on increasing pad and also reducing traffic congestion in lampung province. however, in the implication of the policy, it turned out that it had not given the effect as expected. the aims of research 1. to estimate the number of non-be vehicles operating in lampung province. 2. to know consumer perceptions of buying vehicles outside lampung with different rates between provinces 3. to know consumers’ willingness to pay in buying vehicles outside lampung with different tariffs between provinces 2. literature review tax objectives and functions the aim of taxation is to achieve a state of economic improvement; (1) to limit consumption and thereby transfer the source of consumption, (2) to encourage savings and invest, (3) to transfer resources from the hands of the people to the government so that the government investment exists, (4) to modify the pattern of investment, (5) to reduce economic inequality, (6) to mobilize economic surplus (mardiasmo, 2011). according to the authorities, collecting taxes consists of central and regional taxes, in which both objectives are the same, namely used for development and public welfare. the central tax is the tax collected by the central government and used to finance state households. the examples in indonesia are value added tax, luxury goods sales tax, and stamp duty. regional taxes are taxes collected by the regional government and used to finance regional households. regional taxes in indonesia consist of provincial taxes such as motor vehicle taxes, vehicle taxes on water, motorized fuel taxes, and district / city taxes such as hotel taxes, restaurant taxes, entertainment taxes, and advertising taxes. of the several types of provincial taxes, the tax on transfer of vehicle title fees (bbnkb) is a type of local tax that is quite interesting to study and to analyse regarding the role of the tax sector in regional revenues if the bbnkb tax rate which was originally higher than the area is reduced to the original rate before being raised. 1. tax functions a. budgetair function the function of budgetair is as a source of funds for the country. with tax, it is used as a tool to gain as much money as possible into the state treasury in accordance with applicable regulations to be able to finance the state's expenditure. the effort is taken by extending and intensifying tax collection through improving regulations on various types of taxes. b. regulatory function the regulatory function is also referred as the function of regulating / regulating tool for economic activities. tax serves as a tool to regulate or implement government policies in the social and economic fields and to achieve certain objectives outside the financial field. as a regulatory function, it functions to regulate the economy towards faster economic growth and to establish income distribution and economic stability. principles of tax collection in implementing tax collection, there are several principles of tax collection according to mardiasmo (2009) as explained below. 1. the principle of equity taxes imposed on taxpayers must be comparable to the ability to pay taxes and in accordance with the benefits principle. the higher the ability to pay one's taxes, the greater the portion of tax paid. in addition, the greater the tax paid, the greater the benefits received by taxpayers. afebi economic and finance review (aefr) vol.04 no.01, june 2019 39 2. the principle of certainty this stands for the fact that the tax collection must be based on the law, meaning that there must be clarity, firmness, and the existence of legal guarantees. 3. principle of convience this means that tax collection should not be burdensome to taxpayers so that taxpayers feel that paying taxes is not as a compulsion but as an obligation carried out wholeheartedly. 4. principle of economy this means that the costs of collecting and fulfilling tax obligations for taxpayers must be proportional. collection fees must be lower than the tax burden that must be paid. in the principle of economy, the cost of collecting taxpayers is expected to be as minimal as possible as well as the burden carried by taxpayers. the high tax collection costs and not comparable with the tax revenues received by the state will waste state finances. if the tax burden borne by the taxpayer is too large, it will reduce the taxpayer's business income which ultimately reduces the value of the tax owed on that income. taxpayers' burden which is too high can also encourage taxpayers to avoid taxes. bbnkb management mechanism vehicle transfer fee, hereinafter abbreviated as bbnkb, is a tax on the transfer of ownership rights of motorized vehicles as a result of a two-party agreement or unilateral act or situation that occurs due to buying and selling, exchange, grant, inheritance, or income into a business entity. the object of the bbnkb tax is the surrender of ownership of motorized vehicles. the definition of motorized vehicles is wheeled motorized vehicles and their concerts, which are operated on all types of road and motorized vehicles operated in water with gt 5 (five gross tonnage) gross contents up to gt 7 (seven gross tonnage). excluded from the definition of motorized vehicles are: trains, motorized vehicles which are solely used for the purposes of state defense and security, motorized vehicles owned and / or controlled by embassies, consulates, representatives of foreign countries with reciprocal principles and international institutions that obtain tax exemption facilities from the government, and other tax objects stipulated in the regional regulations. bbnkb tax subjects are individuals or entities that can receive the handover of motorized vehicles. bbnkb taxpayers are individuals or entities that accept submission of motorized vehicles. the basis for bbnkb is njkb, namely hpu for a motorized vehicle. hpu is the average price obtained from various data sources that are in accordance with the outstanding bbnkb, which is collected in the area where the motorized vehicle is registered. the outstanding bbnkb tax amount is calculated by multiplying the rate by tax base. tax avoidance tax is an important element in supporting the state revenue budget. therefore, many countries pay great attention to the tax sector. efforts to optimize tax revenue in indonesia are carried out through intensification and extensification of tax revenues. the efforts to optimize sector revenues have several obstacles, one of which is tax avoidance. tax avoidance can be done both by individuals and corporations or companies. not a few companies that do tax avoidance to reduce tax debt that is lawful. according to wijaya (2014), one of the definitions of tax avoidance, citing the opinion of brown (2012), is “arrangement of a transaction in order to obtain a tax advantage, benefit, or reduction in a manner unintended by the tax law”. tax avoidance is classified as two. the first one is tax evasion, which avoids taxes by using methods that violate the law to reduce or eliminate tax burdens. the second classification is tax avoidance, which is done "legally" by utilizing loopholes in tax regulations and making transactions that do not have a purpose other than to avoid taxes. due to the fact that there are no laws violated, tax avoidance should not be prohibited. everyone has the freedom to regulate their respective affairs as he or she wishes, and as long as there are no rules violated, the tax authority cannot intervene. public perception of the vehicle ownership transfer fees (bbnkb) increment policy in bandar lampung 40 tax avoidance on the one hand is not prohibited and allowed, but on the other hand, tax avoidance is not desirable. the existence of different bbnkb tax rates in various regions in indonesia can trigger a tax avoidance attitude. the following are bbnkb tax rate data in several regions: table 2 bbnkb tax rates in several regions of indonesia region first-time second or following renewal dki jakarta 10% 1% jawa timur 15% 1% kalimantan selatan 15% 1% jawa barat 10% 1% nusat tenggara barat 15% 1% lampung 12,5% 1,5% sources: local regulations of dki jakarta number 9 of 2010 on title transfer fees, local regulations of jawa timur number 9 of 2010 on local taxes, local regulations of kalimantan selatan number 5 of 2011 on local taxes of kalimantan selatan, local regulations of jawa barat number 3 of 2011, local regulations of nusa tenggara barat number 1 of 2011 on local taxes, local regulations of lampung number 2 of 2011 on local taxes. from the data in the table, it can be seen that the bbnkb tax rate varies between regions. dki jakarta and west java provinces set bbnkb tax rates lower than other regions, which is 10%. whereas the bbnkb tax rates for east java, south kalimantan, and west nusa tenggara provinces set a bbnkb tax rate of 15%. the bbnkb tax rate in lampung province is currently 12.5%, which has increased from the previous number, which was 10%. this triggers rational consumers to prefer to buy new vehicles in regions that apply lower bbnkb tax rates, for example, buying new vehicles in dki jakarta or west java area where bbnkb tax rates are lower since there is a significant difference in vehicle prices when buying new vehicles in regions that set lower tax rates for bbnkb. 3. research methods to analyze the impact of the increase in tariffs on motorized vehicle transfer fees from 10 percent to 12.5 percent for cars and from 10 percent to 15 percent on sales of cars and motorcycles as well as their effects on motor vehicle tax revenues, this study applies survey method. research scope this research includes secondary and primary data. for secondary data, the data taken are from 2010 2015 which includes data on sales of motorized vehicles in lampung and receipt of the lampung province vehicle ownership transfer fee (bbnkb). meanwhile, the primary data includes survey data in bandar lampung city. data and sampling sampling method this survey was conducted in bandar lampung city with a population of fourwheeled and 2-wheeled motorists who bought new cars in the period of 2012. survey of motorized vehicle ownership operating in bandar lampung was conducted in several locations using the cluster sampling method which means that the population is divided into several clusters. this cluster is determined based on how often people use motorized vehicles to certain places. for people who routinely use motorized vehicles to a certain place, they are included in the government and education clusters. for people who rarely use motorized vehicles to a certain place, they are included in the trade cluster. whereas people who do not use motorized vehicles every day but ofen use them to a certain place are included in the cluster of shopping centers. the locations chosen as samples are: afebi economic and finance review (aefr) vol.04 no.01, june 2019 41 1) government center, which is the parking lot of the bandar lampung mayor's office 2) education, which is in the parking location of the university of lampung. 3) banking places at mandiri bank parking in teluk betung, bni bank teluk betung and danamon bank teluk betung 4) trade center, where the chosen location is a parking lot along the central market 5) shopping centers, where the chosen location is a parking lot at the chandra department store bandar lampung. 6) hospital, which is the parking lot of urip sumoharjo hospital, sukarame bandar lampung the method of interviewing was carried out on motorized vehicle owners in which the respondents were selected using the random sampling method. because the population, which is the number of non-be platted vehicles operating in lampung, is not known exactly, then the sample size to be taken is 100 respondents. generally, the sampling technique is illustrated below: analysis method descriptive statistical analysis method is used to analyze the perception and consumers’ willingness to pay to buy motorized vehicles and to analyze the number of motorized vehicles that are not be platted operating in lampung. 5. research results and explanation survey results estimating the number of police number offices in lampung province operated in lampung table 3 illustrates the number of vehicles exposed in several parking locations which are the sample in this research. parking location samples represent centers of population goverment center, education, and hospital shopping center and trade areas bank clustering survey random sampling interview figure 1 sampling method respondent (100) 4 wheels public perception of the vehicle ownership transfer fees (bbnkb) increment policy in bandar lampung 42 educational activities, trade activities, government office and banking activities, as well as hospitals. table 3 sample of parking space location in bandar lampung parking space location cars motorcycle police numbers (be) police numbers (non-be) total police numbers (be) police numbers (nonbe) total 1 lampung university 450 99 (18%) 549 3.865 175 (5%) 3.490 2 pasar tengah tjk pusat 170 26 (13%) 196 166 1 (1%) 167 3 bandar lampung city goverment office 167 20(11%) 187 345 3 (1%) 348 4 mall chandra super market tjk 114 36 (24%) 150 179 4 (2%) 183 5 urip sumoharjo hospital, sukarame 123 32 (21%) 155 191 2 (1%) 193 6 banks in teluk betung (bank mandiri, bni, bank danamon) 36 22 (38%) 58 63 5 (7%) 68 total 1.060 235 (18%) 1.295 4.809 190 (4%) 4.449 exp: data results (...) share of police numbers (non-be) to the total based on the results of a survey at six locations in bandar lampung, it was found that parked cars that had the most non-be police numbers were in banking offices by 38 percent, and at least 11 percent in government offices. for motorized vehicles, they were mostly in banking offices by 5 percent, and the least were in three locations, namely shops, government, and hospitals by 1 percent. overall, the number of cars parked in the sample areas that have police numbers outside lampung is 18 percent of the total number of cars, and for motorcycles, it is only 4 percent. based on the survey results, it can be stated that of the 100 cars in bandar lampung there are 18 cars that have a non-be police number. from the car with the police number outside lampung, around 85 percent were dki jakarta police number, which is police number b. for motorbikes, there were only 4 percent of motorbikes with non-lampung police numbers. the results of this survey illustrate that the number of vehicles operating in lampung province with a number of non-be police is quite large, even though the government has carried out the second bbnkb bleaching program to become a car with a police number be. it is not yet known precisely whether the cars and motorbikes were bought with new condition outside of lampung province or can also be purchased secondhand outside lampung province and operated in lampung province. the large number of cars that have dki jakarta police numbers happens for the prices of new cars and used cars in the region have lower prices compared to the prices of new cars and used cars in lampung province. respondent perception of vehicle buyers with police numbers outside lampung province identity of respondents the respondents’ identity which can be described in this survey include respondent's age, respondent's work, and respondent's income. age of respondents table 4 shows the age of respondents based on the age group of respondents. this age grouping provides the age classification of respondents from productive young afebi economic and finance review (aefr) vol.04 no.01, june 2019 43 groups to ages approaching the non-productive period. for complete information, see the following table 4. table 4 age distribution of respondents ages frequency percentage (%) 25 34 6 6 35 44 35 35 45 54 44 44 >55 19 19 100 100 source: survey results based on table 4, it can be seen that the majority of respondents is the age of 45 to 54 years, reaching the number of 44 percent, followed by 35-44 years old with the number of 35 percent, and the rest are young people who have just entered the workforce and age before leaving the workforce. this age description shows that respondents have sufficient knowledge and activities to provide the information needed in this survey. the occupations of the respondents table 5 shows the occupations of the respondents, both the main job and the part time job. based on the results of the survey, there are 5 types of jobs from respondents, namely civil servants / military / police, bumn / bumd employees, private employees, entrepreneurs, and other jobs such as contractors, traders, housewives and students. in addition, other jobs are also shown, and there is only one additional job which is entrepreneurship. table 5 respondent occupational classification lists of occupation main occupation side job frequency percentage (%) entrepreneurship civil servant (pns)/indonesian armed forces /police 23 23 9 local or state-owned corporation employee 7 7 0 priveate employee 35 35 10 entrepreneurship 21 21 0 others 14 14 11 total 100 100 30 source : survey results the survey results show that the majority of respondents are private employees, reaching the number of 35 percent, followed by civil servants / military / police by 23 percent, then entrepreneurs and others. of the 23 civil servants / military and police, 9 respondents have additional jobs as entrepreneurs, and of the 35 respondents of private employees, 10 people have additional jobs in entrepreneurship and 11 of 14 other workers also have other jobs as entrepreneurs. this table shows that all respondents are active people and have the potential to earn enough income to follow and buy the new model of vehicles. respondent’s income table 6 shows the income of respondents based on the income range, which is from the lowest income of 8 million rupiah to the respondents who have 100 million monthly income. public perception of the vehicle ownership transfer fees (bbnkb) increment policy in bandar lampung 44 table 6 respondent’s income range of income (million rp) frequency percentage (%) 5 – 14 40 40 15 24 42 42 25 34 7 7 > 35 11 11 total 100 100 source : survey results the table shows that respondents' income is relatively high. the most respondent, which takes 42 percent of total, is in the income range of 15-24 million rupiah, followed by the income range of 5-14 million rupiah, then respondents who earn above 35 million rupiahs, and finally respondents with income in the range of 25-34 million rupiah. based on this description, the respondents are from a group that has the potential and sufficient purchasing power to make a car purchase. types of car purchased by respondents types of car table 7 shows the types of vehicles purchased by respondents, consisting of the types of mini-buses, sedans and suvs purchased outside of lampung province table 7 private vehicle types purchased outside of lampung vehicle types frequency percentage (%) mpv 61 61 sedan 7 7 suv or others 32 32 totals 100 100 source : survey results based on the table, it can be seen that most of respondents, with the number of 61 percent, buy mpv type vehicles, 32 percent buy suvs and others, and only 7 percent buy sedan type vehicles. this table shows that the most new car purchased outside lampung is mini bus, which is the most popular vehicles in public. the brand of the cars table 8 shows the brands of vehicles purchased by respondents from outside lampung. some of them are brands that are commonly circulated in indonesia, such as toyota, daihatsu, mitsubishi, honda, suzuki, nissan, mazda and chevrolet. tabel 8 list of vehicle brand purchased outside of lampung vehicle brand frequency percentage (%) toyota 34 34 daihatsu 16 16 mitshubishi 10 10 honda 13 13 suzuki 10 10 nissan 7 7 mazda 4 4 chevrolet 4 4 total 100 100 source : survey results based on the table, it can be seen that the biggest purchase made by residents of lampung province is toyota car, reaching 34 percent, followed by honda by 22 percent, and then daihatsu. the purchase of this vehicle brand is also not much different from the large market share of various vehicle brands in indonesia. the year of vehicle purchase from outside lampung table 9 shows the time of purchasing the vehicles. according to the purpose of this study, the year of purchase is only limited to the period when the application of the afebi economic and finance review (aefr) vol.04 no.01, june 2019 45 bbnkb increased in lampung province in 2012, and 3 years after the increase period, which is 2012 2015. table 9 year purchase year frequency percentage (%) 2012 13 13 2013 28 28 2014 47 47 2015 12 12 total 100 100 source : survey results based on the table, it is clear that the purchase of cars outside lampung province occurred the most in 2014 as many as 47 percent, the next was in 2013 by 28 percent, and in 2013 and 2015 were13 and 12 percent. the desire to do bnkb to lampung province table 10 provides an overview of whether respondents who have purchased vehicles outside lampung province will conduct the second bnkb in lampung province in accordance with their operational area or not. based on table 4.8, it can be seen that there are only 8 percent of respondents who will conduct the second bnkb in lampung province, whereas 92 percent of respondents apparently will not conduct bnkb to lampung province. this phenomenon shows the magnitude of the loss experienced by the lampung local revenue offices, namely the loss of potential bbnkb and also the loss of pkb from vehicles in lampung province, thus, it will reduce the regional revenue. table 10 second bnkb in lampung category frequency percentage (%) yes 8 8 no 92 92 totals 100 100 source : survey results reasons for vehicle purchases outside lampung province table 11 illustrates the main reasons why respondents buy new cars outside lampung province, especially in dki jakarta province. based on the results of the questionnaire with open questions, three main answers were given by the respondents. the first answer is because the prices of cars in jakarta and bandung are cheaper than the prices of new cars in lampung. another reason is that it is easy to resell the car if it is to be resold and has work activities in jakarta. table 11 main reasons of vehicle purchases outside lampung reasons frequency percentage (%) cheaper price in jakarta 93 93 easy to resell in jakarta 4 4 work activities in jakarta 3 3 total 100 100 source : survey results based on table 11, it is evident that the majority of respondents bought vehicles outside lampung province due to a significant price difference. 93 percent of the respondents stated that the reason was because the prices of new cars in jakarta were cheaper. there were 4 percent of respondents who answered that they would resell their cars in jakarta because they bought luxury cars, while 3 percent stated that the reasons were for work activities. this proves that respondents acted on economic considerations rather than non-economic considerations when they bought vehicles. the higher bbnkb rates that must be paid by consumers who buy new motorized vehicles in lampung province are not in accordance with the principle of justice. public perception of the vehicle ownership transfer fees (bbnkb) increment policy in bandar lampung 46 taxpayers with a relatively lower ability must pay the same rate as higher-capable consumers, in which consumers with higher abilities tend to buy a type of motorized vehicle with higher specifications and prices. in addition, the incompatibility of these conditions with the principle of justice can be observed from the inadequate tax imposed with the benefits received by taxpayers, for example, the existence of damaged and less feasible roads. in addition, another reason was also asked to know why respondents bought cars outside lampung province. the results of the recapitulation of respondents' answers can be seen in table 12 below. table 12 other reasons vehicle purchases outside lampung reasons frequency percentage (%) short indent order time 23 21 lot of bonuses 22 20 more variant 12 11 family 12 11 work activity 25 22 easy re-sale 16 15 totals 110 100 source : survey results based on table 12, it can be seen that most of the other reasons why respondents buy cars outside jakarta are due to economic reasons such as short indent time, lots of bonuses given by car dealers, many choices of car models, and easy resale due to the large car market in jakarta. meanwhile, in terms of the non-economic aspect, the reason is because they have family and work activities in jakarta. table 13 shows the respondent's reasons why the prices of cars outside lampung are cheaper than the prices of cars in lampung. there are 3 reasons pointed out by them, which are bbnkb rates in lampung province that are more expensive, the existence of many dealer discount wars in jakarta, and the size of car markets in jakarta. table 13 reasons of cheaper car prices in jakarta compared to lampung reasons frequency percentage (%) lower rates of bbnkb tariff outside lampung 55 59 discount war 30 32 larger size of the car market 8 9 total 93 100 source : survey results based on table 13, it can be seen that 59 respondents stated that the cheaper car prices in jakarta compared to lampung happened due to bbnkb tariff differences, and 32 percent stated that there was a discount war between car dealers and the size of the car market in jakarta. this phenomenon illustrates that it is increasingly difficult to sell cars to a dynamic group of people who think economically. the respondents' knowledge of the amount of bbnkb rates applied in lampung province, of course, will directly affect their perception of the selling price of cars in lampung compared to the prices of cars in other regions. logically, the higher the bbnkb rate, the higher the selling price of the vehicle. table 14 shows the perceptions of respondents' knowledge about bbnkb rates in lampung province. the table shows that not all respondents knew the amount of bbnkb rates. there were only 55 percent of respondents that know the rate of bbnkb, and 46 percent of respondents did not know it. the problem is that if the respondent knows from the beginning about the high tariffs for bbnkb in lampung province, there will be a tendency for rational respondents to buy cars in areas with lower bbnkb rates. they will get benefit from a substantial price difference. afebi economic and finance review (aefr) vol.04 no.01, june 2019 47 tabel 14 knowledge about bbnkb in lampung province understanding about bbnkb frequency percentage (%) yes 55 55 no 46 46 total 100 100 source : survey results the high rate of bbnkb, which is 2.5 percent greater than the bbnkb rate in other provinces such as tariffs in the dki jakarta province, west java, banten, south sumatra, turns out to be felt less favorable for respondents. table 15 shows the opinions of respondents when a policy is made to reduce bbnkb rates as before to 10%. the table shows that all respondents accepted it enthusiastically, 65 percent said they strongly agreed, and 35 percent agreed. it is seen that the determination of high tariff policy is not accepted by the community since it will provide more burden for them in the form of higher prices of cars in lampung province. table 15 the opinions of respondents about the reduction of bbnkb rates as before to 10% the opinions of respondents if bbnkb rates is lowered back frequency percentage (%) strongly agree 65 65 agree 35 35 disagree 0 0 strongly disagree 0 0 total 100 100 source : survey results willingness to pay the policy for reducing bbnkb rates will have an impact on the price of new cars that will be sold in lampung province. however, there can be a case where this policy does not have a positive effect on the desire of respondents to buy cars in lampung province due to other factors beyond the price of the goods themselves. table 16 shows the opinions of respondents about willingness to pay, whether to buy a car in lampung if the bbnkb rate is lowered back to 10% or not. based on the table, it can be seen that most respondents will buy vehicles in lampung province if this policy is implemented. a small percentage of respondents (17 percent) still will not buy cars in lampung province even though the bbnkb tariff is reduced to 10 percent. table 16 the opinion of respondents about willingness to pay: to purchase car in lampung if the bbnkb rate is lowered back to 10% willingness to pay frequency percentage (%) purchase in lampung 83 83 no 17 17 total 100 100 source : survey results . the reason given by respondents related to why they would buy a car in lampung province if the bbnkb tariff was reduced to 10 percent can be seen in table 17. this table shows that 18 percent of respondents realized that the price of cars in lampung province is lower than the price with the old bbnkb rate. 82 percent of other respondents observed that the difference in the price of new cars sold in lampung province with car prices in dki jakarta province, west java, and banten becomes smaller. therefore, it would be less profitable to buy a car outside lampung province. public perception of the vehicle ownership transfer fees (bbnkb) increment policy in bandar lampung 48 table 17 reasons to purchase vehicle in lampung if the bbnkb tariff was reduced to 10 percent the opinions of respondents if bbnkb rates is lowered back frequency percentage (%) car price in lampung will be less expensive 15 18 the price gap becomes lower in lampung and dki jakarta 68 82 total 83 100 source : survey results it is different from respondents who will continue to buy cars outside lampung province, even though the bbnkb tariff is reduced to 10 percent equal to the rates of neighboring provinces. some of the reasons they provide are: 1) car prices in lampung will still be expensive because of the discount war between car dealers; 2) they prefer non-lampung police numbers, especially police numbers "b" and "d" and consider it more prestigious; 3) it is easier to sell luxury cars due to the vast car market in jakarta and bandung. table 18 shows the reasons given by respondents for not buying a car in lampung province. most of the respondents (47 percent) claimed that the price of cars outside lampung would remain cheap due to the existence of discount wars. another 35 percent of respondents argued that it is easier to sell luxury cars in jakarta and a small part pointed out that they feel more prestigious when using a car with a jakarta police number. table 18 reasons to not purchase vehicle in lampung if bbnkb tariff is lowered back to 10 percent reasons to not purchase in lampung frequency percentage (%) price outside lampung will remain cheaper due to discount wars 8 47 prefer jakarta police number 3 18 easy to resell luxury cars in jakarta 6 35 total 17 100 source : survey results advice from respondents on motor vehicle tax management to optimize public awareness in paying pkb in lampung province, in order to increase the income of pkb and make a large contribution to increase regional original income, several suggestions were given by respondents and can be seen in table 19. according to the table, 39 percent suggested that pkb should be able to be paid online, making it easier for respondents to pay pkb and increase respondents' sense of trust in pkb management. as many as 24 percent of respondents suggested that the government should simplify and facilitate the payment of pkb. the other 30 percent of respondents want transparency in the management of cla, both transparent in their revenues and expenditures. last but not least, a small number of respondents wanted the results of bbnkb and pkb to be allocated specifically for the procurement and improvement of transportation facilities. tabel 19 suggestions from respondents on motor vehicle tax (pkb) management in lampung province suggestions frequency percentage (%) pkb should be paid online 45 39 simplify and facilitate the payment of pkb 28 24 transparency in the management of cla 35 30 bbnkb and pkb to be allocated for the procurement and transportation facilities 8 7 total 116 100 source : survey results afebi economic and finance review (aefr) vol.04 no.01, june 2019 49 6. conclusion and recommendations conclusion 1. based on the results of the survey, there are 18 percent of cars that have non-be police number operating in lampung. for motorbikes, there are only 4 percent of motorized vehicles that have non-lampung police numbers operating in lampung. the results of this survey illustrate that the number of vehicles operating in lampung province with a number of non-be police is quite large, even though the government has carried out the second bbnkb bleaching program to become a car with a police number be. 2. based on the results of the survey of vehicle owners with non-be police numbers, the majority of respondents bought vehicles outside lampung province due to significant price differences, proving that the respondents were rational buyers, and they avoided tax evasion by diverting purchases of new cars in other areas which apply cheaper bbnkb rates. 3. most of the respondents who had purchased vehicles outside lampung province did not conduct the second bnkb in lampung province in accordance with their operational area. this phenomenon shows the magnitude of the loss experienced by the lampung local revenue offices, namely the loss of potential bbnkb and also the loss of pkb from vehicles that have police numbers outside lampung province. 4. all respondents agreed that a policy to reduce bbnkb rates back to 10 percent needs to be implemented, and most would buy new vehicles in lampung if the bbnkb tariff was lowered. their reasoning was largely due to the smaller price difference between the prices of new cars purchased in lampung province and new cars purchased outside lampung province. recommendation 1. the determination of bbnkb rates that differ between lampung province and other regions, especially dki jakarta, has affected car prices in lampung to be more expensive. as a result, consumers buy new cars in dki jakarta so that the income from bbnkb decreases. moreover, those who buy vehicles in dki jakarta do not do bbnkb the following year, so pkb is not accepted by lampung province. the reduction in bbnkb rates will provide an opportunity for vehicle trade in lampung province to be more competitive so that it can develop better and stimulate investment and absorb more and more workers in the automotive sector. 2. one of the causes of the high purchase of new vehicles outside lampung is due to a discount war between dealers, especially in jakarta. therefore, clear rules and agreements are needed between car dealers to avoid a discount war that will harm the acceptance of the lampung province bbnkb. references anggraini, m., anton, a., & christina, y. (2014). pengaruh penerimaan pajak kendaraan bermotor dan bea balik nama kendaraan bermotor terhadap pendapatan asli daerah di provinsi sumatera selatan. eprints.mdp.ac.id/1484 badan pusat statistik. (2014). lampung dalam angka tahun 2013 mardiasmo. (2011). perpajakan. edisi revisi 2011, andi, yogyakarta. mardiasmo. (2009). akuntansi sektor publik. andi, yogyakarta. peraturan daerah provinsi daerah khusus ibukota jakarta nomor 9 tahun 2010 tentang bea balik nama kendaraan bermotor, peraturan daerah provinsi jawa timur nomor 9 tahun 2010 tentang pajak daerah. public perception of the vehicle ownership transfer fees (bbnkb) increment policy in bandar lampung 50 peraturan daerah provinsi kalimantan selatan nomor 5 tahun 2011 tentang pajak daerah provinsi kalimantan selatan. peraturan daerah provinsi jawa barat barat nomor 3 tahun 2011, peraturan daerah provinsi nusa tenggara barat nomor 1 tahun 2011 tentang pajak daerah. peraturan daerah provinsi lampung nomor 2 tahun 2011 tentang pajak daerah. rosdiana, h., & tarigan, r. (2005). perpajakan: teori dan aplikasi. pt. raja grafindo persada, jakarta. undang-undang nomor 32 tahun 2004. tentang perimbangan keuangan antara pemerintah pusat dan pemerintah daerah . dewan perwakilan rakyat republik indonesia. undang-undang nomor 33 tahun 2004. tentang perimbangan keuangan antara pemerintah pusat dan pemerintahan daerah. dewan perwakilan rakyat indonesia. undang-undang nomor 24 tahun 2000. tentang komponen penerimaan pendapatan asli daerah. undang-undang nomor 28 tahun 2009. tentang pajak daerah dan retribusi wahfar, r. r., hamzah, a., syechalad, m. n. (2014). analisis pajak kendaraan bermotor (pkb) dan bea balik nama kendaraan bermotor (bbnkb) sebagai salah satu sumber penerimaan pendapatan asli daerah (pad) kabupaten pidie. jurnal ilmu ekonomi pascasarjana universitas syiah kuala volume 2 no. 1 februari 2014 wijaya, b. k. ., kharis, r., & rita, a. (2016). pengaruh pajak kendaraan bermotor, bea balik nama kendaraan bermotor dan pajak bahan kendaraan bermotor terhadap pendapatan asli daerah provinsi jawa tengah (studi kasus pada dppad provinsi jawa tengah periode tahun 2008-2014). journal of accounting, volume 2 no 2 maret 2016 . wijaya, i. (2014). mengenal penghindaran pajak, tax avoidence. http://www.pajak.go.id/content/article/mengenal-penghindaran-pajak-taxavoidance http://www.pajak.go.id/content/article/mengenal-penghindaran-pajak-tax-avoidance http://www.pajak.go.id/content/article/mengenal-penghindaran-pajak-tax-avoidance interest rate pass-through: empirical study towards monetary policy transmission effectiveness in indonesia 14 4 interest rate pass-through: empirical study towards monetary policy transmission effectiveness in indonesia heni hasanah1* 1 bogor agricultural university, bogor, indonesia abstract this research aims to measure the effectiveness of monetary policy transmission, especially through the interest rate channel. the analysis was conducted on the first stage of its transmission, namely interest rate pass-through (irpt). irpt refers to condition in which retail interest rate (both deposit and lending rate) responds to changes in policy rate of central bank. irpt was measured using error correction model (ecm) for time series data in the period of january 2010 december 2015. the results of this study indicated that degree of long term and short term irpt is incomplete for deposit and lending rate. in addition, irpt for deposit rate is higher than lending rate, but the adjustment process of lending rate faster than deposit rate. finally, model that include other variables (macroeconomic and internal banking indicator) generate long term irpt which is smaller than the standard model. this results implies that the central bank, the fsa, and government needs to pay attention to the stability of the other variables that may interfere or reduce the effectiveness of monetary policy through the interest channel. jel classification: e42, e43, e52 keywords: deposit rate, ecm, irpt, lending rate, policy rate 1. introduction the ultimate goal of monetary policy is to maintain currency stability, one of which is reflected in the low and stable rate of inflation. to achieve this objective, bank indonesia sets the bank indonesia rate (bi rate) as the main policy instrument to influence the economic activities. the mechanism of how the change in bi rate affect inflation is often referred to the monetary policy transmission mechanism. this mechanism illustrates the actions of bank indonesia through changes in monetary instruments and operational targets affecting various economic and financial variables before finally affecting the ultimate goal of inflation. the degree of interest pass-through that became the first stage of monetary policy effectiveness has been the concern of researchers around the world. this is reasonable given that the interest rate pass-through (irpt) measures the degree to which a central bank's policy rate is responded by changes in bank's retail interest * corresponding author. email address: henihasanah@ipb.ac.id heni.hasanah.ipb@gmail.com mailto:henihasanah@ipb.ac.id mailto:heni.hasanah.ipb@gmail.com afebi economic and finance review (aefr) vol.02 no.02 december 2017 15 rates both deposit and lending rates. the higher the degree of pass-through, the more effective the initial stages of the monetary policy transmission will be. basically, the underlying theory of pass-through degrees is the marginal cost theory. the theory was introduced by rousseas in 1985. if the assumptions on perfectly competitive market structure are met, then the marginal cost is reflected in the price, so that the first derivative of the price against the marginal cost is one (complete pass-through). of course if the assumption can not be fulfilled then the value of the derivative can be less than one (incomplete pass-through) or more than one. egert, et al. (2007) explains that the irpt can be decomposed into two stages. the first stage measures how changes in policy rates are transmitted to both shortand long-term money market rates. this interbank call money rate is an operational target of monetary policy. while the second stage measures how changes in money market rates affect deposit and lending rates. macroeconomic conditions are also considered to affect the degree of irpt. during periods of high growth, banks can adjust interest rates quickly. conversely, if the inflation rate is more volatile, it will weaken the irpt degree considering the bank will wait longer before changing the interest rate. bredin, et al. (2001) explains that pass-through refers to the extent to which changes in money market rates are reflected in changes in retail interest rates in both the short and long term. complete pass-through rates occur when movements in the money market rate lead to one for one movements in changes in retail interest rates. bredin, et al. (2001) also stated that the degree of irpt is generally influenced by several factors, such as the degree of bank competition, borrower characteristics, and cyclical elements. the degree of adjustment of the retail interest rate also depends on how the bank defines the central bank policy changes as a temporary or permanent policy. if the monetary policy is temporary, the bank will wait to adjust its interest rate. another factor is the bank's perception of whether the central bank's policy has been expected or not. banks may respond slowly when they consider monetary policy to be temporary. the difficulties will also increase with the adjustment costs associated with changes in retail interest rates. the degree of bank competition may also affect the degree of irpt. higher bank competition will lead to higher passthrough degrees, such as those obtained from kot (2004) research. this is because to survive in the competition, the bank must immediately respond to the slightest change in policy rate. according to durán-víquez and esquivel-monge (2008), asymmetric information also affects the degree of irpt as it would be an element of cost in the bank's cost structure. some other researchers also add that the maturity level of each type of interest rate also affects the degree of irpt. the faster the maturity, the greater the degree of pass-through. finally, the degree of irpt is also determined by the type of policy rate change itself, whether it has increased or decreased. some studies have found a difference in the degree of pass-through when policy rates increase. deposit interest rates are more sluggish when policy rates rise and lending rates are more sluggish when policy rates fall. many irpt-related studies have been conducted such as bredin et al. (2001), espinosa-vega and rebucci (2003), tieman (2004), qayyum, et al. (2005), durán-víquez and esquivel-monge (2008), maskay and pandit (2009), ozdemir (2009), egert, et al. (2007), kwapil and scharler (2006), sorensen and werner interest rate pass-through: empirical study towards monetary policy transmission effectiveness in indonesia 16 (2006), marotta (2008), rehman (2009), samba and yan (2010), kot (2004) and kobayashi (2008). there are two main approaches used in previous studies to calculate the degree of irpt. first, using cointegration approach and ecm model. while the second using cointegration approach with ardl method. so far there has been no conclusive results that mention which method is better to analyze the degree of irpt. another approach used is the non-linear asymmetric vecm to see asymmetric effects such as those performed by aydin (2007). meanwhile, avci and yucel (2016) use another method of interacted panel var (ipvar). major findings from the results of these studies are the incomplete passthrough for bank retail interest rates (see tang, et al., 2015, samba and yan, 2010, kobayashi, 2008, bredin, et al., 2001, espinosa-vega and rebucci, 2003, and sorensen and werner, 2006). while other studies have found a complete passthrough especially in the long term, among others, qayyum, et al. (2005), duránvíquez and esquivel-monge (2008), and ozdemir (2009). but marotta (2008) finds a near-complete pass-through in the emu and greek. associated with asymmetric responses to changes in policy rates, durán-víquez and esquivelmonge (2008) found no asymmetry occurring for cases in costa rica. on the contrary, tang, et al. (2015) found an asymmetric effect in the degree of irpt in malaysia and muhtaseb (2017) in lebanon. there have also been several irpt-related studies comparing irpt for specific areas, which are more common in the euro area. egert, et al. (2007), examines irpt for central and eastern country (cee) with results showing that irpt values continue to decline over time and are expected to continue declining in the future. next, kwapil and scharler (2006) compare the irpt process in the euro area with america. the findings show that on average, the long-term irpt in the euro area is lower than the american irpt. while sorensen and werner (2006) find great heterogeneity in the euro area related to long-term pass-through equilibrium and its speed of adjustment. for indonesia, rehman (2009) analyzed irpt for five asean countries using the cointegration and ecm approach. the results show that indonesia and the philippines have the most effective interest rate transmission mechanism followed by thailand, singapore and malaysia. feriansyah (2015) found that the long-term pass-through coefficient for deposit rates is greater than the lending rate for the majority of regions in the world including indonesia. recent studies by wibowo and lazuardi (2016) conclude that the adjustment of bank retail interest rate in indonesia takes a long time. engle granger cointegration and ecm are still used in this study as the majority of irpt studies use this approach, with a stepwise regression method. this study has some differences with previous studies, especially for the focus of study in indonesia. first, this study uses the interbank money market (puab) rate as a proxy of policy rate. as previous explanation, egert, et al. (2007) states that the policy rate which directly affects the retail interest rate is the money market interest rate as the operational target of monetary policy. some previous studies in indonesia still use the bi rate as a proxy of the policy rate itself. there is a study of bank indonesia which has been using puab as policy rate (kusmiarso, et al., 2002). second, this study includes another variable as control variable of macroeconomy variable that is inflation and internal variable of banking performance such as return on asset (roa) or return on equity (roe) and afebi economic and finance review (aefr) vol.02 no.02 december 2017 17 operational cost to operating revenue ratio (bopo) follow egert, et al. (2007), sorensen and werner (2006), and avci and yucel (2016), which have not been found in previous studies for the indonesian case. roa is a profitability proxy where irpt is predicted to decrease if roa increases (sorensen and werner, 2006). bopo is used as an indicator of bank efficiency. if bopo gets higher then expected irpt value is increasing. so the research is expected to fill that gaps as some of novelty. 2. data and method the data used in this study are all secondary data in monthly frequency. the period of the study was conducted from january 2010 to december 2015. purposively, the taking of the period considered that the effect of the 2008 financial crisis to have weakened in 2010. the year 2015 becomes the final period of the research data because it is the last year before the enactment of new interest rate policy namely bi 7-day repo rate in 2016. the data used are obtained from the publication of the financial services authority (ojk) and bank indonesia. the research on policy rate pass-through was analyzed by using the standard cointegration approach with engle-granger method (1987). engle and granger (1987) states that a linear combination of two or more variables may be stationary i (0), although the variables individually are not stationary i (1). if this linear combination is stationary then the linear relationship can be referred to as cointegration and if its form is an equation then this is a cointegration equation and its parameters are cointegration parameters reflecting long-term relationships. the engle-granger cointegration testing method actually uses the augmented dickey-fuller (adf) method in two stages. in the first stage, the variables (in levels) are tested independently with the adf method, and generally the non-stationary variables will be obtained. the second stage, the dependent variable is regressed with explanatory variables using ols and then do the test of residual regression. therefore, this method is also referred to as augmented englegranger (aeg). then if the residual is stationary at the level, then the variables can be modeled with error correction model (ecm). the pass-through problem in this study refers to the egert model, et al. (2007) and sorensen and werner (2006). here are the cointegration and ecm models that are estimated by finding optimal lag and stepwise regression. stepwise regression is used to assure statistically that the addition of macro and internal variables of banking and its lag is useful in improving the model. 𝐵𝑅𝑡 = 𝛼0 + 𝛼1𝑃𝑅𝑡 + 𝛼2𝐼𝑁𝐹𝑡 + 𝛼3𝑅𝑂𝐴𝑡 + 𝛼4𝐵𝑂𝑃𝑂𝑡 + 𝑒𝑡 (1) ∆𝐵𝑅𝑡 = 𝛽0 + ∑ 𝛽𝑖 ∆𝐵𝑅𝑡−𝑖 𝑝 𝑖=1 + ∑ 𝛾𝑗 ∆𝑃𝑅𝑡−𝑗 𝑝 𝑗=0 + ∑ 𝛿𝑘 ∆𝐼𝑁𝐹𝑡−𝑘 𝑝 𝑘=0 + ∑ 𝜃𝑙 ∆𝑅𝑂𝐴𝑡−𝑙 𝑝 𝑙=0 + ∑ 𝜗𝑚 ∆𝐵𝑂𝑃𝑂𝑡−𝑚 𝑝 𝑚=0 + 𝜑𝑒𝑡−1 + 𝑢𝑡 (2) where : 𝐵𝑅𝑡 : banking rate (%) 𝑃𝑅𝑡 : policy rate (money market rate, puab) (%) 𝐼𝑁𝐹𝑡 : inflation (%) 𝑅𝑂𝐴𝑡 : return on asset (%) 𝐵𝑂𝑃𝑂𝑡 : operational cost to operating revenue ratio (%) interest rate pass-through: empirical study towards monetary policy transmission effectiveness in indonesia 18 𝑒𝑡 , 𝑢𝑡 : error term 𝛼1 : long term irpt coefficient γ0 : short term irpt coefficient 𝜑 : adjustment coefficient for comparison, the standard equation in which each banking rate is only influenced by the policy rate (without including other independent variables such as inflation, bopo, and roa) is also estimated in this study. the standard model is as follows. 𝐵𝑅𝑡 = 𝛼0 + 𝛼1𝑃𝑅𝑡 + 𝑒𝑡 (3) ∆𝐵𝑅𝑡 = 𝛽0 + ∑ 𝛽𝑖 ∆𝐵𝑅𝑡−𝑖 𝑝 𝑖=1 + ∑ 𝛾𝑗 ∆𝑃𝑅𝑡−𝑗 𝑝 𝑗=0 +𝜑𝑒𝑡−1 + 𝑢𝑡 (4) 3. results and discussion figure 1 shows the movement of several interest rates. the interest rates are bi rate, interbank money market (puab), investment lending rate (lr_investment), working capital lending rate (lr_workcap), 3-month deposit rate (dr_dep3m) and 12-month deposit rate (dr_dep12m). in general, the movement of puab is in line with the movement of bi rate, and movement of all interest rates in line with both bi rate and puab. compared to the interbank money market, all interest rates are always above that, except for one point in august 2015 (3-month deposit rate is less than the interbank money market rate). unlike the case when compared with bi rate. there are several periods for 3-month deposit rates that are smaller than the bi rate (see july-october 2012 and marchnovember 2013). in line with what egert, et al. (2007) stated that policy rate (bi rate) has no direct effect on banking retail interest rate although it is still a reference for bank. but technically the operational interest rate of money market in this case puab is more appropriate to be a reference as a marginal cost banking proxy. from the picture we can also seen that interbank rates (puab) appear to have a fairly wide difference with the bi rate as its anchor. the engle-granger cointegration approach has data prerequisites. the data must be stationary (integrated) in the same order. non-stationarity test of data has been done by adf method where the test result shows all variables are stationary at first difference (table 1). the second stage of estimation of cointegration equation (long term) is done to test the residual of the equation. if the long-term residual are stationary at its level, then there is cointegration. the results of cointegration testing (residual stationary test can be seen in table 2) show that all residuals are stationary at significant levels. the estimation of model in equation 1 was done by stepwise regression, but the long-term equation in equation 3 was conducted by simple regression method. afebi economic and finance review (aefr) vol.02 no.02 december 2017 19 figure 1 policy rates and retail rates movement the next stage is the estimation of ecm (short-term) model. to build the best model, stepwise regression is also used in this estimation to determine the best model both from the independent variable side and from the lag side of the exogenous variable. stepwise regression is performed both for the ecm model in equation 2 and equation 4. optimal lag determination is based on the principle of parsimony (simple) shown by several criteria, lr, fpe, aic, sc, and hq. technically the optimal lag chosen is the smallest besides zero lag (table 3). table 1 adf test results for variables variable adf value (in level) adf value (in first difference) puab -0.1696 -4.2995 dr_dep3m 0.2018 -3.4486 dr_dep12m 0.2664 -2.8119 lr_workcap -2.1406 -2.7327 lr_investment -0.3432 -5.8596 inflation -2.8021 -5.4907 bopo -4.7720 -7.2275 roa -2.6161 -8.6012 note: bold indicates that the adf value is less than the mackinnon critical value at 5% 0 2 4 6 8 10 12 14 16 ja n -1 0 ju n -1 0 n o v -1 0 a p r1 1 s e p -1 1 f e b -1 2 ju l1 2 d e c -1 2 m a y -1 3 o c t1 3 m a r1 4 a u g -1 4 ja n -1 5 ju n -1 5 n o v -1 5 bi_rate puab lr_investment lr_workcap dr_dep3m dr_dep12m interest rate pass-through: empirical study towards monetary policy transmission effectiveness in indonesia 20 table 2 adf test results for residual interest rate equation adf value keterangan 3-month deposits 1 -2.1277 cointegrated 3 -2.3032 cointegrated 12-month deposits 1 -2.6218 cointegrated 3 -2.7842 cointegrated working capital loan 1 -2.7020 cointegrated 3 -3.6037 cointegrated investment loan 1 -2.1770 cointegrated 3 -4.0558 cointegrated note: bold indicates that the adf value is less than the mackinnon critical value at 5% table 3 lag optimum in ecm interest rate equation lag lr fpe aic sc hq 3-month deposits 2 3 3 3 2 3 4 2 2 2 0 0 12-month deposits 2 2 2 2 2 2 4 2 2 2 0 0 working capital loan 2 3 3 3 0 3 4 2 2 2 0 0 investment loan 2 5 5 5 1 3 4 1 1 1 0 0 table 4 shows the comparison of irpt using standard models (without including macro variables and internal banking variables) and modification models by adding other variables as control variables for deposit and lending rates. this comparison was done to find the difference in retail rates response to the interbank money market changes when other variables are included or not into the model. this is considered since the majority of previous studies did not include other variables as controls such as macroeconomic indicators and internal bank variables. such control variables may affect the response rates of retail rates to changes in policy rates as stated by egert, et al. (2007), sorensen and werner (2006), and avci and yucel (2016), which have not been found in previous studies for the indonesian case. from table 4 it can be seen that the transmission of the policy rate (the interbank money market rate) changes is incomplete pass-through for both lending and deposit rates. this result is in accordance with previous studies as described in the introduction. in other words, the interbank money market rate as the operational target of monetary policy is not fully responded by the banks. this indicates that the initial stage of monetary policy transmission has not been effective. some interesting results can be seen from table 1. first, the long-term irpt of deposit rates is higher than the irpt of lending rates. this also confirmed the results of previous studies that found the similar thing e.g. espinosa-vega and rebucci (2003) for euro area and canada, and feriansyah (2015). however, from adjustment time perspectives to achieve long-term equilibrium, lending or lending rates adjust faster than deposit rates. this happens because the length of adjustment considers the value of the adjustment coefficient. afebi economic and finance review (aefr) vol.02 no.02 december 2017 21 table 4 comparison for each type of retail interest rate type of interest rate comparison modification model (banking rate as a function of puab, inflation, roa, adn bopo) equation 1 and 2 standard model (banking rate as a function of puab) equation 3 and 4 3-month deposits long run irpt 0.69*** 0.76*** short run irpt 0.07 0.07 ect coefficient -0.06* -0.05* speed of adjustment 15.5 months 18.6 months 12-month deposits long run irpt 0.59*** 0.74*** short run irpt 0.03 0.02 ect coefficient -0.04 -0.06** speed of adjustment 24.3 months 16.3 months working capital loan long run irpt 0.35*** 0.38*** short run irpt 0.04** 0.03* ect coefficient -0.16*** -0.21*** speed of adjustment 6 months 4.6 months investment loan long run irpt 0.40*** 0.44*** short run irpt 0.01 0.01 ect coefficient -0.08** -0.13*** speed of adjustment 12.4 months 7.6 months note: ***, **, * respectively show that the coefficients are significant at 1%, 5%, and 10%. the coefficient of adjustment of the 3-month deposit rate is -0.06, meaning that the change in policy rate is adjusted around six percent in the 3-month deposit rate change in the following month. means that the adjustment process is just completed (100 percent) in the 16th month after the interbank money market changes. as for the investment lending rate, the change in policy rate (puab) adjusted around 16 percent in the change of interest rate on investment credit in the following month. in other words, the long-term adjustment process due to changes in puab is completed in the sixth month which implies that lending rates adjust more quickly. the faster time needed to adjust for lending interest rate than the deposit rate is in line with the results of wibowo and lazuardi (2016). so that, the results of this study indicate that the change in interbank money market is effectively responded by the deposit interest rate, but the adjustment process takes longer time. conversely, the lending rates does not fully respond to changes in the interbank money market, but adjusts faster. second, irpt of 12-months deposit is smaller than irpt of 3-month deposit. based on the maturity, other studies confirm this results (e.g. liu, et al., 2008), that the degree of pass-through for short-term interest rates is greater than long-term interest rates. third, the irpt which obtained based on standard model estimation (ignoring the influence of other variables) tends to be larger than the modification model (including other variables as controls). this means that if the influence of other variables is ignored, the irpt tends to get closer to the complete pass-through. however, the opposite result obtained if the other variables included in the model estimation. this implies that the level of effectiveness of monetary interest rate pass-through: empirical study towards monetary policy transmission effectiveness in indonesia 22 policy through changes in the interbank money market rate (puab) as operational targets is relatively decreased if other variables are considered to affect the banking retail interest rate. finally, the investment lending rates adjusts faster to return to its long-term equilibrium compared to working capital lending rates. but the degree of long term pass-through of investment lending rates is lower than the working capital lending rates. this result is in line with previous research from wibowo and lazuardi (2016) and kusmiarso, et al. (2002). in terms of lending maturity, investment loan is a medium and long term credit. while working capital loan is a short-term credit with a maximum period of one year. on average, the working capital lending rate is higher than the investment lending rate. moreover, the non performing loans (npl) in working capital loan is generally higher than the investment loan. these are expected to be the reasons why investment lending rates respond more quickly to changes in interbank rates (puab). in the case of working capital lending rates, high npl are likely to result in high risks, so changes in policy rates are slowly responded by that rates. 4. conclusion monetary policy can be said to be effective if the instrument used by the central bank succeeds in influencing the ultimate goal e.g. inflation. this study analyzes interest rate pass-through as the initial stages of monetary policy transmission that measures the response of bank interest rates to changes in policy rates. the results of this study show several things, that is i) incomplete passthrough in both deposit and lending rates; ii) the degree of pass-through of deposit interest rate is higher than the lending rate, but the adjustment process of lending rates is faster; and iii) the inclusion of other independent variables as determinants of bank interest rates resulted in smaller irpt coefficient. these results imply that monetary policy in the early stages can not yet be said to be effective and its effectiveness decreases when considering other variables such as macroeconomic indicators and internal variables of banks. lastly, bank indonesia, ojk, and the government need to jointly maintain the stability of other variables that may alter or even reduce the effectiveness of monetary policy. based on the findings, when the inflation, roa, and bopo variables are included as control variables that affect the retail rate changes, the degree of pass-through becomes decreased. this condition occurs consistently for all types of retail rates that are the scope of this study. this means that the effectiveness of monetary policy has decreased too. so that the inflation which is the main concern of bank indonesia and roa, bopo which become internal indicators of banks under the supervision of ojk need to be kept stable. references avci s.b., & yucel, e. 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(2015). the interest rate pass-through in malaysia: an analysis on asimmetric adjustment. international journal of economics and management, 9(2), 370-381. tieman, a. (2004). interest rate pass-through in romania and other central european economies. working paper, international monetary fund. wibowo, b., lazuardi, e. (2016). uji empiris transmisi kebijakan moneter: interest rate pass-through sektor perbankan indonesia. jurnal ekonomi dan pembangunan indonesia, 16(2), 187-204. influence of intellectual capital and capital structure of the company value through financial performance as an intervening variable (case study at manufacturing companies listed in indonesia stock exchange period 2013-2017) 101 influence of intellectual capital and capital structure of the company value through financial performance as an intervening variable (case study at manufacturing companies listed in indonesia stock exchange period 2013-2017) syari octavia1), ahmad fauzan fathoni2) and yulia efni3) 1,2,3 university of riau, pekanbaru, indonesia abstract manufacturing industry is the industry that the largest contribution to gdp growth until 2017. although still the largest source of the increase in gdp, the contribution of manufacturing to gdp continued to decline since 2015. however, this does not cause the stock price decline of manufacturing. based on this phenomenon, this study aims to examine the internal factors are thought to be able to increase the value of the company. the population in this study are all manufacturing companies listed in indonesia stock exchange in 2013-2017 as many as 144 companies with a total sample of 76 companies that obtained by purposive sampling. then, samples were analyzed using structural equation modeling results show that ic and capital structure does not directly affect the value of the company. but ic and capital structure directly affects financial performance. thus, the financial performance is able to mediate the effects of ic and capital structure to the company's value. the better the financial performance of a company, the better is also the company's value in the eyes of investors. keywords: intellectual capital, capital structure, financial performance, company value 1. introduction based on scientific logic, economic conditions will affect the company's activities, from production to sales activity activity. when disturbed economic conditions, the company's ability to generate profits will decline. the decrease is what causes investors are reluctant to invest their funds in a company, which then will lower the company's stock price. this is shown when the gdp growth increased in 2015-2017, followed by an increase in the share price of manufacturing in the same year. however, the increase was not followed by the contribution of manufacturing to gdp is steadily declining. based on the above phenomenon, it can be concluded that there are many factors that can affect a company's stock price. where, a company's stock price reflects the value of the company in the public eye, if a company's stock price high, then the value of the company in the public eye is also good and vice versa (nirawati, 2003). efforts to create enterprise value not only through fundamental factors in the company, but also can be done by taking into account the company's intellectual capital. based on scientific logic, intellectual capital can increase the value of the company because the company has a competitive advantage. *corresponding author. email address: syarioctavia2303@gmail.com afebi economic and finance review (aefr) volume 4, no 02 (2019) 102 but, when intellectual capital indirectly connected with the company value through financial performance as an intervening variable based on research conducted by nuryaman (2015) found that the results were affected positively intellectual capital on firm value. therefore, in this study financial performance used as an intervening variable to be linking between independent variables and the dependent variable indirectly. based on research conducted by phantow, et al (2015), the result of research that capital structure significant positive effect on the company value, however, in contrast to the research conducted by paminto, et al (2016), the result of research thatcapital structure is a significant negative effect on firm value. of the few differences of research results and phenomena, it can be concluded that not all the phenomena that occur in accordance with the existing scientific logic. therefore, researchers interested in studying and learn again about this matter further. in this study, researchers added a free variable that can distinguish this study with previous research. therefore, researchers raised a study entitled "the effect of intellectual capital and capital structure of company value through financial performance as an intervening variable". based on the data that has been analyzed is found that intellectual capital and capital structure has a positive effect is not significant to the value of the company directly. and the indirect effect showing that intellectual capital and capital structure significantly affect the value of the company through the financial performance as an intervening variable. furthermore, the explanation in this article will be divided into three parts, the first is a literature review that will explain any theory used in this study and previous research that referenced researcher. the second part is the results and discussion will explain the results of research and discussion of results have been found. then, the third part is the conclusion that a more concise outline of the research study. 2. literature review and research hypotheses resource based theory (rbt) resource based theory (rbt)or also known as the resource-based theory of resourcebased approach in the analysis of competitive advantage. it is an idea that developed in the strategic management and competitive advantage of companies that analyze and interpret the organization's resources to understand how organizations achieve a sustainable competitive advantage.quoted from hamida, et al (2015), according to bemby et al. (2015) resource based theory (rbt) explained that the company will gain a competitive advantage by leveraging the resources that meet certain predetermined criteria. so it is important to maximize the intellectual capital to drive the value of the company. meanwhile, according ulum (2017), rbt stated that the company has the resources to make the company has a competitive advantage and were able to steer the company to have a good long-term performance. a scarce and valuable resources can be directed to create a competitive advantage, so that the resources owned by long-lasting and not easily copied, transferred or replaced. signaling theory signaling theory or signal theory developed by ross in 1977, stated that the company executives have better information about the company will be compelled to pass on the information to potential investors that its stock price increase. the positive thing in the signaling theory whereby companies that provide good information will differentiate them with companies that do not have "good news" to inform the market about their situation, a signal of good future performance given by the company's financial performance past not good not will be trusted by the market (wolk and tearney in dwiyanti, 2010). according jogiyanto (2014), the information published as an announcement would give the signal for investors in making investment decisions. at the time the information was announced, market participants must first analyze and interpret this information as a good signal (good news) or poor signal (bad news).signal theory according to brigham and houston (2014) is an action taken by the influence of intellectual capital and capital structure of the company value through financial performance as an intervening variable (case study at manufacturing companies listed in indonesia stock exchange period 2013-2017) 103 management of a company gives guidance to investors on how to assess the prospects of the company's management. capital structure theory with traditional approach the traditional approach argues that there is an optimal capital structure. this means that capital structure have an influence on the value of the company, where the capital structure may change in order to obtain optimal business value (hanafi, 2016). trade-off theory trade-off theory states that the higher the debt a company has, the greater the risk the company went bankrupt (hanafi, 2016). trade off theory is the capital structure theory which states that the company redeem the tax benefits of debt financing with the problems posed by the potential bankruptcy (brigham and houston, 2014). effect of intellectual capital against corporate values based on the resource based theory (rbt) or also known as the theory of bebasis resource using resource-based approach in the analysis of competitive advantage. according to bukh et al. (2005), intellectual capital is defined as knowledge resources in the form of employee, customer, process or technology that can be used by companies in the process of value creation. based on research conducted by lestari and rosi (2016), vaictm no effect on firm value. this study is in line with research conducted first by boedi (2008), who obtained the findings that the ic does not affect the value of the company's market capitalization. but unlike the results of research conducted by simanungkalit and prasetiono (2015), that vaca (value added capital employed) has a positive and significant impact on the pbv (price book value). h1: intellectual capital has an influence on the value of the company effect of intellectual capital financial performance against based on the resource based theory (rbt) stated that the company will gain a competitive advantage by leveraging the resources that meet certain predetermined criteria. the company's ability to utilize its knowledge resources to make a competitive advantage to be able to influence the company's ability to improve the profitability of the company. according to research conducted by tan et al. (2007) in ulum (2009), the ic has a positive effect on company performance, both today and in the future; ic-average growth was positively related to the company's performance in the future; ic contribution to company performance differs based on the type of industry. the results are consistent with research that was first performed by chen et al. (2005), that ic affects the market value and the company's performance. h2: intellectual capital has an influence on the financial performance effect of capital structure against corporate values based on the theory of capital structure with the traditional approach, the optimal capital structure has an influence on the value of the company, where the capital structure of capital may vary in order to obtain the maximum value of the company. according to research conducted phantow, et al (2015) found a significant positive effect of capital structure on firm value. as well as the results of research conducted by paminto, et al (2016), that the capital structure is a significant negative effect on firm value. h3: the capital structure has an influence on the value of the company effect of capital structure financial performance against based on the trade off theory, the use of debt until at some point it will increase the value of the company, which was influenced by an increase in the company's financial afebi economic and finance review (aefr) volume 4, no 02 (2019) 104 performance. based on this theory, the composition of the capital structure could affect the financial performance of the company, if the management of any company in setting policy taken debt, the company will potentially bangkrut.menurut maroka research conducted by ramli, et al (2018) all debt ratios have a significant negative correlation to performance company. the results are consistent with the results of research that has been done before by komara, et al (2016) that the capital structure in the form of dar and der were significant positive influence on the financial performance of the company. h4: the capital structure has an influence on the financial performance effect of financial performance against corporate values based on signal theory, the actions taken by the management of a company gives guidance to investors on how to assess the prospects of the company management (brigham and houston, 2014). the company's ability to manage financing obtained, as well as the company's ability to generate earnings to reflect the company's financial performance in the eyes of investors. if the good financial performance of a company, then the company's value in the eyes of investors will also be good. in the brigham and houston (2014), an important goal is to maximize the company's founding shareholder value through increasing the company's value. according to research conducted by utami (2011), found in the results that affect the value of financial performance of the company. this is in line with the results of research conducted by phantow, et al (2015), that roa significant positive effect on firm value. however, in a study conducted by hermawan and afiyah (2014), partially financial performance (roa) did not significantly affect the value of the company. h5: financial performance has an influence on the value of the company. effect of intellectual capital against corporate value through financial results for variable mediation based on the resource based theory (rbt) stated that the company will gain a competitive advantage by leveraging the resources that meet certain predetermined criteria. competitive advantage will enable the company to increase the profitability of the company. that is, the higher the intellectual capital, the company's ability to generate profitability will increase. the higher the profit produced by the company will increase the company's value in the eyes of investors. according to research conducted by nuryaman (2015), the result that financial performance is able to mediate the relationship between intellectual capital with the value of the company. as well as research conducted by simanungkalit and prasetiono (2015) who obtained the result that financial performance is able to mediate the relationship between intellectual capital with the value of the company. h6: intellectual capital has an influence on the value of the company indirectly through financial performance. effect of capital structure of company value through financial results for variable mediation based on the trade-off theory, the use of debt until at some point it will increase the value of the company, which was influenced by an increase in the company's financial performance. that is, the decision taken by the company debt at some point it will improve financial performance which then increases the value perusahaan.menurut research conducted by makkulau, et al (2018), who found the result that profitability is able to mediate the relationship between capital structure to the company's value. h7: the capital structure has an influence on the value of the company indirectly through financial performance. influence of intellectual capital and capital structure of the company value through financial performance as an intervening variable (case study at manufacturing companies listed in indonesia stock exchange period 2013-2017) 105 3. research methods the type of data in this research is quantitative data. the data used in this research is secondary data are derived from the official website of indonesia stock exchange (idx) is www.idx.co.id, the data used are annual reports of companies listed on the stock exchange as well as idx factbook 2013-2017 period. the population used in this study are all manufacturing companies listed on the stock exchange 2013-3017 period, which amounts to 144 companies. the sampling technique in this penlitian is purposive sampling population that has to meet certain criteria required by researchers. the criteria chosen by the researchers are: 1. companies listed in succession in the indonesia stock exchange (bei) in the period 2013 to 2017, which amounted to 128 companies. 2. manufacturing companies that use currencies other than the value of the rupiah currency in the annual report for the period from 2013 to 2017, which amounted to 41 companies. 3. manufacturing companies that have a total negative equity during the period 2013 to 2017, which amounted to 8 companies. 4. companies that do not have complete data needed in research over the period 2013-2017, which amounted to one company. of the 128 companies listed on the stock exchange, which meet the criteria of the sample in this study amounted to 76 companies. 3.1 indicators operational definitions and variables in this study determined the four variables to be studied namely intellectual capital, capital structure, financial performance and corporate value. intellectual capital intellectual capital can be defined as an intangible asset that can be used as a competitive advantage as well as the company's long-term investment for the company. in this study, the ic will be proxied by vaictm consisting of vaca, vahu, and stva. capital structure the capital structure can be defined as the funding from the optimal combination between internal funds and external funds were able to increase the value of the company. in this research, capital structure will be proxied by der and dar. financial performance financial performance can be defined the company's ability to raise and distribute funds to realize the objectives of the company and increase the wealth of its shareholders. in this study the financial performance will be proxied by the roa, roe, and npm. the value of the company company value can be defined as the company's performance in meeting the expectations of the shareholders, and the company's prospects in the long term. in this study, the enterprise value would be proxied by pbv, per, and tobin's q. data analysis method the data collected by the study sample will then be processed using a data processing application that is warppls 6.0 for windows. data were analyzed using structural equation modeling analysis-partial least square (pls-sem). sem is a continuation of the path analysis and multiple regression analysis. sem methods are used to be able to reach out as well to parse and analyze every part of an equation developed models. sem is expected to answer the weakness of the previous method, the multiple regression analysis and path. 4. results and discussion descriptive statistics giving an overview of the average growth rate of each variable in this study. http://www.idx.co.id/ afebi economic and finance review (aefr) volume 4, no 02 (2019) 106 table 1 the development of the average value of the company, financial performance, intellectual capital, and capital structure. variable indicator year average 2013 2014 2015 2016 2017 np (y2) y2.1 24.74 41,50 91.83 12.94 112.56 56.72 y2.2 3.25 3.61 2.83 3.41 9.10 4.44 y2.3 456.80 198.64 319.50 315.39 317.38 321.54 kk (y1) y1.1 0.08 0.07 0.059 -0.05 -0.20 -0.01 y1.2 0.13 0.14 0.10 0.10 0.08 0.11 y1.3 0,013 0.05 0.04 0.03 0.05 0.04 ic (x1) x1.1 0.32 0.35 0.23 0.32 -0.16 0.21 x1.2 2.47 2.58 2,32 2.04 0.60 2.01 x1.3 0.73 0.10 -0.34 -0.27 -2.62 -0.48 bc (x2) x2.1 1.09 1.11 1.04 1.06 1.07 1.08 x2.2 0.40 0.43 0.46 0.45 0.42 0.43 source: processed data researcher, 2019 test coefficient of determination the magnitude of the effect of r square (r2) can be seen in its effect sizes, where its value is equal to 0.002. the figure explains that the influence of intellectual capital on firm value is 0.2% while the remaining 99.8% (100% -0.2%) influenced by other factors. meanwhile, the influence of intellectual capital on the financial performance described by r2 is equal to 0,100 means that the variable intellectual capital variables affect the financial performance of 10% and the balance of 90% is influenced by other variables outside of this study. the magnitude of the effect of capital structure on firm value described by r2 is equal to 0.003. this figure has the intention that the influence of capital structure to the company's value was at 0.3%, while the remaining 99.7% (100% -0.3%) influenced by other factors outside of this variable. meanwhile, the influence of capital structure on the financial performance described by r2 is equal to 0.122 means that the variable capital structure variables affect the financial performance of 12.2% and the remaining 87.8% sebesaar influenced by other variables outside of this study. the magnitude of the effect of intellectual capital, capital structure and financial performance of the company's value described by r2 is equal to 0.374. this figure has the intention that the influence of intellectual capital, capital structure and financial performance of the value of the company amounted to 37.4%, while the remaining 62.6% (100% -37.4%) influenced by other factors outside of this variable. evaluation measurement model (outer model) determining the relationship between latent constructs specifications with the indicator. feasibility evaluation formative latent variable measurement using two criteria: weight (weight) should be significant, in other words, p-value <0.05 and vif <3.3. in addition to these two criteria, loading factor of each construct needs to be seen to indicate a correlation between the indicators with konstruknya. loading the expected value is> 0.7. if both the requirements and loading factor constructs have been met, then the measurement formative constructs have been considered feasible. table 2 model outer evaluation results no. var. dimension indicator loading p-value vif 1 ic x 1 vaca x1.1 0,972 <0.001 1,285 2 vahu x1.2 .992 <0.001 1,285 3 stva x1.3 0.494 0,217 1,000 4 sm x 2 der x2.1 .913 <0.001 1,429 5 dar x2.2 0,990 <0.001 1,429 6 kk y 1 roa y1.1 0.928 <0.001 1,444 7 roe y1.2 .896 <0.001 1.711 8 npm y1.3 0.895 <0.001 1,238 9 np y 2 per y2.1 -0.985 <0.001 1,001 10 pbv y2.2 0,893 <0.001 1,010 11 tobin's q y2.3 .991 <0.001 1,010 source: processed data researcher, 2019 influence of intellectual capital and capital structure of the company value through financial performance as an intervening variable (case study at manufacturing companies listed in indonesia stock exchange period 2013-2017) 107 based on the above test results, there is one indicator that did not meet the eligibility criteria, namely stva, so that should be excluded from the study indicator. table 3 results evaluation model after elimination indicator outer stva no . var. dimension indicat or loadi ng p-value vif 1 ic x 1 vaca x1.1 0,972 <0.001 1,285 2 vahu x1.2 .992 <0.001 1,285 3 sm x 2 der x2.1 .913 <0.001 1,429 4 dar x2.2 0,990 <0.001 1,429 5 kk y 1 roa y1.1 0.928 <0.001 1,444 6 roe y1.2 .896 <0.001 1.711 7 npm y1.3 0.895 <0.001 1,238 8 np y 2 per y2.1 -0.985 <0.001 1,001 9 pbv y2.2 0,893 <0.001 1,010 10 tobin's q y2.3 .991 <0.001 1,010 source: processed data researcher, 2019 while the indicator of the four other variables that have met the criteria weight indicator should be significant with p-value <0.05 and vif value <3.3. and the value of the loading factor> 0.7. thus, the outer model can be accepted. evaluation of structural model (inner model) inner model determine the relationship between latent constructs specifications and other latent constructs. in the test model fit, there are 3 index test, the average path coefficient (apc), average rsquared (ars) and the average variance factor (avif) criteria apc and ars accepted on the condition that the p-value of <0.05 and avif smaller than 5 , table 4 model fit indices source: processed data researcher, 2019 based on test results, showing that apc has an index of 0.277 with a p-value <0.001. while the ars has an index of 0.299 with a p-value <0.001. based on the criteria, apc and ars have met the criteria for having a p-value <0.05. furthermore, the value is equal to 1.014 avif figures show that in accordance with the criteria of <5. thus, the inner model can be accepted. hypothesis testing testing this hypothesis purporting to prove allegations of research or hypothesis. basis for decision making allegations of using p-value hypothesis, where h0 will be accepted if the p-value <0.05 and h0 will be rejected and ha accepted if the p-value ≥0,05. table 5 output results effect of direct and indirect pegaruh between variables path coefficie nt pvalues effect sizes ic → np .060 .120 0,002 ic → kk 0.323 <0.001 0,100 sm → np 0,034 0.254 0,003 sm → kk -0.356 <0.001 0.122 kk → np .614 <0.001 .374 ic → kk → np 0,197 <0.001 0,005 sm → kk → np -0.219 <0.001 0,022 source: processed data researcher, 2019 h.1 intellectual capital has an influence on the value of the company based on the results, it can be seen that the intellectual capital does not have a significant effect on the company value proxied by per, pbv, and tobin's q for the period 2013-2017 with a p-value indicator index p-value criteria ket apc 0.277 <0.001 p <0.05 received ars 0,299 <0.001 p <0.05 received avif 1,014 avif <5 received afebi economic and finance review (aefr) volume 4, no 02 (2019) 108 of 0.120 and a path coefficient of 0.060. based on the decision-making criteria, the alleged hypothesis will be accepted if the p-value <0.05. thus, one hypothesis (h1) in this study was rejected. based on the results, it can be seen that there is positive, but not significant between intellectual capital on firm value. this suggests that the intellectual capital of the company is not a factor taken into account by investors, so it is not able to increase the value of the company directly. in addition, the intellectual capital is difficult to be disclosed because it is a competitive advantage that is owned by the company, so investors are also difficult to gain access to know the intellectual capital of the company. the results of this study are consistent with research conducted by sustainableand rosi (2016) which shows that based on the results of the regression, intellectual capital does not affect the value of the company. likewise with previous research conducted boedi (2008) found no effect on the value of company's intellectual capital. h.2 intellectual capital has an influence on the financial performance based on the results, it can be seen that the intellectual capital has a significant positive effect on financial performance proxied by the roa, roe, and npm during the period 20132017 with a p-value <0.001 and path coefficient of 0.323. this figure shows that if an increase in the assessment of intellectual capital for one unit, then the financial performance will increase by 0.323. based on the decision-making criteria, the alleged hypothesis will be accepted if the p-value <0.05. thus, the hypothesis of two (h2) in this study received. based on the results, it can be seen that there is a significant positive effect on the financial performance of intellectual capital. this shows that the better the intellectual capital of the company, the better the financial performance of the company. the high knowledge resources of the company were able to mengefesienkan costs to be incurred by the company so that the company produced profit higher. the results are consistent with the resource based theory (rbt), which states that the company will gain a competitive advantage by leveraging the resources that meet certain predetermined criteria. the company's ability to utilize its knowledge resources to make a competitive advantage to be able to influence the company's ability to improve the profitability of the company. the results of this study are consistent with research conducted by chen et al. (2005), that ic affects the market value and the company's performance. as well as research conducted by tan et al. (2007), that the ic has a positive effect on company performance, both today and in the future; ic-average growth was positively related to the company's performance in the future; ic contribution to company performance differs based on the type of industry. h.3 capital structure has an influence on the value of the company based on the results, it can be seen that the capital structure does not have a significant effect on the company value proxied by per, pbv, and tobin's q for the period 2013-2017 with a p-value of 0.254 and a path coefficient of 0.034. based on the decision-making criteria, the alleged hypothesis will be accepted if the p-value <0.05. thus, the three hypotheses (h3) in this study was rejected. based on the results, it can be seen that there is a positive influence, but not significant capital structure to the company's value. the results of this study are not in accordance with the traditional approach to capital structure theory which states that the capital structure has an influence on the value of the company. however, this can happen when investors perceive that the value of high debt on a firm does not cause the value of the company to be bad. there are several companies that have a higher value than the debt capital and assets, but has a high stock price, which the stock price can reflect the value of the company. this is because the level of debt the company is still considered reasonable by the investor with a market capitalization greater. the results of this study are not consistent with research conducted by phantow, et al (2015) found a significant positive effect of capital structure on firm value. influence of intellectual capital and capital structure of the company value through financial performance as an intervening variable (case study at manufacturing companies listed in indonesia stock exchange period 2013-2017) 109 h.4 capital structure have an impact on financial performance based on the results, it can be seen that the capital structure has a significant negative effect on the financial performance proxied by the roa, roe, and npm during the period 2013-2017 with a p-value <0.001 and path coefficient of -0.356. this figure shows that if an increase in the assessment of intellectual capital for one unit, then the financial performance will decrease by 0.356. based on the decision-making criteria, the alleged hypothesis will be accepted if the p-value <0.05. accordingly, four hypotheses (h4) in this study received. based on the results, it can be seen that there is a significant negative effect on the capital structure of financial performance. this shows that the higher the level of debt a company, then the company's financial performance will decline. wherein when the high debt levels of a company, interest charges and debt repayments, meaning a cash flow to be issued by the company gets higher, so that risks must be faced companies higher as well, this is what caused the company's financial performance to decrease. the results are consistent with the trade-off theory which states that the use of debt until at some point it will increase the value of the company, which was influenced by an increase in the company's financial performance. based on this theory, the composition of the capital structure could affect the financial performance of the company, if the management company erroneously upheld the debt policy is taken, then the company will potentially bankrupt. the results are consistent with research conducted by the le, tpv, and phan, tbn (2017) who found that all the debt ratio has a significant negative correlation to the performance of the company. h.5 financial performance has an influence on the value of the company based on the results, it can be seen that the financial has a significant positive effect on the company value proxied by per, pbv, and tobin's q for the period 2013-2017 with a pvalue <0.001 and path coefficient of 0.614. this figure shows that if an increase in ratings of financial performance of one unit, the value of the company will be increased by 0.614. based on the decision-making criteria, the alleged hypothesis will be accepted if the p-value <0.05. thus, the hypothesis of five (h5) in this study received. based on the results, it can be seen that financial performance has a significant positive effect on firm value. this shows that the better financial performance, the better the value of the company. where the ability of management to improve the company's profitability will affect the company's value in the eyes of investors. based on the values obtained loading factor, an indicator roa indicators that contribute the highest contribution in financial performance. this demonstrates the company's ability to generate profits from the assets of the company has a major role in enhancing the value of the company. the results are consistent with the theory of signal that the actions taken by the management of a company gives guidance to investors on how to assess the prospects of the company management (brigham and houston, 2014). the company's ability to manage financing obtained, as well as the company's ability to generate earnings to reflect the company's financial performance in the eyes of investors. the results of this study are consistent with research conducted by utami (2011), found in the results that affect the value of financial performance of the company. as well as the results of research conducted by phantow, et al (2015), that roa significant positive effect on firm value. h.6 intellectual capital has an influence on the value of the company through the financial performance as an intervening variable based on the results, it can be seen that the intellectual capital has a significant positive effect on the company value through financial as mediating variables during the period 2013afebi economic and finance review (aefr) volume 4, no 02 (2019) 110 2017 with a p-value <0.001 and path coefficient of 0.197. this figure shows that if an increase in the assessment of intellectual capital, the value of the company will be increased by 0,197 through financial performance as a mediating variable. thus, the hypothesis of six (h6) in this study received. based on the results, it can be seen that there is a significant positive effect on the value of intellectual capital through the company's financial performance as a mediating variable. it can be concluded that financial performance is able to mediate the effect of intellectual capital on firm value indicated by the positive result of the change is not significant to positive significant. that is, the higher the intellectual capital able to improve financial performance, which indirectly affect the increase in the value of the company. where, when the company's knowledge resources can be managed and utilized by the company will increase the profitability of the resulting company, thus increasing the company's value in the eyes of investors. the results are consistent with the resource based theory (rbt), which states that the company will gain a competitive advantage by leveraging the resources that meet certain predetermined criteria. the company's ability to utilize its knowledge resources to make a competitive advantage to be able to influence the company's ability to improve the profitability of the company. the ability of management to improve the company's profitability will affect the company's value in the eyes of investors. the results of this study are consistent with research conducted by nuryaman (2015) who found results that positively affect intellectual capital on firm value through financial as a mediating variable. h.7 capital structure has an influence on the value of the company through the financial performance as an intervening variable based on the results, it can be seen that the capital structure has a significant negative effect on the value of the company through a financial performance during the period 20132017 mediating variables with p-value <0.001 and path coefficient of -0.219. this figure shows that if an increase in the assessment of capital structure, the value of the company will decrease by 0.219 through financial performance as a mediating variable. thus, the hypothesis of seven (h7) in this study received. based on the research results, it can be seen there is a significant negative effect on the value of company's capital structure through financial performance as a mediating variable. it can be concluded that financial performance is able to mediate the effects of capital structure on firm value indicated by changes in the results of insignificant be significant. that is, the higher the capital structure or debt levels of the company, then the company's performance has decreased indirectly affect the decline in value of the company. where, when the level of corporate debt is already too high, then the risk of bankruptcy which will be borne by the company is increasing. increasing risk of bankruptcy which could reduce the company's ability to generate profitability, the results are consistent with the trade-off theory which says that the use of debt until at some point it will increase the value of the company, which was influenced by an increase in the company's financial performance. based on this theory, the composition of the capital structure could affect the financial performance of the company, if the management company erroneously upheld the debt policy is taken, then the company will potentially bankrupt. the results of this study are consistent with research conducted by makkulau (2018) which found that financial performance is able to mediate relations with the company's capital structure. 5. conclusion intellectual capital had no significant positive effect directly on the value of the company. intellectual capital has a direct significant positive effect on financial performance. influence of intellectual capital and capital structure of the company value through financial performance as an intervening variable (case study at manufacturing companies listed in indonesia stock exchange period 2013-2017) 111 the capital structure has a significant positive effect not directly on the value of the company. the capital structure has a significant negative effect directly on the financial performance. the financial performance has a significant positive effect on firm value. intellectual capital has a significant positive effect indirectly on the value of the company through financial performance. the capital structure has a significant negative effect indirectly on the value of the company through financial performance. suggested for companies, to increase the value of the company, the company should focus on improving financial performance, because based on the above results would increase if the value of the company's financial performance increased. for further research, you 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(2010). has china de-industrialised other developing countries ? qeh working paper series, (175), 1–32. the effect of market timing ability and fund size on mutual fund performance of mutual fund companies in indonesia 45 the effect of market timing ability and fund size on mutual fund performance of mutual fund companies in indonesia mochammad arif budiono1), musdalifah azis2)* 1, 2 faculty of economic and business, universitas mulawarman, indonesia abstract this study aims to analyze the effect of market timing ability and fund size of mutual funds on the performance of equity funds. this research was conducted at a mutual fund company registered in the financial services authority (ojk) 2018-2019 period. this study uses purposive sampling with a total sample of 65 mutual fund shares. the type of data used is quantitative data and data sources in the form of company annual financial statements. data analysis tools used are descriptive statistics and panel data regression. the results of this study indicate that the market timing ability has a significant positive effect on the mutual fund performance and the fund size has a significant negative effect on the mutual fund performance. keywords: market timing ability, fund size, mutual fund performanceand, equity fund 1. introduction in the mutual fund industry, we often hear the term nav. nav stands for net asset value which shows how much the value of assets managed in a mutual fund is. the value of net assets divided by the unit of participation shows the price of the mutual fund, at this price the sale or purchase of mutual funds is carried out. mutual fund performance is defined as a portfolio that not only looks at the rate of return generated by the portfolio, but also has to consider other factors such as fund size, market timing, securities portfolio analysis and portfolio risk level (ünal & tan, 2015). in this case, a mutual fund company's performance directly affects matters related to fund management by investment managers (ferson & mo, 2016). the total value of net assets (nav) along with the number of units produced by all types of mutual funds in indonesia has increased from year to year. in investing in mutual funds, an investor needs to understand portfolio management carried out by investment managers. chang & lewellen (1984) explained that to determine the performance of a good stock mutual fund, there are several variables that can be considered for investors in investing, one of which is market timing ability. huij & post (2011) explained that timing in the market is the ability of investment managers to make adjustments to the asset portfolio in order to anticipate changes or movements in general market prices. philippas, (2011) explained that market timing ability has an influence on performance in a which is carried out using the treynor-mazuy method. the example is the comparison of the measurement of mutual fund performance and market timing ability of mutual funds, especially in equity funds registered with the financial services authority (ojk). fund size is also important for an investor to understand before investing in mutual funds. fund size can be seen from the total portfolio of securities in a mutual fund (vithessonthi & tongurai, 2015). the larger the size of the managed securities funds will provide flexibility, increase the strength of the company and facilitate the creation of economies of scale which *corresponding author: musdalifah.azis@feb.unmul.ac.id mailto:musdalifah.azis@feb.unmul.ac.id afebi economic and finance review (aefr) volume 5, no 01 (2020) 46 company can have an impact on reducing costs so that it will have a positive impact on performance, and therefore will be able to provide a better picture of performance to investors. 2. literature review from the basic model of the financial literature, markowit et al. (2011) stated portfolio theory shows that investors invest in a portfolio of securities to minimize the risk assessed by the standard deviation of portfolio returns. fama (1970) described two main things in the company, namely investment funds and portfolio management. this methodology begins with a theoretical model developed by fama (1970) explaining stock returns as a function of several references such as risk-free rate, market return, firm size, market value, firm profit, and firm investment activity. in the reference there is no general definition of mutual fund performance. in this case the performance in a company can be defined as a managed portfolio which is generally not determined by the rate of return obtained but other things such as the level of portfolio risk that needs to be known (deb, 2019). this refers to how well a mutual fund investment manager can use the primary ability to manage securities portfolios and generate high returns. the explanation used as an overview of the overall securities portfolio during a certain period so that it can be used as a ratio for similar investment managers in managing and regulating each type of mutual fund which will be invested in its portfolio, the company's performance becomes a reference for choosing an investment manager (nal & tan, 2015). the purpose of mutual fund performance is to ensure in choosing the type of mutual fund to be an investment destination, as well as how to determine the ability of investment managers to manage portfolios (zhao & wang, 2007). investment managers can be seen from their performance by managing funds, services and information transparency. performance can be improved by ensuring the things that need to be invested gradually from time to time so that investment managers have prospects and become investors' choice in managing their portfolios. market timing ability is the investment manager's expertise in analyzing a change in the price of a stock mutual fund so that the investment manager will position his portfolio in such a way as to generate returns that exceed market returns (baker & wurgler, 2002). maciel, gomide, ballini (2016) explained that companies are more likely to issue equity when the market value or share price is high, relative to book and past market values and to repurchase equity when the market value or share price is low. market timing ability is managed by an investment manager with psychological aspects that can affect the performance of the portfolio he manages, in this case the investment manager spends so much time controlling the market, but forgets to master himself, understand the calculations and thoughts that affect the high or low performance of mutual funds. fund size is a presentation of the total capitalization of mutual funds, besides that fund size is a measuring tool in determining the size of mutual funds based on the funds in the managed portfolio and described in the securities portfolio (chen et al., 2004). asset under management (aum) or managed funds in mutual funds which refers to the total value of investments managed by investment managers. aum also refers to the total managed securities funds which will be directly related to the size of the mutual fund itself which can be seen from the total securities portfolio. the previous study explained the effect of the size of the securities portfolio on the excess return which was directly related and stated that a higher effect size would cause the risk faced by the company to be lower than securities with a low value (elton et al., 2012). the effect of market timing ability and fund size on mutual fund performance of mutual fund companies in indonesia 47 3. research methods the purpose of this study is to analyze the effect of the independent variables, namely market timing ability literacy (x1), fund size (x2 simultaneously and partially on the dependent variable, namely mutual fund performance (y). the population in this study were all mutual fund companies in the registered stock mutual funds and published by the financial services authority (ojk) for the period 2018-2019. the sample used is purposive sampling, which means it is used based on certain criteria. in this study, especially stock mutual funds that have the conventional type. the type of data in this study is quantitative data. in this study, the data source used is secondary data. the data collection method in this study is by collecting all data consisting of a population of mutual fund investment managers with the conventional type of stock mutual funds. in this case, the research sample is a company that publishes a prospectus and is published and published by the financial services authority (ojk) during the 2018-2019 period. the calculation of market timing ability uses the treynor-mazuy ratio method while the fund size uses the total securities portfolio with ln (natural logarithm). in calculating mutual fund performance using the sharpe ratio method of stock mutual funds. variable variable measurement source dependent variable; mutual fund performance (y) sp = 𝑅𝑝 − 𝑅𝑓 𝜎𝑝 sharpe ratio information: sp : performance index sharpe 𝑅𝑝 : portfolio return or market rate of return 𝑅𝑓 : risk-free return risk-free interest rate 𝜎𝑝 : standard deviation of portfolio returns during the observation period deb, (2019) independent variable; market timing ability (x1) 𝑅𝑝 − 𝑅𝑓 = 𝑎 + 𝛽(𝑅𝑚 − 𝑅𝑓) + 𝛾(𝑅𝑚 − 𝑅𝑓)2 + 𝜀𝑝 treynor-mazuy ratio information: α : intercept which is an indication of stock selection from the investment manager rp : the average return of mutual funds for period t rf : average risk-free investment return period t rm : average market return period t 𝛽 : regression coefficient of excess market return or slope when the market is down (bearish) γ : regression coefficient which is an indication of the investment manager's market timing ability εp : random error wattanatorn & tansupswatdikul, (2018) independent variable; fund size (x2) 𝐿𝑛(tpe) information: tpe : total securities portfolio phillips et al., (2017) 4. results and discussion the researcher tested the descriptive statistical analysis as follows; descriptive statistics table afebi economic and finance review (aefr) volume 5, no 01 (2020) 48 mff mta fs mean -276.5618 -35.33975 25.35575 median -0.538000 -0.086000 25.72642 maximum 0.699000 0.465000 29.54082 minimum -4071.000 -2051.000 18.19754 std. dev. 739.4779 238.7628 2.184822 observations 130 130 130 the author uses a panel data regression technique by using a model of three alternative approaches to processing methods. regression results in fixed effect model (fem) dependent variable: mff? method: pooled least squares date: 03/17/20 time: 11:18 sample: 2018 2019 included observations: 2 cross-sections included: 65 total pool (balanced) observations: 130 white cross-section standard errors & covariance (d.f. corrected) variable coefficient std. error t-statistic prob. c 1354.938 168.2154 8.054784 0.0000 mta? 2.329440 3.33e-09 7.00e+08 0.0000 fs? -61.39023 0.000112 -547830.7 0.0000 fixed effects (cross) _asie--c 68.03827 _aden--c 440.0028 _adpn--c 387.4415 _adsb--c 309.7426 _aecs--c 45.20841 _bdpr--c 275.9299 _bprr--c 326.2399 _btrr--c 71.44905 _bnsa--c 389.3635 _bdso--c 129.5450 _bsle--c 144.2585 _bdsi--c 365.6278 _bnei--c 258.7603 _bpek--c 196.3877 _bpip--c -12.34003 _bppe--c 174.4262 _bpso--c 70.84613 _ceff--c 161.0682 _coeq--c -166.8648 _cpid--c 187.9502 _cpse--c 215.6020 _cptr--c 231.7757 _dean--c 276.8699 _depr--c 305.7434 _dpre--c 173.0967 _eian--c 250.2805 _eivd--c 386.1796 _fsih--c 245.1806 the effect of market timing ability and fund size on mutual fund performance of mutual fund companies in indonesia 49 _fsip--c 257.6985 _fsis--c 242.2236 _iivs--c 106.6009 _krpr--c 61.05840 _lepr--c 144.2558 _lgfu--c 102.2947 _lsma--c 136.4158 _lspr--c 140.0034 _msai--c 158.9428 _miat--c 345.9200 _micb--c 340.0390 _mied--c 258.3720 _miea--c 165.4321 _mief--c -381.8035 _miem--c 304.5908 _mdsa--c -212.7687 _mief--c -381.8035 _msan--c -409.5591 _mssp--c -502.3416 _magi--c -402.4167 _mama--c -664.3212 _oaei--c -717.3413 _obef--c -860.7368 _ofef--c 711.9652 _omef--c -564.7676 _osfu--c -945.4750 _pads--c 381.7969 _pbon--c -385.8929 _pdma--c -514.3487 _pdpr--c -441.5895 _pdte--c -449.9669 _pdul--c -581.9407 _peex--c -644.4419 _pilc--c 119.4821 _psag--c -453.7427 _psun--c -591.6916 _rski--c 222.0482 effects specification cross-section fixed (dummy variables) r-squared 0.713956 mean dependent var -286.5700 adjusted r-squared 0.414292 s.d. dependent var 744.4924 s.e. of regression 569.7718 akaike info criterion 15.83472 sum squared resid 20452314 schwarz criterion 17.31260 log likelihood -962.2567 hannan-quinn criter. 16.43523 f-statistic 2.382517 durbin-watson stat 3.939394 prob(f-statistic) 0.000329 hasil uji chow redundant fixed effects tests afebi economic and finance review (aefr) volume 5, no 01 (2020) 50 pool: ojk test cross-section fixed effects effects test statistic d.f. prob. cross-section f 0.741400 (64,63) 0.8823 cross-section chi-square 72.985206 64 0.2066 hausman test results correlated random effects hausman test pool: ojk test cross-section random effects test summary chi-sq. statistic chi-sq. d.f. prob. cross-section random 1.240918 2 0.5377 ** warning: estimated cross-section random effects variance is zero. based on the results of the chow test output from the eviews version 10 tool, it can be seen that the f test value is significant at 0.8823 and the chi-square value is also significant at 0.2066 which is greater than 0.05. this means that the null hypothesis is accepted, so the ols method is better than fem. then the hausman test was carried out. based on the results of the hausman test output with the eviews version 10 tool, it can be seen that the p-value is greater than 0.05, which is 0.5377. thus, the null hypothesis is accepted, so the use of a better method in this study is the rem method compared to ols. however, due to the low r-square value in the ols and rem methods, it is better for researchers to choose to use the fem method in view of the large r-square value. descriptive statistics test results mff mta fs mean -276.5618 -35.33975 25.35575 median -0.538000 -0.086000 25.72642 maximum 0.699000 0.465000 29.54082 minimum -4071.000 -2051.000 18.19754 std. dev. 739.4779 238.7628 2.184822 skewness -3.177018 -7.027490 -0.723713 kurtosis 13.95046 52.96124 3.550142 jarque-bera 868.2177 14590.70 12.98752 probability 0.000000 0.000000 0.001513 sum -35953.04 -4594.168 3296.248 sum sq. dev. 70540753 7353991. 615.7749 observations 130 130 130 multicollinearity test results mta fs the effect of market timing ability and fund size on mutual fund performance of mutual fund companies in indonesia 51 mta 1 -0.1236025977724393 fs -0.1236025977724393 1 heteroscedasticity test results heteroskedasticity test: breusch-pagan-godfrey f-statistic 1.229632 prob. f(2,127) 0.2959 obs*r-squared 2.469536 prob. chi-square(2) 0.2909 scaled explained ss 6.281563 prob. chi-square(2) 0.0432 to examine the classical assumption test in this study, the author used the multicollinearity test, heteroscedasticity test and autocorrelation test. the results of multicollinearity test showed that there is no relationship between the independent variables with a value of more than 0.90 so that the panel data model in this study does not have a multicollinearity problem. in this study, there was also no heteroscedasticity where the probability value of osb*r-squared was 2.4695 (greater than 0.05). furthermore, the autocorrelation test showed the dw value of 1.937305 which then refers to the durbin-watson benchmark, the test results show that the dw value of 3.9393 is between -3 < dw < 3 where there is autocorrelation. panel data regression analysis results on market timing ability (mta) and fund size (fs) variables dependent variable independent variable regression coefficient t-count prob. direction information mff constant 1354.938 8.054784 0.0000 mta 2.329440 7.001407 0.0000 (+) significant fs -61.39023 -547830.7 0.0000 (-) significant r–square 0.713956 adjust r square 0.414292 f-stats 2.382517 f significant 0.0000329 in the fem model, the coefficient of determination (r2) is 0.713956. this means that the dependent variable (mff) can be influenced by 71.39 percent by independent variables (mta and fs), while the remaining 28.61 percent is explained by other variables not included in this research model. the results of the panel data regression test showed that the statistical f value was 2.382517, with the same significance value (f significant) of 0.000000 which was smaller than 0.05 (0.0000 < 0.05). these results explain that two independent variables of mta and fs simultaneously affect mff in the observed sample for the 2018-2019 and have shown a feasible model. in the t-test, mta variable (x1) has a t-count value of 7.001407 and a probability level of 0.0000 > 0.05, which means that partially the variable has a significant positive effect on mff. the fs variable (x2) has a t-count value of -547830.7 with a probability value of 0.0000 <0.05, which means that partially the variable has a significant negative effect on mff. 4.1. effect of market timing ability on mutual fund performance afebi economic and finance review (aefr) volume 5, no 01 (2020) 52 market timing ability has a positive and significant effect on mutual fund performance in equity mutual funds in indonesia. this means that the determination of market timing by investment managers in portfolio management by using some measures. one of which is portfolio diversification, which increases investor confidence in investment managers. the results of the study are in line with research conducted by wattanatorn & tansupswatdikul, (2018), deb, (2019), ferson & mo, (2016). investment managers who have high market timing skills and expertise tend to have high performance. this is due to the right decision by the investment manager in making portfolio adjustments when buying and selling shares in anticipation of changes in market prices. 4.2. effect of fund size on mutual fund performance fund size has a negative and significant effect on mutual fund performance in mutual fund companies in indonesia. the results of this study differ from the hypothesis which states that fund size has a positive and significant effect on mutual fund performance. the results of this study differ from the hypothesis which states that fund size has a positive and significant effect on mutual fund performance in mutual fund companies in indonesia. the results of this study are not in line with phillips et al. (2017), huij & post, (2011), and shilpi & arti, (2014) who state that fund size has a positive and significant effect on mutual fund performance. investors who invest in equity mutual funds do not pay much attention to managed funds to choose a portfolio. investment managers, especially equity mutual funds, must have more expertise in diversifying their portfolios and providing the latest information on managed securities funds as a benchmark for investors. 5. conclusion based on the analysis that has been done in the previous chapter, the following conclusions can be drawn: market timing ability has a positive and significant effect on mutual fund performance. investment managers who have skills and expertise in timing the market tend to have high performance. this is due to the right decision by the investment manager in making portfolio adjustments when buying and selling shares in anticipation of changes in market prices. fund size has a negative and significant effect on mutual fund performance. investors when investing do not consider the managed funds from the mutual fund portfolio but pay more attention to the ability of the investment manager to manage the funds. in addition, this result is due to the very low information service provided by investment managers to investors. reference alaabed, a., ferdous chowdhury, m. a., & masih, m. 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(2007). empirical study on chinese mutual funds’ performance. systems engineering theory & practice, 27(3), 1–11. https://doi.org/10.1016/s18748651(08)60020-4 the factors of decision in taking tertiary education 25 5 the factors of decision in taking tertiary education alfi nur lailiyah1*, dominicus savio priyarsono2, and mutiara probokawuryan3 1,2,3 bogor agricultural university, bogor, indonesia abstract the decision to access tertiary education is influenced by individual characteristics, household characteristics, and regional factors. this study aimed to examine the determinant of individual decision to access tertiary education based on individual characteristics, household characteristics, and regional factors. the respondents of the study were 19 years old or above and already finished secondary education. this study used secondary data from data indonesian family life survey (ifls) 5. technique analysis used multinominal logit by samples that consist of 1.936 respondent. the result of this analysis showed that the individual characteristic that consist of un score, sex, and occupational status while study has significant impact on the choice to access undergraduate study. likewise, on the household characteristics that consist of educational assistance from non government, level of education of head of household, and the consumption per member of the family has significant impact to the choice to access diploma. in undergraduate education, only the un score in individual characteristic that has significant impact. the household characteristics were consist of educational assistance from government and non-government, the level of education of head of household, the consumption per member of the family, and dependency ratio impact significantly on the choice to access undergraduate study. jel classification: i20, i21, i25 keywords: household characteristics, individual characteristics, indonesia family life survey, multinomial logit, regional factors, tertiary education 1. introduction the objective of economic development cannot be separated in relation to the improvement of the human capital process, one of the way is through education. education has an important role as a determinant in the quality of human resources. the improvement of the quality of human resources can be achieved through proper and comprehensive education, so that it can be perceived the benefits, processes, and results by the broad society. education also has a major role in forming a developing country in order to be able to absorb modern technology, develop the capacities and capabilities of its citizens, and to create innovative, creative, and solutive generations of challenges as well as social and economic change. aks for the definition of higher education is further described in law no. 2 year 2012 on higher education, it is stated that tertiary or higher education is the level of education performed after secondary education that includes diploma programs, bachelor programs, master programs, doctoral programs, and * corresponding author. email address: alfinurla@gmail.com mailto:alfinurla@gmail.com afebi economic and finance review (aefr) vol.02 no.02, december 2017 26 professional programs, also specialist programs, organized by universities based on the culture of indonesian people. according to tilak (2009) mentioned there are at least six tertiary educational functions for the future of the country, among them are; 1) tertiary education can help, create, advance, absorb and spread science through teaching processes and academic research ; 2) tertiary education can provide professional labor and have good technical and managerial abilities for industrial development and economic activities; 3) the university is an institution that helps build and instill ethical, character and moral values for its students, creates an well regulated attitude and makes changes in societal attitudes needed in the era of modernization by maintaining and improving social values and society norms; 4) tertiary education can also create a society that plays an active role in politics, social, culture and economics as a contribution in a democratic country and form a strong country; 5) tertiary education can also create a society that able to know, maintain, improve and introduce national, regional, international and historical cultures; 6) tertiary education can also create future social and political leaders that has high caliber and vision. todaro and smith (2006) stated that the demand for tertiary education are caused by various factors. these factors can be non-market (non-economic), but in general these factors can be determined from the combination between demand and supply forces as well as in the law of supply and demand on other goods or services. on the supply side, services and education facilities in developing countries are provided by the government, then certain factors from the demand side have urgency that should be examined further. there are some factors that attributed to the individual, such as sex, cognitive, and occupational status when he/she is studying secondary education. in addition to the attributed factors of the individual, the household background can also affect the individual's decision in tertiary education. regional factors also affect through infrastructure in urban/rural areas. urgency of this study is one of the efforts in the field of academics to analyze the factors that influence individual decisions in choosing tertiary education, so that it can be used as a reference in the next policy. the alternative choice of decision to continue undergraduate and diploma education are separated, because there are different concepts in diploma and bachelor. 2. literature study and hypothesis development tertiary education tertiary education is one kind of formal education. (bps, 2015) formal education is a structured and tiered, that consist of primary, secondary, and tertiary education. higher education includes diploma level i, ii, iii, and iv, and equal. in law no. 12 year 2012 states that: "... education is a conscious and well-planned effort to create an atmosphere of learning and learning process so that learners are actively develop their potential to have religious spiritual, self-control, personality, intelligence, noble character, as well as the necessary skills needed by themselves, society, nation and country." individual characteristics a. sex the factors of decision in taking tertiary education 27 according to setiadi and kolip (2011), sex leads to a division of physiological or anatomic of human biologically. the concept of sex differ humans more in which human with the sexes of men and women can be identified through the possession of genitals and their sexual role. b. occupational status while taking secondary education the occupational status while taking secondary education has a positive and significant impact on the demand for diploma education. the results of the study found by ogawa and iimura (2010) are in contrast to the hypotheses that have been compiled. the occupational status variables have a positive impact on the demand for undergraduate education in urban or urban models. this is because the presence of the high motivation to work better and through the improvement of the quality of the study so that it will choose undergraduate education. it is also supported by the fact that in urban areas provide many employment opportunities for its graduates. as opposed to urban area cases, occupational status is very important in diploma programs in rural areas. c. un score the examination score that becomes the cognitive proxy of the individual has a positive and significant impact on the demand for education. the results of the study obtained from jimenez and velasco (2000) are impact significant and positively, because the examination scores are the determinant in graduation and the requirements for tertiary education. household characteristics a.age of head of household age is the length of time of life or existence (since birth or held) (hoetomo, 2005). age is used to be a reference in determining individual productivity. there are three categories for age-based productivity level. the first category is called the young-age category, this category is under 15 years old. the productive age group is someone between the aged between 15-64 or the age group who are doing the work and earning income. third, the old age group, that is in the age range of 65 years and over. this age group is not possible to do productivity because at that age the physical and the strength had already declined. stoner (1986) states that a one's age is related to the productivity of his work. the higher the age of the individual then the declining the productivity is due to age that can not support the performance as young age. robbins (2003) illustrates this condition with illustrations such as an inverted u-curve. nakamura (1993) analyzed the influence of the age of the head of household on tertiary education. from the results of his research reveals that age is related to the assets of the head of households owned. the greater the age of the heads of households, the greater the chance to enter tertiary education. this is because the older the age then the greater the income and assets owned from the accumulated income during the productive age. b. dependency ratio dependency ratio is the ratio between the population aged 0-14 years old and 65 years old and over compared to the population aged 15-64 years. in other words, the dependency ratio is the ratio between the non-labor population and the number of labor population (bps 2017). manvi and wisana (2014) examined the relationship of the number of children and the quality of education. this study used ifls 4 data and used linear and logit regression models to generate estimation with different goals. the result afebi economic and finance review (aefr) vol.02 no.02, december 2017 28 obtained is in the use of linear regression method, found a positive relationship between the number of children and school duration. this indicates there is no trade off between the quantity and quality of children aged 7-24 years. variable levels of educational achievement was also used in this test as other educational quality approach. the resuls with the logit model support the previous findings, that is there is no trade off between the number of children and the level of educational achievement. the results of the study were different with oogawa and iimura (2010) related to the number of children to educational probability. families with relatively young children (age category 0-14) years will have higher spending burden. the number of young children in the family has a negative impact on individual demand for tertiary education because of a decrease in family budget per household member. the number of children is also correlated with the choice of tertiary education entry. this is because it has a negative impact that can cause financial obstacles on the household budget. c. educational background of the head of the family study on the resource allocation in household was also examined by setyari (2013) entitled distribution of resource allocation in households in indonesia: school or working children. the objective of this study is to find out the choice of parents to be on the choice of letting their child be in school for future investment or letting the individual to work. the most noticeable result is the significant effect of parent education on the allocation choice. the higher the education of parents, the higher the achievement of children's education and the decreasing probability of children to work. d. educational assistance educational and scholarship assistance is a different concept and has a different focus and goals for the recipients. educational assistance in general is a form of financial assistance provided to individuals, students or learners that are used for the sustainability of education pursued. according murniasih (2009) scholarship is defined as a form of appreciation given to the individuals in order to continue education to a higher level. the appreciation can be a certain access to an institution or an appreciation of financial assistance. the types of scholarships that can be awarded to individuals are scholarships award, grant scholarships, athletic scholarships and full scholarships that will be provided to cover life needs, book costs, research costs and tuition fees. the differences in scholarships and educational assistance are further described in permendikbud no.75 year 2016 mentioning the definition of educational assistance is the giving of money/goods/services by an unit of educational stakeholders outside the students or their parents/guardians, on the terms agreed by the parties. according to law no. 12 of 2012 on higher education in article 76 states that the scholarship is the support of tuition fees provided to the students to follow and/or complete higher education based on the main considerations of achievement and/or potential academic. a study that relates the variables of educational/scholarship assistance to the educational decision duration. educational assistance always provides a dispensation for someone in going throgh his education. gounder and xing (2012) revealed that educational assistance fund has a positive and significant impact on the decision.of school duration. another research from (conlon and ladher etc, the factors of decision in taking tertiary education 29 2017) found that the removal of student tuition fee support would have a negative effect on demand for higher education. e. household consumption households is the customer or user of goods and services as well as owners of labor, land, capital and entrepreneurial factors of production. in a household performing consumption activities that can be shown from the amount of household expenditure. the level amount of expenditure depends on the needs and the amount of household members. bps (2015) household expenditure includes various household final consumption expenditures on goods and services to meet household needs. hypothesis based on some theories and empirical study, the hypothesis in this research is defined as the following: hypothesis 1: individual characteristics have a significant impact on the choice of individual decisions in taking tertiary education hypothesis 2: household characteristcs have a significant impact on the choice of individual decisions in taking tertiary education hypothesis 3: regional factors have a significant impact on the choice of individual decisions in taking tertiary education 3. research methods variable operationalization table 1 variable operationalization variable scale type of data notes tertiary education nominal secondary 1: not taking tertiary education 2: diploma 3: undergraduate sex nominal secondary (dummy) 1: female 0: male un score interval secondary based on three course, mathematics,bahasa, and english occupation while secondary school nominal secondary (dummy) 0: not working 1: working age of head of household interval secondary age of head of household being quadrate interval secondary the length education of the head of household interval secondary total household consumption per capita interval secondary young dependency ratio ratio secondary old dependency ratio ratio secondary educational assistance from government nominal secondary educational assistance from non-government nominal secondary living nominal secondary (dummy) 1: urban 0: rural afebi economic and finance review (aefr) vol.02 no.02, december 2017 30 sources and methods of determining data the data used in this study is secondary data based on survey results from ifls (indonesia family life survey) conducted by rand coorporation. ifls is a survey that contains aspects of household life, individuals, education, health, marriage, migration, and employment. surveys conducted by ifls are sustainable (longitudional). the survey was first carried out in 1993 (ifls 1), then in 1997 (ifls 2), 2000 (ifls 3), 2007 (ifls 4), and the latest survey in 2014 (ifls 5). this study used individual respondent data in 2014 (ifls 5). the type of data in this study is cross section data and presents a variety of information in the western indonesian province from a certain sample set. in this study used the ifls 5 survey results or at the time of the year 2014. the period of the year is selected because the data of that period is the latest available data. ifls 5 survey taken individual respondents data as many as 36,391 people. in this study, data collection based on the number of individual respondents minimized based on two criteria, tht is in the age category 19-25 years and must meet the requirements to have completed secondary education (senior high school/vocational school/aliyah /equal). data analysis technique and hypothesis test this study used descriptive-quantitative analysis method. descriptive analysis is used to analyze the general description of respondent characteristics based on the variables used in the model. quantitative analysis is used to analyze the factors that influence the individual decisions in taking tertiary education. the model used in quantitative analysis is multinomial logit regression. multinomial logit allows the dependent variable or independent variable in the regression model to not always quantitative, but allows in qualitative form. (yastiti, 2013). the model is named as a qualitative choice model. (juanda, 2009) the aims of a qualitative choice model is to determine the chance or probability of individuals with certain characteristics in choosing a choice from the various alternatives that have been provided. the multinomial logit model is divided into two categories, namely ordered multinomial logit (to make probabilities based on ordinal, like very goog/ good / bad). another type of model is to allow the dependent variable based on the nominal .. the measurement scale used in the dependent variable is the nominal measurement scale. undergraduate, diploma and non tertiary education programs are changer that has nature of categorical and discrete. other opinion about this method are stated by starweather and moske (2011), who reveal that multinomial logit regression is used to predict categorical placement or probability of each category on independent variables to the dependent variable. in accordance with the definition of the multinomial logit model, then model equation is compiled by including the dependent and independent variable elements as follows: ln( 𝜋1(x) 𝜋𝑗 (𝑥) ) = βj0 + βjjk jk + βjworkwork + βjagehhagehh + βagehhsqagehhsq + βjeduhheduhh + βjconscons + βjdepratio1depratio1 + βjdepratio2depratio2 +βjassistgovassistgov + βjassistnongovassistnongov + βjlivingliving where, j = 2, 3 the factors of decision in taking tertiary education 31 π1(x) = individual opportunity does not taking tertiary education π2(x) = individual opportunity taking diploma education π3(x) = individual opportunity taking undergraduate education jk = sex un = total score of three subjects of un work = working at the time taking secondary education agehh = age of head of household agehhsq = age of head of household being quadrate eduhh = the length education of the head of household cons = total household consumption per capita depratio1 = young dependency ratio depratio2 = old dependency ratio assistgov = educational assistance from government assistnongov = educational assistance from non-government living = residence βjp = parameter assesment as for the purpose by using multinomial logit in this study is to predict the individual probability in choosing each of the several alternatives available on selected opportunities. each individuals have an opportunity to choose events 1,2,3 (in accordance with its logit function), which is taking undergraduate or diploma or does not continue their education after graduation from secondary education. software program to assist data processing of this study by using stata 13 application. the method used to estimate the multinomial logistic regression model parameters is the maximum likelihood method (maximum likelihood methods). the likelihood equation on multinomial logit regression is nonlinear equation in regression coefficient parameter, so to solve the equation it can be obtained the value of parameter estimation. according to starkweather and moske (2011), multinomial logit regression does not consider the test of normality, linearity, and homoscedicity. 4. results and discussion descriptive analysis tertiary education is a higher level of education and finished after secondary education. the tertiary education level includes undergraduate, diploma, master degree, doctoral program, professional program, and specialist program. this study used the respondent data with criteria of aged 19-25 years and also must pass from secondary education. from those criteria, as many as 1,936 respondents declared to have passed tertiary education and have a moment in decision-making that is influenced by factors that can affect the decision. afebi economic and finance review (aefr) vol.02 no.02, december 2017 32 table 2 frequency data of respondent toward the tertiary education choice no. level of education frequency percentage (%) (person) 1 does not taking 1,179 60.9 tertiary education 2 tertiary education 590 30.47 (bachelor) 3 tertiary education 167 8.63 (diploma) total 1,936 100 source: ifls west 5, processed table 2 shows that out of a total of 1,936 secondary graduates, it was found that 60.9 percent does not taking tertiary education. this figure is quite high compared to the individuals who follow tertiary education. this shows that secondary education is still the primary choice in the highest educational choice for individuals. after graduate from secondary education, individuals have other alternative choices, for example is to work or other reasons. the number of individuals who taking tertiary education for bachelor degree is 30.46 percent and diploma tertiary education is 8.63 percent. the independent variables used in this study include the sex of the individual, the status of work at the time of secondary education, the score of the un, the age of head of household, residence, educational assistance from government and non-government, dependency ratio, and household consumption. the variables are examined to analyze the individual decisions in tertiary education. from the variables used, the following are presented the descriptive statistics in table 6. table 3 shows descriptive statistics that explain the average, lowest values, and the highest values of each variable that will be examined. the sex variables are relatively balanced between female and male respondents. this is seen from frequency, but female respondents are slightly more dominant than men in this study. the occupational status at the time of secondary education, has an average value of 0.160, it means that the total respondents that examined were dominated by respondents who did not work at the time of secondary education. the average of the un score of all respondents is 21.41 from the total of perfect score, which is 30. the factors of decision in taking tertiary education 33 table 3 descriptive statistics variable mean minimum maximum frequency score score sex 0.517 0 = 935 ; 1 =1001 work 0.16 0 = 1,625 ; 1 = 311 un score 21.41 7.95 29.994 agehh 52.14 20 92 agehhsq 2,809.3 400 8,464 living 0 = 1,360 ; 1=576 assistgov diploma= 2,050,000; sarjana = 2,214,286 0 = 1,869 ; 1 = 67 assistnongov diploma= 2,420,000 sarjana= 8,548,077 0 = 1,897 ; 1 = 39 depratio1 0.234 0 2 depratio2 0.024 0 2 consumption per capita 1,510,516 0 45,700,000 eduhh 15.57 0 20 source: ifls west 5, processed the age of the head of household in this study had an average age of 52 years, it means that the average age of the head of household in this study was still in a productive age. as for the youngest age of the head of household is 20 years old and the eldest is 92 years old. the next variable is educational assistance from government and non-government. few respondents receive educational assistance from the government. similarly, the same conditions in educational assistance that comes from non-government. the next variable is the young dependency ratio (depratio1) and the old dependency ratio (depratio2). if compared between the average of the two variables, it is found that the dependency ratio on young age is higher than old age. this indicates that the respondents who examined have the amount of family members who are categorized younger is more than the number of older family members. the average consumption per capita from the total respondents examined is 1,510,516 with a maximum value of 45,700,000 in rupiah. the respondent's resident is dominated in rural areas. the last variable, that is, the length of education of the head of household has an average of 15.57 years or has completed secondary education (senior high school and equal). multinomial logit regression analysis and risk relative ratio (rrr) analysis multinomial logit analysis is used to find out the factors that affect individual decisions in tertiary education, and determine the probability of individuals in taking tertiary education. on the dependent variable consists of undergraduate tertiary education, diploma tertiary education, and others (does not afebi economic and finance review (aefr) vol.02 no.02, december 2017 34 taking tertiary education). these three logit categories will be an option that must be selected by secondary education graduates. this model used base category to facilitate mathematical equations in interpreting the estimation results. base category is a category that is considered fixed and used as a comparison with other categories (probokawuryan, 2015). the selection of base category is based on the most frequencies as already explained and attached before, the category with most respondents is located in other categories (does not taking tertiary education). risk relative ratio (rrr) is a comparison of the occurence probability of an event. rrr’s value exceeds 1 indicates that individual has a greater chance of choosing tertiary education (undergraduate/diploma) than not choosing tertiary education. rrr’s value is less than 1 indicates that individual has a chance of not choosing tertiary education alternatives rather than not taking tertiary education. opportunity comparison in each model uses base category, which is not taking the tertiary education. to determine the value of rrr uses the significant values only. the value of rrr can be seen in table 4. partial test for each independent variable is conducted by looking at the probability score of each variable. the estimation results in table 4 shows that there are six significant independent variables in diploma tertiary education at the real level of 0.05. significant variables for individual decisions in choosing a diploma education at the 5% level of significance consist of the un score, sex, educational background of the head of household, the level of household consumption, and the occupational status at the time of secondary education. participant who choose bachelor education, the significant variables at the 5 percent, there are the age of the head of household, the un score, educational assistance from the government, educational assistance from non-government education, the educational background of the head of household, the level of household consumption, the age of the head of household, and the young dependency ratio. table 4 results of multinomial logit regression and risk relative ratio variable diploma undergraduate coef p>|z| rrr coef p>|z| rrr un 0.11 0.003* 1.112 0.07 0.000* 1.077 sex 0.73 0.001* 2.072 0.16 0.238 1.175 work -0.83 0.046* 0.437 0.08 0.660 1.080 agehh 0.05 0.569 1.049 0.11 0.035* 1.113 agehhsq -0.00 0.778 0.999 -0.00 0.082 0.999 assistgov 0.07 0.060 1.072 0.08 0.001* 1.082 assistnongov 0.12 0.025* 1.127 0.19 0.000* 1.214 living 0.38 0.126 1.454 0.08 0.599 1.080 eduhh 0.18 0.000* 1.204 0.13 0.000* 1.145 cons 1.08 0.000* 2.945 0.76 0.000* 2.130 depratio1 0.52 0.260 1.670 -0.64 0.026* 0.522 depratio2 0.71 0.555 2.028 1.20 0.072 3.328 _cons -23.7 0.000 0.000 -17.5 0.000 0.000 the factors of decision in taking tertiary education 35 no. of obs 1207 pseudo r2 0.1532 log likelihood -1003.1827 prob > χ 2 0.00000 wald χ 2 261.96 lr χ 2 363.10 information : *significant at 5% notes : base category is not taking the tertiary education source : ifls west 5, processed individual characteristics are the characteristics attached to each individual. this study uses national exam scores variable as the cognitive proxy/individual intelligence, gender, and working status when the individuals take their secondary education. those three variables are inherent variables or those within each individual. in this study, the three variables are examined based on the individulas conditions. un score variable has p-value equal to 0.003, meaning that with the limit of significance level of 5 percent then h0 can be used as a parameter assesment and significantly affect the decision to choose diploma education, ceteris paribus. then, the value of p-value on un score variable is amounted to 0.000, that means the un score variable is significantly affects the individual decision to choose bachelor, ceteris paribus. in rrr analysis, individuals with high national exam scores have a possibility of 1.077 times choosing bachelor degree than not choosing to continue their tertiary education, ceteris paribus. the possibility choosing diploma education in a group with high national exam score is 1.112 times than not choosing tertiary education, ceteris paribus. the score of national exam as proxy in evaluating individual’s intelligence. the result of estimation in this research showed that national exam score has positive effect toward the demand of tertiary in diploma or bachelor. the higher score of national exam individual can get, it will increase probability of the individual to get tertiary education. national exam score can influence because individual who has high intelligence will be more confident to register to tertiary education. for family who can’t afford, it will give the confidence for the high intelligence individual by hoping that they can give return after tertiary education. the result of this research is similar with previous research which was done by hansen et et al (1989), ogawa and iimura (2010) and jimenez and velasco (2000). variable of sex, has p-value amounted to 0.001 that means significant affect decision to choose diploma education, ceteris paribus. variable of educational background of head of household have pvalue of 0.0000 which means that variables significantly affect the decision to choose a diploma education, ceteris paribus. according to rrr analysis, female individuals will have possibility of 2.072 times choosing diploma education than not choosing tertiary education, ceteris paribus. the results of descriptive analysis show that tertiary education (bachelor degrees and diploma) is dominantly conducted by women than men. male dominance is in other category or not taking the tertiary education. it shows that afebi economic and finance review (aefr) vol.02 no.02, december 2017 36 gender issue on educational gender gap which usually occurs in the social conditions of developing countries, is not an obstacle in indonesia. education for women has been considered important. todaro and smith (2006) states that the women roles in education is not only on the gender equality issue of education, however women with higher education also help to economic development in indonesia. the previous research by priyono (1998), ogawa and iimura (2010), and chen (2000) uses dummy 1 for the male category. this study is difference in modelling and hypotheses so it uses dummy 1 for the female category. this study intends to examine and analyze the issue of gender education disparity that develops in indonesia. social and cultural issues are the trigger for women rights to access higher education. at the same time this study answers the previous suggestion from the research conducted by ogawa and iimura (2010) which states that women should be the considered subject variables. there’s a presumption that women tend to choose diploma education. based on regression estimation from multinomial logit and rrr analysis, the result is that gender is only affecting the demand of diploma education. significantly, woman has probability to have tertiary diploma education than nothing. the issue is, woman is lack of representation for labor market, so that diploma program is solution to help woman competes in labor. it is suitable to hypothesis of ogawa and iimura (2010). the occupational status on secondary education has a p-value of 0.046, which means that the variable has a significant effect on the decision to choose diploma education. in the last variable, another significant variable is the consumption level of variable with p-value of 0.000, meaning that the level of household consumption affects the individual decision in choosing a diploma education, ceteris paribus. the last variable in individual characteristic was working status while getting secondary education. the willing to work can appear because the condition of the family or individual motive to get perquisite. estimation result from multinomial logit model showed that there was negative effect between working status while doing secondary education toward the choice of diploma education. in rrr analysis, working status at a secondary education will reduce the possibility of 0.437 times choosing diploma education the result of that research is similar to research of ogawa and iimura (2010) in which working status while doing diploma education for individual who lives in village. a person who works while doing secondary education is considered in category of family that is not in high economic status. it is necessary to get more money to fund the needs of the individual or household. after graduated from secondary education, she/he will tent to not choose tertiary education. it is because the opportunities to get more money if they work full time. it is related to development economic theory, that individual who does not have tertiary education will loss the chance to get social benefits and return level from investation in tertiary education in the future. the decision will impact to the time that loss because of having tertiary education and it will return as the income while working or others that are impossible to get if the person chooses doing tertiary education. household characteristic factor which was used in this research was the age of head of household, educational assistance for government and non-government, the factors of decision in taking tertiary education 37 the household characteristics factors used in this study were the household head’s age, the education support from government and non-government institutions, the household head’s educational background, total household consumption, and family dependency ratio. these factors are used to analyse the role and contribution of the household conditions in determining individual decisions in choosing the tertiary education. this study was also adapted to the household conditions of the respondents the age variable of head of household has p-value of 0.035, which means that the age of the head of household significantly affects the individual decision to choose diploma, ceteris paribus. educational assistance from the government with a p-value of 0.001, meaning that variables significantly affect the decision to choose bachelor deducation, ceteris paribus. in rrr analysis stated that each increasing of household head’s age by one year will have a greater possibility of 1.113 times choosing bachelor education rather than choosing not to take the tertiary education, ceteris paribus. meanwhile, educational background of the household’s heads with the longer years or the higher level of education will increase the possibility of 1.204 times to choose diploma education, ceteris paribus. the usage of age variable of the head of the household (agehhsq) aims to prove the hypothesis allegedly different from the age variable of the head of household (agehh). every human being has a certain peak point in productivity. after reaching the peak point, there will be a decreased productivity along with the increasing of the age. this happens because old age is susceptible to decrease the productivity, decrease the energy, and unfavourable health conditions. the results of the descriptive statistical analysis show that the average age of the head of the household in this study is 52 years old, with the oldest age is 92 years old and the youngest is 20 years old. the age of the household head has a positive influence on the demand for undergraduate education, so a one-year increase in the households will increase the probability of individuals in undergraduate education rather than the tertiary education. this is in accordance with the research conducted by nakamura (1993) that along with the increasing age of the head of household, assets or wealth obtained from the savings or income also increase during the productive age. therefore, the higher age of the household head will be able to finance the individual through tertiary education. the result of multinomial logit estimation shows that the agehhsq variable is not significant on individual decisions in choosing tertiary diploma and undergraduate education. thus, it can be concluded that the best variable to explain the age of the household head is the linear function (agehh) with a year unit. the next variable is the education support provided during tertiary education. this variable is divided into two types according to educational support sources. the results of the descriptive analysis indicate that there is a very lame comparison between those who get educational support and those who do not. this is because the quota of educational support still does not meet the quantity of the tertiary education. hence, some special qualifications such as academic achievement and low economic status of the household are required. non-governmental education assistance with p-value of 0.000 means that the variable significantly affects the demand of undergraduate education, ceteris paribus. each head of familiy’s educational background and level of consumption afebi economic and finance review (aefr) vol.02 no.02, december 2017 38 have p-value of 0.000 which means that each variable has a significant effect on the individual preference of undergraduate education. the following variable is a variable of young dependency ratio has the p-value of 0.050 so that this variable significantly affects the decision to choose undergraduate education, ceteris paribus. then, in rrr analysis, individuals with governmental scholarships or education assistance will improve the possibility of 1.082 times choosing bachelor degrees than not continuing the education, ceteris paribus. individuals with nongovernmental sholarships or education assistance will improve the possibility of 1.214 times choosing bachelor degrees than choosing not to continue their education, ceteris paribus. meanwhile, non-governmental education assistance will increase the possibility of 1.127 times choosing diploma education than not choosing the tertiary education, ceteris paribus. the result of multinomial logit regression shows that educational support from the government and non-government institutions give significant influence on the individual decision in tertiary education and increase the probability of someone to pursue undergraduate education compared to not pursuing the tertiary education. (jimenez and velasco 2000) the educational support can reduce the cost of direct and indirect educational costs of the recipients. of course, the education support reduces tuition fees that becomes obstacles for poor families. non-governmental education support has a positive and significant influence on individual decisions in diploma education. in contrast, educational support from the government does not have a significant effect on individual decisions in choosing a diploma education. this is because the policy of scholarship program or educational support for the diploma from the government is very rare. the nominal given by the government is relatively lower than other educational support, so it has not been able to provide motivation or encouragement for individuals to choose a diploma education. the third variable in the household characteristics is the educational background of the head of the household which is seen from the years of education. longer education year of the head of the family or higher level of education will increase the probability of individuals in tertiary education (diploma or undergraduates) than not choosing the tertiary education. educational background of the household’s heads with the longer years or the higher level of education will increase the possibility of 1.145 times choosing bachelor degrees than not choosing to continue their tertiary education, ceteris paribus.meanwhile, the longer years or the higher level education will increase the possibility of 1.204 times choosing diploma degrees than not choosing to continue their tertiary education the head of the household who has a high level of education will encourage individuals in the family to get the level of education as expected or at least equivalent to the level of education of the household head. the educational background of the household head has an important influence on individual decisions. this is in accordance with the previous research studies conducted by ogawa and iimura (2010), jimenez and velasco (2000), hansen et al. (1989), and menon (1998). in addition to the educational background of the heads of the households, household per capita consumption also has a great influence on the selection decisions of the tertiary education. household consumption per capita is used as a proxy of household economic status. a high level of household consumption the factors of decision in taking tertiary education 39 indicates that the family's economic status is also high, assuming the income level of the household is equal to the total expenditure or consumption of the family. this study does not use income variable because the variable is not relevant considering the household often manipulate the income data to be smaller than the original. the variable level of the household consumption is considered to be eligible to provide an explanation of the economic status of the households with the assumption that the level of household consumption equals with the total of household income. the results of multinomial logit indicate that the effect of household consumption increases the probability for individuals in the tertiary education (diploma or undergraduate). it is because families with high per capita consumption indicate that the economic status of the household is good as well as the economic condition, so it can finance the tertiary education for the individuals. this is in accordance with the previous research conducted by jimenez and velasco (2000). in rrr analysis, families with high per capita consumption has a 2.130 times to choose bachelor degrees than not to continue their tertiary education, ceteris paribus. same condition, families with high per capita consumption or assumed to be in a good economic life will improve the possibility of 2.945 times choosing diploma education than not choosing the tertiary education, ceteris paribus. the number of family dependence indicates an increasing level of need or expenditure. descriptive analysis results show that the largest number of dependents in each family is six people on the number of the dependence of young age (0-14 years old). the previous descriptive analysis also shows that the higher the number of the dependence, the less the number of the participants in the tertiary education. the hypothesis of the dependency ratio on the age category (0-14) has a negative effect in pursuing the tertiary education. in rrr analysis, families with high young dependency ratio will reduce their possibility of 0.522 times choosing bachelor degrees, ceteris paribus. this is due to a decrease in family budget per household member. the amount of dependence in the family becomes an important consideration in the decision, where the dependent person in the family will be a burden. if the individuals continue their tertiary education under such conditions, it is not impossible that the burden in the family also increases as they have to finance the education. this result is in accordance with the previous research conducted by ogawa and iimura (2010). the youth dependency ratio does not significantly affect the demand for diploma education because the duration of the diploma education is only three years. the graduates of the diploma education are also directed to be ready to work so that they have a relatively faster rate of returned benefits than the undergraduates. in the old-age dependency ratio (65 years old and above), the results are not significant towards the decision to choose the tertiary education. this is because the member of productive age in the family is able to finance the needs of dependent family members. the previous descriptive statistical analysis shows that the number of the dependent family members is two at maximum. this number is not as many as the number of people who become the burden of the family in the category of young age. the last variable is the regional factor that indicates the residence of the individual. this variable is divided into two categories of areas, namely urban and afebi economic and finance review (aefr) vol.02 no.02, december 2017 40 rural areas. the result of the descriptive analysis shows that the dominance of tertiary education participants is in the urban areas. this is because tertiary educational infrastructures (universities, institutions, polytechnics, and other educational institutions) are mostly located in the urban areas. in addition, the condition of economic infrastructure (roads, bridges and electricity) in the urban areas is also better than the rural areas. the estimation results show that there is no significant influence between the regional factors with the decision or the probability of individuals to pursue the tertiary education. this result is applicable to the demand for tertiary education diplomas as well as the undergraduates. this case can occur due to the migration factor. the migration factor is not only based on the job opportunities or the seductiveness of the area alone. the educational factor can also cause the migrants to migrate. it is not difficult for indonesian citizens from any region to migrate for tertiary education in the western area of indonesia, and vice versa. this result is also supported by todaro’s (1998) study in which the education is one of the important driving factors in the migration process. the justification is also supported by the research studies conducted by rahmawati (2010) in which the education affects positively towards individual’s decision to migrate. 5. conclusion and suggestion conclusion the tertiary education of diplomas and undergraduates is dominated by female than male. individuals who pursue the tertiary education are generally dominated by the heads of a family with a medium and high economic status and high education. individuals who live in urban areas dominate the tertiary education compared to those who live in rural areas. the result of multinomial logit estimation shows that the factors influencing significantly to the probability of choosing a diploma education are individual characteristics, such as the national examination (un) score and gender. the high un score and the males will increase the probability of pursuing the tertiary education diploma, while the working condition during the secondary education will reduce the probability of pursuing the diploma. educational support, educational background of the head of the family, and household consumption have a significant influence on the selection of tertiary education diploma. these variables will increase the probability of individual to take a diploma education compared to the decision to not pursue the tertiary education. the variables that significantly influence the probability of the individuals in choosing the undergraduate education are only un score for individual characteristics. higher un score will increase the probability of individuals to pursue the undergraduate education than not attending tertiary education at all. household characteristics, such as the age of the head of family, scholarship or educational support, the head of the family’s educational background, and the number of family dependency have a significant influence on the demand for undergraduate education. each of these variables will increase the probability of choosing undergraduate education compared to non-tertiary one. in the variable, the total of dependencies will reduce the probability of pursuing the undergraduate education. the factors of decision in taking tertiary education 41 policy implications the main results of this study illustrate the tendency of individuals to choose the tertiary education based on their characteristics and also dominated by the family characteristics. this research has some suggestions that can be implied to the real life through some policy. the suggestions for the policy implications given in this study are: 1. educational support and scholarship for tertiary education are provided for the individuals who needs the supports and have achievements. the aforementioned educational supports are not only referred to the tertiary education, but is also provided after the graduation of the secondary education. the individuals who will graduate from the secondary education and get a guarantee of educational support or scholarship will tend to choose the tertiary education to improve their quality. 2. educational support and scholarships for diplomas are extended through an educational support programs or scholarships specifically for the diploma. this is to increase the public interest to study in diploma level. 3. reinforce and encourage people to follow the family planning program. it aims to reduce the fertility rate and the number of children who become a burden in each family. school’s support at the elementary and secondary levels (sd and smp) can reduce the cost of education for children aged 7-15 years old, so the burden of having children can be reduced. 4. improve the quality of teaching and learning in secondary education (high school and equivalent) to improve the intelligence and cognitive skills of the individuals in order to prepare them to pursue the tertiary education. 5. improve the social infrastructure such as the tertiary educational institutions but not just focus on the urban areas only. it can encourage the individuals to pursue the tertiary education in their home areas without migrating to other areas. suggestion this research has conducted an estimation using multinomial logit method based on the survey data of ifls west 5. however, this research has some limitations such as the assumption of giving freedom of public response to school status including private, state, or religious schools at the secondary education level. this study also does not include specifically the type of secondary education (public high school/sma or vocational high school/ smk). the tertiary education variables also provide freedom of response for specific categories of higher education based on the field or type and only broadly separate to diploma and undergraduate education. the noneconomic variables are the community preference, or culture and family pressure. references chen, d. 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[prosiding]. semarang: universitas diponegoro analisis waktu tunggu tenaga kerja terdidik di kabupaten sumbawa siti maryam1, akung daeng2 & dwi saputri3 fakultas ekonomi & bisnis, universitas mataram 1maryamnanang@gmail.com 2akung_daeng@yahoo.com 3dwisaputrix6@gmail.com abstrak analisis waktu tunggu tenaga kerja terdidik di kabupaten sumbawa tujuan dari penelitian ini adalah untuk menganalisis penyebab dan dilema para tenaga kerja terdidik di kabupaten sumbawa mengalami waktu tunggu dalam mencari atau mendapatkan pekerjaan yang sesuai dengan hipotesis dari sisi permintaan yaitu tingkat upah, jenis pekerjaan, tingkat pendidikan. dari sisi penawaran yaitu jenis kelamin (spesifik gender), jurusan pendidikan, dan pengalaman kerja. penelitian ini menggunakan pendekatan kuantitatif dengan jenis penelitian deskriptif. populasi dalam peneletian ini adalah tenaga kerja terdidik yang ada di kabupaten sumbawa dengan pendidikan terakhir sma, d-i/ii/iii, atau s1 dan diambil sampel sebanyak 100 orang. data penelitian ini menggunakan data primer dari hasil kuisioner. hasil penelitian ini menunjukan bahwa tenaga kerja terdidik mengalami waktu tunggu atau menganggur dikarenakan tingkat pendidikan yang tidak sesuai dengan permintaan lapangan pekerjaan yang ada atau tidak sesuai dengan jurusan yang mereka tamatkan. tenaga kerja terdidik bersedia menerima pekerjaan apa saja jika tidak mendapatkan kerja hingga waktu tertentu namun tetap mempertimbangkan tingkat upah, jenis pekerjaan, dan tingkat pendidikan. kata kunci : waktu tunggu tenaga kerja terdidik mailto:1maryamnanang@gmail.com mailto:2akung_daeng@yahoo.com abstract the waiting time analysis of educated workers in sumbawa regency the purpose of this study is to analyze the causes and dilemmas of educated workers in sumbawa regency to experience waiting times in looking for or finding work in accordance with the demand side hypothesis of wage levels, types of work, education levels. from the supply side namely gender (gender specific), majoring in education, and work experience. this study used a quantitative approach with the type of descriptive research. the population in this study was the educated workforce in sumbawa regency with the last education such as senior high school , d-i / ii / iii, or s1 and 100 samples were taken. this research data used primary data from questionnaire results. the results of this study indicated that educated workers experience waiting time or unemployed due to the level of education that was not in accordance with the demands of existing jobs or not in accordance with the majors they completed. educated workers were willing to accept any job if they did not get work for a certain time but still consider the level of wages, type of work, and level of education. keywords: waiting time for educated workers pendahuluan pembangunan di indonesia memiliki kendala di bidang ketenagakerjaan, yaitu semakin meningkatnya jumlah angkatan kerja dan tidak disertai tersedianya lapangan pekerjaan yang cukup. hal ini menimbulkan tingkat pengangguran yang cukup tinggi. sejalan dengan pembangunan ekonomi nasional, maka adanya kesenjangan antara pertumbuhan jumlah angkatan kerja dan kemauan berbagai sektor perekonomian dalam menyerap tenaga kerja menjadi kesempatan kerja masih menjadi masalah utama dibidang perekonomian. (kuncoro, 2004). pengangguran tenaga kerja terdidik hanya terjadi selama lulusan mengalami masa tunggu (job search periode) yang dikenal sebagai pengangguran friksional. lama masa tunggu itu juga bervariasi menurut tingkat pendidikan. terdapat kecenderungan bahwa semakin tinggi pendidikan angkatan kerja semakin lama masa tunggunya. untuk itu perluasan kesempatan kerja merupakan usaha untuk mengembangkan sektor penampungan kesempatan kerja yang berproduktivitas rendah. usaha perluasan kesempatan kerja tidak terlepas dari faktor – faktor yang mempengaruhi, seperti perkembangan jumlah penduduk dan angkatan kerja, pertumbuhan ekonomi, tingkat produktivitas tenaga kerja dan kebijaksanaan mengenai perluasan kesempatan kerja itu sendiri (sutomo, dkk ,1999). pembangunan ekonomi merupakan sebuah mekanisme yang melibatkan perubahan-perubahan dalam struktur sosial, politik dan kelembagaan, baik sektor swasta maupun sektor pemerintah atau publik sehingga dapat menciptakan distribusi hasil-hasil pertumbuhan ekonomi serta sosial secara merata. pembangunan ekonomi tidak hanya dilihat dari pertumbuhan pendapatan perkapita saja melainkan juga bagaimana cara meningkatkan penghapusan atau pengurangan tingkat kemiskinan, penyediaan lapangan pekerjaan dan penanggulangan ketimpangan pendapatan serta bagaimana cara pendistribusian pendapatan tersebut langsung kepada masyarakat (todaro, 2011). salah satu tujuan terpenting dalam pembangunan ekonomi adalah penyediaan lapangan kerja yang cukup untuk mengejar pertumbuhan angkatan kerja terutama bagi negara berkembang khususnya indonesia, dimana pertumbuhan angkatan kerja lebih cepat dari pertumbuhan kesempatan kerja. ada beberapa faktor yang menyebabkan terjadinya pertumbuhan angkatan kerja lebih cepat yaitu, pertama pertumbuhan pendudukan dinegara berkembang cenderung tinggi sehingga melebihi pertumbuhan kapital. kedua demografi profil lebih mudah sehingga lebih banyak penduduk yang masuk lapangan kerja. ketiga struktur industri di negara berkembang cenderung mempunyai tingkat diversifikasi kegiatan ekonomi rendah serta tingkat keterampilan penduduk belum memadai membuat usaha penciptaan lapangan kerja menjadi kompleks (satrio, 2010). dalam perencanaan pembangunan baik di negara maju maupun negara berkembang masalah pengangguran menjadi masalah yang harus dipecahkan oleh perencana pembangunan perekonomian. pengangguran di indonesia merupakan salah satu masalah utama yang harus diselesaikan. pengangguran adalah kegiatan seseorang yang sedang tidak bekerja, sedangkan berusaha mencari pekerjaan dan mereka yang sudah pernah bekerja, karena sesuatu hal berhenti atau diberhentikan bekerja dan sedang berusaha untuk mendapatkan pekerjaan kembali (badan pusat statistik, 2008 dalam kiki 2012). masalah pengangguran di daerah merupakan masalah yang harus dituntaskan. masalah pokok pengangguran dalam pembangunan daerah terletak pada penekanan terhadap kebijakan-kebijakan pembangunan yang didasarkan kepada kekhasan daerah yang bersangkutan dengan menggunakan potensi sumber daya manusia, kelembagaan dan sumber daya fisik secara lokal (daerah). setiap upaya pembangunan ekonomi daerah mempunyai tujuan utama untuk meningkatkan jumlah dan jenis peluang kerja untuk masyarakat daerah. oleh karena itu, pemerintah daerah beserta partisipasi masyarakatnya dan dengan menggunakan sumberdayasumberdaya yang ada harus mampu menaksir potensi sumber daya yang diperlukan untuk merancang dan membangun perekonomian daerah. (kiki 2012). menurut (sumarsono, 2003. dalam satrio, 2010). permintaan tenaga kerja berkaitan dengan jumlah tenaga kerja yang dibutuhkan oleh perusahaan atau instansi tertentu. biasanya permintaan akan tenaga kerja itu dipengaruhi oleh perubahan tingkat upah dan faktorfaktor lain yang mempengaruhi permintaan hasil. hal ini berkaitan dengan biaya produksi yang dikeluarkan oleh pihak perusahaan, semakin tinggi upah atau gaji yang diberikan maka akan mengakibatkan semakin sedikit permintaan akan tenaga kerja begitu juga sebaliknya, hal ini sesuai dengan hukum permintaan. menurut (tobing, 1994. dalam kiki, 2012). menyatakan bahwa semakin terdidik seseorang, harapan untuk mendapatkan pekerjaan yang diinginkan juga semakin tinggi. hal tersebut membuat angkatan kerja terdidik lebih suka memilih menganggur dari pada mendapat pekerjaan yang tidak sesuai dengan keinginannya. kemudian, menurut (sutomo, dkk, 1999. dalam kiki, 2012) dilihat dari dampak ekonomis yang ditimbulkan, pengangguran tenaga kerja terdidik mempunyai dampak ekonomis yang lebih besar dari pengangguran tenaga kerja yang kurang terdidik. hal ini dapat dilihat dari kontribusi yang gagal diterima oleh perekonomian dari tenaga kerja terdidik yang menganggur lebih besar daripada kontribusi yang gagal terima perekonomian pada kelompok pengangguran kurang terdidik. dalam hubungannya dengan kualitas sumber daya manusia, pendidikan dianggap sebagai sarana untuk meningkatkan kualitas sumber daya manusia itu sendiri. pendidikan yang baik diharapkan mampu memberikan sumber daya manusia yang baik pula. namun dalam kenyataannya sekarang ini, pendidikan juga dianggap berkaitan erat dengan pengangguran,khususnya pengangguran tenaga kerja terdidik. atmanti (2005), investasi skill pencari kerja akan memberikan hasil yang lebih tinggi dalam memaksimalkan pekerjaannya. jumlah penduduk yang besar telah membawa akibat jumlah angkatan kerja yang semakin besar pula. hal ini berarti semakin besar pula jumlah orang yang mencari pekerjaan atau menganggur. di provinsi ntb terdapat sebanyak 1.981.842 tenaga kerja (bps 2018) dimana tingkat partisipasi angkatan kerja (tpak) yang berbeda beda setiap kota/kabupaten nya. sementara di kabupaten sumbawa memiliki tpak sebesar 71,62% dibandingkan dengan kabupaten/kota lainnya. berikut tabel tpak di provinsi ntb tahun 2018: tabel 1.1 tingkat partisipasi angkatan kerja (tpak) di provinsi ntb tahun 2018 sumber: disnakertrans ntb 2018 kabupaten sumbawa merupakan salah satu daerah yang ada di provinsi nusa tenggara barat (ntb) yang terdapat banyak melibatkan tenaga kerja dan salah satu daerah yang memiliki sedikit perusahaan industri yang pada tahun 2018 persentase penduduk yang bekerja sebesar 5,91 persen sedangkan yang pekerjaan sebagai petani pada tahun 2018 sebesar 49,80 persen dan yang bekerja sebagai pedagang sebesar 15,75 persen penduduk, ini menunjukkan lapangan pekerjaan yang ada di sumbawa masih sedikit sehingga angkatan kerja yang ada di sumbawa masih sedikit yang sudah bekerja. sehingga banyak yang menganggur. untuk melihat penyebab waktu tunggu tenaga kerja terdidik di kabupaten sumbawa maka digunakanlah beberapa faktor untuk menganalisisnya yaitu tingkat upah, jenis pekerjaan, dan tingkat pendidikan. di duga bahwa semua variabel yang digunakan ini menjadi faktor penyebab waktu tunggu bagi tenaga kerja terdidik. kerja adalah suatu perbuatan yang dilakukan atau diperbuat (mencari). adapun pekerjaan itu sendiri adalah suatu hal yang dilakukan untuk mencari nafkah. kata “waktu tunggu” terdiri dari dua kata yang memiliki arti tersendiri. kata “waktu” berasal dari kata sifat yang artinya waktu yang panjang. sedangkan kata “tunggu” berasal dari kata yang artinya tinggal sementara untuk berjaga (menanti). jadi dapat disimpulkan waktu tunggu bekerja adalah masa dimana lulusan/tenaga kerja menunggu waktu untuk mendapatkan pekerjaan dari lulus kuliah hingga mendapatkan pekerjaan. faktor-faktor yang mempengaruhi lulusan tersebut dalam lama waktu tunggu kerja secara garis besar terdiri dari dua faktor yaitu faktor internal yang berasal dari diri sendiri/para lulusan seperti minat dan pertimbangan akan pekerjaan yang akan dicari, adapun faktor ekstrenal yaitu faktor yang berasal dari luar individu yang bersangkutan atau dari lingkungannya. lama waktu tunggu bagi tenaga kerja terdidik merupakan masalah sekaligus fenomena ditengah perekonomian yang terus tumbuh. pendidikan formal yang telah ditempuh oleh tenaga kerja diharapkan menjadi modal utama untuk mendapatkan pekerjaan, akan tetapi yang terjadi adalah pengangguran sukarela yang dapat diartikan bahwa tenaga kerja tidak bersedia menerima pekerjaan tersebut karena beberapa perhitungan dari penawaran pekerjaan yang tersedia. dalam lowongan pekerjaan biasanya menyebutkan beberapa syarat, baik secara umum maupun spesifik. syarat umum yang dibutuhkan yaitu seperti tingkat pendidikan/ijazah terakhir, dan umur. kemudian syarat khusus biasanya terkait dengan pekerjaan-pekerjaan yang cenderung meminta kategori gender dan lulusan sarjana/diploma bahkan magister. kemudian, salah satu hal yang biasanya menjadi pertimbangan para pencari kerja adalah upah. upah merupakan imbalan/kompensasi yang diterima oleh tenaga kerja berupa uang atas jasa yang telah dilakukannya. biasanya tenaga kerja akan mencari lowongan pekerjaan yang menawarkan tingkat upah yang sesuai umk, seperti saat ini tingkat umk kabupaten sumbawa sebesar rp.2.028.950 yang berlaku sejak 10 desember 2018. hal ini tentunya berkaitan dengan keinginan pemerintah dengan harapan perusahaan dapat memberi tingkat upah kepada karyawan sesuai dengan umk yang berlaku sehingga dapat meningkatkan partisipasi dan kualitas tenaga kerja. berdasarkan ringkasan diatas, peneliti akan meneliti lebih lanjut dan mengangkat judul mengenai “analisis waktu tunggu tenaga kerja terdidik di kabupaten sumbawa” rumusan masalah berdasarkan uraian latar belakang masalah, maka rumusan masalah dalam penelitian ini adalah “faktor apa saja yang menjadi pertimbangan waktu tunggu bagi tenaga kerja terdidik dalam mencari pekerjaan yang sesuai?” tujuan penelitian tujuan penelitian ini adalah “untuk menganalisis faktor dasar waktu tunggu tenaga kerja terdidik dalam mencari pekerjaan yang sesuai.” 1. untuk menganalisis apakah tingkat upah menjadi faktor tunggu tenaga kerja. 2. untuk menganalisis apakah jenis pekerjaan menjadi faktor tunggu tenaga kerja. 3. untuk menganalisis apakah tingkat pendidikan juga menjadi faktor tunggu tenaga kerja. kerangka teoritis dan perumusan hipotesis a. konsep ketenagakerjaan dan tenaga kerja sumber daya manusia (sdm) atau human resources mengandung dua pengertian. pertama, sdm mengandung pengertian usaha kerja atau jasa yang dapat diberikan dalam proses produksi. kedua, sdm menyangkut manusia yang mampu memberikan jasa atau usaha kerja. mampu bekerja berarti mampu melakukan kegiatan yang mempunyai nilai ekonomis, yaitu bahwa kegiatan tersebut menghasilkan barang atau jasa untuk memenuhi kebutuhan masyarakat. secara fisik kemampuan bekerja diukur dengan usia. dengan kata lain, orang dalam usia kerja tersebut dinamakan tenaga kerja atau man power (simanjuntak, 2001). tenaga kerja adalah penduduk dengan batas umur minimal 10 tahun tanpa batas maksimal. dengan demikian, tenaga kerja di indonesia yang dimaksudkan adalah penduduk yang berumur 10 tahun atau lebih, sedangkan yang berumur di bawah 10 tahun sebagai batas minimum. ini berdasarkan kenyataan bahwa dalam umur tersebut sudah banyak penduduk yang berumur muda yang sudah bekerja dan mencari pekerjaan (simanjuntak, 2001). sedangkan tenaga kerja terdidik adalah tenaga kerja yang memiliki pendidikan cukup tinggi dan ahli dalam bidang tertentu (sukirno, 2003). kemudian, tenaga kerja dibagi ke dalam kelompok angkatan kerja (labor force) dan bukan angkatan kerja. yang termasuk dalam angkatan kerja adalah (1) golongan yang bekerja dan (2) golongan yang menganggur dan mencari pekerjaan. menurut bps (2008), angkatan kerja yang di golongkan bekerja adalah: 1. angkatan kerja yang digolongkan bekerja adalah: a) mereka yang dalam seminggu sebelum pencacahan melakukan pekerjaan dengan maksud memperoleh atau membantu memperoleh penghasilan atau keuntungan yang lamanya bekerja paling sedikit selama satu jam dalam seminggu yang lalu. b) mereka yang selama seminggu sebelum pencacahan tidak melakukan pekerjaan atau bekerja kurang dari satu jam tetapi mereka adalah: l) pekerja tetap, pegawai pemerintah / swasta yang saling tidak masuk kerja karena cuti, sakit, mogok, mangkir ataupun perusahaan menghentikan kegiatan sementara. 2) petani yang mengusahakan tanah pertanian yang tidak bekerja karena menunggu hujan untuk menggarap sawah. 3) orang yang bekerja di bidang keahlian seperti dokter, dalang, dan lain-lain. 2. angkatan kerja yang digolongkan menganggur dan sedang mencari pekerjaan yaitu: a) mereka yang belum pernah bekerja, tetapi saat ini sedang berusaha mencari pekerjaaan. b) mereka yang sudah pernah bekerja, tetapi pada saat pencacahan menganggur dan berusaha mendapatkan pekerjaan. c) mereka yang dibebas tugaskan dan sedang berusaha mendapatkan pekerjaan adapun yang termasuk dalam kelompok bukan angkatan kerja adalah tenaga kerja atau penduduk usia kerja yang tidak bekerja dan tidak mempunyai pekerjaan, yaitu orang-orang yang kegiatannya bersekolah (pelajar, mahasiswa), mengurus rumah tangga maksudnya ibu-ibu yang bukan merupakan wanita karir atau bekerja, serta penerimaan pendapatan tapi bukan merupakan imbalan langsung dari jasa kerjanya (pensiun, penderita cacat) (simanjuntak, 2001). b. permintaan dan penawaran tenaga kerja permintaan tenaga kerja berhubungan dengan fungsi tingkat upah. semakin tinggi tingkat upah, maka semakin kecil permintaan pengusaha akan tenaga kerja. tiap perusahaan mempunyai jumlah dan fungsi permintaan yang berbeda sesuai dengan besar kecilnya perusahaan atau produksi, jenis usaha, penggunaan teknologi, serta kemampuan manajemen dari pengusaha yang bersangkutan (simanjuntak, 2001). penawaran tenaga kerja merupakan hubungan antara tingkat upah dan jumlah satuan pekerja yang disetujui oleh pensupply untuk di tawarkan. jumlah satuan pekerja yang ditawarkan tergantung pada (l) besarnya penduduk, (2) persentase penduduk yang memilih berada dalam angkatan kerja, (3) jam kerja yang ditawarkan oleh peserta angkatan kerja, di mana ketiga komponen tersebut tergantung pada tingkat upah (simanjuntak, 2001). jumlah orang yang bekerja tergantung dari besarnya permintaan dalam masyarakat. besarnya penempatan (jumlah orang yang bekerja atau tingkat employment) dipengaruhi oleh faktor kekuatan penyediaan dan permintaan tersebut. selanjutnya, besarnya penyediaan dan permintaan tenaga kerja dipengaruhi oleh tingkat upah. apabila tingkat upah naik maka jumlah penawaran tenaga kerja akan meningkat. sebaliknya jika tingkat upah meningkat maka permintaan tenaga kerja akan menurun (simanjuntak, 2001). c. pasar tenaga kerja terdidik dan tenaga kerja tak terdidik penggolongan pasar kerja menurut pasar kerja intern dan ekstern menekankan proses pengisian lowongan kerja. sebaliknya penggolongan pasar kerja menurut pasar kerja utama dan biasa hanya menekankan aspek atau keadaan lingkungan pekeijaan dan orang yang sudah bekerja di dalamnya. pasar kerja menyangkut keduaduanya yaitu seluruh penawaran dan pemintaan akan tenaga kerja. penawaran mencakup yang sudah bekerja dan pencari kerja. permintaan mencakup jumlah pekerjaan yang sudah terisi dan lowongan yang belum terisi. pasar kerja membicarakan hubungan permintaan dan penawaran akan tenaga kerja, jadi mencakup aspek proses pengisian lowongan kerja dan orang-orang yang bekerja serta pekerjaan yang sudah terisi. tenaga kerja terdidik biasanya mempunyai produktivitas kerja yang lebih tinggi dari tenaga kerja tak terdidik. produktivitas kerja pada dasarnya tercermin dalam tingkat upah, tiap lowongan pekerjaan umumnya selalu dikaitkan dengan persyaratan tingkat pendidikan bagi calon yang akan mengisinya. penyediaan tenaga kerja terdidik harus melalui sistem sekolah yang memerlukan waktu lama, oleh karena itu elastisitas penyediaan tenaga terdidik biasanya lebih kecil daripada penyediaan tenaga tak terdidik. tingkat partisipasi kerja tenaga terdidik lebih tinggi daripada partisipasi tenaga tak terdidik. tenaga terdidik biasanya berasal dari keluarga yang lebih berada, yaitu keluarga kaya, yang mampu menyekolahkan anakanaknya ke sekolah lanjutan tingkat atas (slta) dan perguruan tinggi. dengan demikian tenaga kerja dari keluarga miskin umumnya tidak mampu meneruskan pendidikannya dan terpaksa mencari pekerjaan (simanjuntak, 2001). d. pengangguran pengangguran adalah angka yang menunjukkan berapa banyak dari jumlah angkatan kerja yang sedang aktif mencari pekerjaan. sedangkan orang yang menganggur dapat didefinisikan sebagai orang yang tidak bekerja dan yang secara aktif mencari pekerjaan selama empat minggu sebelumnya, sedang menunggu panggilan kembali untuk suatu pekerjaan setelah diberhentikan atau sedang menunggu untuk melapor atas pekerjaan yang baru dalam waktu empat minggu (subri, 2003 dalam satrio, 2010). pengangguran terbuka (open unemployment) adalah bagian dari angkatan kerja yang sekarang ini tidak bekerja dan sedang akif mencari pekerjaan. setengah menganggur dibagi dalam dua kelompok yaitu: (1) setengah menganggur kentara (visible underemployed) yakni seseorang yang bekerja tidak tetap (part time) di luar keinginannya sendiri atau bekerja dalam waktu yang lebih pendek. dan (2) setengah menganggur tidak kentara (invisible underemployed) yaitu seseorang yang bekerja secara penuh (full time) tetapi pekerjaannya dianggap tidak mencukupi, karena pendapatannya yang terlalu rendah atau pekerjaan tersebut tidak memungkinkan ia untuk mengembangkan seluruh keahliannya. (subri, 2003 dalam satrio, 2010). klasifikasi pengangguran pengangguran dapat diklasifikasikan menurut berbagai cara misalnya menurut wilayah geografis, jenis pekerjaan dan alasan mengapa orang tersebut menganggur. berikut jenis pengangguran menurut sifat dan penyebabnya: a. pengangguran friksional adalah pengangguran yang terjadi karena kesulitan temporer dalam mempertemukan pencari kerja dan lowongan kerja yang ada. kesulitan temporer ini dapat berbentuk waktu proses seleksi pekerjaan, faktor jarak serta kurangnya informasi. pengangguran friksional dapat pula terjadi karena kurangnya mobilitas pencari kerja dan pencari kerja tidak mengetahui dimana adanya lowongan pekerjaan. secara teoritis jangka waktu pengangguran tersebut dapat di persingkat melalui penyediaan informasi pasar kerja yang lebih lengkap. (simanjuntak, 2001). b. pengangguran struktural adalah pengangguran yang terjadi karena perubahan dalam stuktur atau komposisi perekonomian. perubahan struktur yang demikian memerlukan perubahan dalam ketrampilan tenaga kerja yang dibutuhkan sedangkan pihak pencari kerja tidak mampu menyesuaikan diri dengan ketrampilan baru tersebut. penganggur sebagai akibat perubahan struktur perekonomian pada dasarnya memerlukan tambahan latihan untuk memperoleh ketrampilan baru yang sesuai dengan permintaan dan teknologi baru. (simanjuntak, 2001). c. pengangguran siklis pengangguran siklis terjadi karena kurangnya permintaan timbul apabila pada tingkat upah dan harga yang berlaku, tingkat permintaan tenaga kerja secara keseluruhan lebih rendah dibandingkan dengan jumlah pekerja yang menawarkan tenaganya (simanjuntak, 2001). d. pengangguran terpaksa dan pengangguran sukarela pada tingkat keseimbangan yang diciptakan oleh pasar kompetitif, perusahaan-perusahaan akan mau memperkerjakan semua pekerja yang memenuhi kualifikasi dan mau bekerja pada tingkat upah yang berlaku. pengangguran yang terjadi kalau ada pekerjaan yang tersedia, tetapi orang yang menganggur tidak bersedia menerimanya pada tingkat upah yang berlaku untuk pekerjaan tersebut disebut pengangguran sukarela (simanjuntak, 2001). e. pengangguran musiman adalah pengangguran yang terjadi karena pergantian musim. pengangguran musiman bersifat sementara saja dan berlaku dalam waktu-waktu tertentu. (simanjuntak, 2001). e. job search theory (teori mencari kerja) job search theory adalah suatu metode model yang menjelaskan masalah pengangguran dari sudut penawaran yaitu keputusan seorang individu untuk berpartiisipasi di pasar kerja berdasarkan karakteristik individu pencari kerja. job search theory merupakan bagian dari economic uncertanty yang timbul karena informasi di pasar kerja tidak sempurna, artinya para penganggur tidak mengetahui secara pasti kualifikasi yang dibutuhkan maupun tingkat upah yang ditawarkan pada lowongan-lowongan pekerjaan yang ada di pasar. informasi yang diketahui pekerja hanyalah distribusi frekuensi dari seluruh tawaran pekerjaan yang didistribusikan secara acak dan struktur upah menurut tingkatan keahlian job search theory mengasumsikan bahwa pencari kerja adalah individu yang riskneutral, artinya mereka akan memaksimisasi expected income-nya (pendapatan yang diharapkan). dengan tujuan maksimisasi expected net income (laba bersih yang diharapkan) dan reservation wage (upah reservasi) sebagai kriteria menerima atau menolak suatu pekerjaan. pencari kerja akan mengakhiri proses mencari kerja pada saat tambahan biaya (marginal cost) dari tambahan satu tawaran kerja tepat sama dengan tambahan imbalan (marginal return) dari tawaran kerja tersebut. pencari kerja menghadapi ketidakpastian tentang tingkat upah serta berbagai sistem balas jasa yang ditawarkan oleh beberapa lowongan pekerjaan. kalaupun informasi tentang hal ini ada, tetapi biaya untuk memperolehnya mahal (sutomo, dkk, 1999. dalam satrio 2010). f. teori human capital asumsi dasar teori human capital adalah bahwa seseorang dapat meningkatkan penghasilannya melalui peningkatan pendidikan. setiap tambahan satu tahun sekolah berarti, di satu pihak, meningkatkan kemampuan kerja dan tingkat penghasilan seseorang, akan tetapi di pihak lain menunda penerimaan penghasilan selama satu tahun untuk mengikuti sekolah tersebut dan berharap untuk meningkatkan penghasilan dengan peningkatan pendidikan (simanjuntak, 2001). g. teori gender gender adalah segala sesuatu yang diasosiasikan dengan jenis kelamin seseorang, termasuk juga peran, tingkah laku, preferensi, dan atribut lainnya yang menerangkan kepribadian atau kewanitaan di budaya tertentu. perbedaan biologis laki-laki dan perempuan adalah alami (nature), begitu juga sifat peran gender (maskulin dan feminime) yang dibentuknya. perempuan dan laki-laki memiliki perbedaan biologis yang mendasar, misalnya; perbedaan kromosom seks (perempuan xx; laki-laki xy), hormone yang juga berbeda (perempuan progesterone dan laki-laki testosterone), yang menentukan bentuk tubuh (perempuan umumnya lebih kecil dan pendek), dan perkiraan kematian (perempuan hidup kira-kira lebih lama tujuh tahun dari laki-laki) (david knox, 2016). lama waktu tunggu h. kerangka konseptual gambar 1 kerangka konseptual keterangan : garis putus-putus = sebagai perbandingan faktor penyebab waktu tunggu tenaga kerja terdidik job search period = waktu tunggu mencari kerja pasar tenaga kerja = pasar yang mempertemukan penjual dan pembeli tenaga kerja. sehingga terjadinya permintaan dan penawaran tenaga kerja. faktor-faktor yang mempengaruhi permintaan dan penawaran pasar tenaga kerja tenaga kerja terdidik perusahaan permintaan penawaran jenis pekerjaan, tingkat pendidikan, dan upah jurusan pendidikan, jenis kelamin, dan pengalaman kerja i. hipotesis hipotesis adalah jawaban sementara atas permasalahan yang masih perlu di uji untuk kebenarannya. berdasarkan permasalahan, tujuan penelitian, dan melihat hasil penelitian sebelumnya serta kerangka konseptual tersebut maka hipotesis dalam penelitian ini adalah “faktor-faktor yang mempengaruhi permintaan tenaga kerja seperti tingkat upah, jenis pekerjaan dan tingkat pendidikan terhadap lama waktu tunggu tenaga kerja terdidik dalam mencari pekerjaan yang sesuai.” metode penelitian penelitian yang digunaka adalah penelitian deskriptif dengan pendekatan kuantitatif. (nazir, 2017) “penelitian deskriptif adalah suatu metode dalam meneliti status sekelompok manusia, suatu objek, suatu set kondisi, suatu sistem pemikiran, ataupun suatu kelas peristiwa pada masa sekarang. tujuan dari penelitian deskriptif ini adalah untuk membuat deskripsi, gambaran atau lukisan secara sistematis, faktual dan akurat mengenai fakta-fakta, sifat-sifat serta hubungan antar fenomena yang diselidiki”. jenis data yang digunakan pada penelitian ini yaitu data primer merupakan sumber data penelitian yang diperoleh secara langsung dari sumber asli (tidak melalui perantara). data primer secara khusus dikumpulkan oleh peneliti untuk menjawab pertanyaan penelitian. data primer dalam penelitian ini diambil berdasarkan kuisioner kepada responden. sedangkan data sekunder diperoleh dari badan pusat statistik kabupaten sumbawa, dinas tenaga kerja dan transmigrasi kabupaten sumbawa variabel penelitian dan definisi operasional, definisi operasional adalah suatu definisi yang diberikan kepada suatu variabel atau konstrak dengan cara memberikan arti atau menspesifikasikan kegiatan ataupun memberikan suatu operasional yang diperlukan untuk mengukur konstrak atau variable tersebut (nazir, 2017). dalam penelitian ini tenaga kerja terdidik adalah angkatan kerja yang mencari kerja berpendidikan sma, diii, dan sarjana (s1), maka diidentifikasikan beberapa faktor yang dianggap berpengaruh atau berhubungan dengan waktu tunggu mencari kerja bagi tenaga kerja terdidik yaitu sebagai berikut: 1. keputusan adalah pemilihan diantara berbagai alternatif dalam situasi tertentu untuk memutuskan dan memecahkan suatu masalah. tenaga kerja terdidik akan memutuskan faktor penyebab waktu tunggu mencari kerja dan faktor apa yang menjadi pertimbangan. 2. upah yang diinginkan upah menyatakan tingkat besarnya upah yang diinginkan oleh tenaga kerja selama satu bulan yang diukur dalam satuan rupiah. 3. tingkat pendidikan pendidikan merupakan tingkat pendidikan (tahun sukses pendidikan) yang dicapai oleh tenaga kerja terdidik dalam kurun waktu tertentu yang diukur dalam satuan tahun. 4. jenis pekerjaan jenis pekerjaan itu adalah dua jenis pekerjaan yang menghasilkan barang atau produk dan pekerjaan yang menghasilkan jasa. proses analisis data dimulai dengan menelaah seluruh data yang diperoleh melalui hasil kuisioner/google form. untuk menganalisis penelitian ini, maka dilakukan dengan langkah-langkah sebagai berikut: 1. pengumpulan informasi melalui kuisioner dan penelaahan dokumen. 2. langkah reduksi yang bertujuan untuk memilih informasi mana yang sesuai dan tidak sesuai dengan masalah penelitian. 3. memberikan penafsiran atas penyajian data yang diperoleh. penyajian data dapat berupa matrik, diagram, tabel dan bagan. 4. verifikasi dan penegasan kesimpulan, merupakan kegiatan akhir dari analisis data. penarikan kesimpulan berupa interpretasi, yaitu menemukan makna data yang telah disajikan dan pengujian teorema bayes kepada faktorfaktor yang telah ditentukan. data yang dikumpulkan dalam penelitian dan diolah, kemudian dianalisis dengan alat statistik. metode analisis data yang digunakan dalam penelitian ini adalah teorema bayes. teorema bayes adalah metode yang menggunakan pendekatan secara statistik untuk menghitung trade off di antara keputusan yang berbeda-beda, dengan menggunakan probabilitas dan nilai yang menyertai suatu pengambilan keputusan tersebut (agustina, 2014). metode bayes memerlukan pengetahuan awal untuk dapat mengambil suatu keputusan. metode bayes dalam penelitian ini digunakan untuk menentukan keputusan aksi berdasarkan keadaan. tingkat keberhasilan metode ini sangat tergantung pada pengetahuan awal yang diberikan. asumsi: y= keputusan xi= tingkat pendidikan, jenis pekerjaan, upah. metode bayes: keterangan: 1. probabilitas xi (tingkat pendidikan, upah, jenis pekerjaan) di dalam y (keputusan) adalah probabilitas interseksi xi dan y dari probabilitas y, atau p (xi y) adalah presentase banyaknya xi di dalam y. 2. adalah probabilitas responden dalam waktu tunggu mencari kerja berdasarkan tingkat pendidikan, jenis pekerjaan, dan upah. 3. adalah probabilitas keputusan respon sebagai sampel dalam waktu tunggu mencari kerja dan faktor apa saja yang jadi penentu respon dalam mendapatkan pekerjaan. selanjutnya hmap (hypothesis maximum appropri probability) ialah untuk mencari probabilitas terbesar dari semua instance pada atribut target atau semua kemungkinan keputusan: hmap = p(xi y) p(y) artinya hmap ialah nilai terbesar dari probabilitas atribut yang sudah ditentukan dalam pengambilan keputusan, p(xi y) ialah probabilitas atribut x pada y dan p(y) ialah probabilitas kelas y yang memilih keputusan tenaga kerja terdidik dalam mencari pekerjaan berdasarkan tingkat pendidikan, jenis pekerjaan, dan upah. hasil penelitian dan pembahasan hasil pengujian teorema bayes metode bayes adalah teorema yang digunakan untuk menghitung peluang dalam suatu hipotesis. teorema bayes memiliki turunan untuk menentukan jumlah kelas yaitu naive bayes. adapun hasil perhitungannya sebagai berikut: probabilitas keputusan tenaga kerja terdidik menerima pekerjaan apa saja dengan tetap mempertimbangkan tingkat upah, jenis pekerjaan, dan tingkat pendidikan dengan menggunakan rumus sebagai berikut: p(pekerjaan apa saja) = p(tingkat upah) = p(jenis pekerjaan) = p(tingkat pendidikan) = hmap = p(pekerjaan apa saja) p(jenis pekerjaan)p(tingkat pendidikan) hmap = = 0,28 = 28% perhitungan menggunakan teorema bayes diatas menunjukan nilai probabilitas tenaga kerja terdidik memutuskan memilih pekerjaan apa saja sebesar 28 persen dengan tetap mempertimbangkan jenis pekerjaan, tingkat upah, dan tingkat pendidikan. probabilitas keputusan tenaga kerja terdidik tidak menerima pekerjaan apa saja dengan tetap mempertimbangkan tingkat upah, jenis pekerjaan, dan tingkat pendidikan dengan menggunakan rumus sebagai berikut: p(pekerjaan apa saja) = p(tingkat upah) = p(jenis pekerjaan) = p(tingkat pendidikan) = hmap = p(pekerjaan apa saja) p(jenis pekerjaan)p(tingkat pendidikan) hmap = = 0,03 = 3% perhitungan menggunakan teorema bayes diatas menunjukan nilai probabilitas tenaga kerja terdidik memutuskan tidak memilih pekerjaan apa saja sebesar 3 persen dengan tetap mempertimbangkan jenis pekerjaan, tingkat upah, dan tingkat pendidikan. probabilitas keputusan tenaga kerja terdidik menerima pekerjaan apa saja, karena menganggap status gender, jurusan pendidikan, dan pengalaman kerja menjadi penghambat mendapatkan kerja dengan menggunakan rumus sebagai berikut: p(pekerjaan apa saja) = p(spesifik gender) = p(jurusan pendidikan) = p(pengalaman kerja) = hmap = p(pekerjaan apa saja)p(spesifiki gender)p(jurusan pendidikan)p(pengalaman kerja) hmap = = 0,08 = 8% perhitungan menggunakan teorema bayes diatas menunjukan nilai probabilitas tenaga kerja terdidik menerima pekerjaan apa saja karena menganggap spesifik gender, jurusan pendidikan, dan pengalaman kerja sebagai penghambat kerja sebesar 8 persen. probabilitas keputusan tenaga kerja terdidik tidak menerima pekerjaan apa saja karena tidak menganggap status gender, jurusan pendidikan, dan pengalaman kerja sebagai penghambat mendapatkan kerja dengan menggunakan rumus sebagai berikut: p(pekerjaan apa saja) = p(spesifik gender) = p(jurusan pendidikan) = p(pengalaman kerja) = hmap = p(pekerjaan apa saja)p(spesifikigender)p(jurusan pendidikan)p(pengalaman kerja) hmap = = 0,31 = 31% perhitungan menggunakan teorema bayes di atas menunjukan nilai probabilitas tenaga kerja terdidik tidak menerima pekerjaan apa saja karena menganggap spesifik gender, jurusan pendidikan, dan pengalaman kerja sebagai penghambat kerja sebanyak 31 persen. pembahasan hasil 1. probabilitas keputusan tenaga kerja terdidik menerima pekerjaan apa saja dengan tetap mempertimbangkan tingkat upah, jenis pekerjaan, dan tingkat pendidikan. para tenaga kerja terdidik tentunya akan menerima pekerjaan apa saja jika tidak mendapatkan pekerjaan apapun hingga waktu yang ditentukan, untuk memenuhi kebutuhan hidup mereka masing-masing. dari hasil penelitian dinyatakan bahwa sebanyak 28% tenaga kerja terdidik akan menerima pekerjaan apa saja dengan tetap mempertimbangkan tingkat upah, jenis pekerjaan, dan tingkat pendidikan yang dimana saat tenaga kerja terdidik tersebut menerima atau melakukan pekerjaan apa saja karena alasan tertentu, mereka tetap mempertimbangkan ketiga faktor tersebut. jika salah satu dari ketiga faktor tersebut tidak sesuai dengan kinerja saat tenaga kerja sudah menjalankan pekerjaannya, ada kemungkinan mereka akan berhenti mencari pekerjaan yang lebih baik atau bertahan dengan permintaan seperti kenaikan tingkat upah, bonus, fasilitas dll. sesuai dengan pendapat simanjuntak, (2000) menyatakan bahwa sebagai seorang tenaga kerja, pekerja berhak untuk mendapatkan balas jasa atau upah sesuai dengan pengorbanannya. pemberian upah oleh pengusaha terhadap tenaga kerja sangat menentukan tinggi rendahnya penghasilan suatu perusahaan. dimana pada dasarnya upah merupakan sumber utama penghasilan. oleh karena itu, upah harus cukup untuk memenuhi kebutuhan hidup karyawan dan keluarganya dengan sewajarnya. kewajaran dapat dinilai atau diukur dengan kebutuhan minimum. 2. probabilitas keputusan tenaga kerja terdidik tidak menerima pekerjaan apa saja dengan tetap mempertimbangkan tingkat upah, jenis pekerjaan, dan tingkat pendidikan. ada beberapa tenaga kerja terdidik yang tidak menerima pekerjaan apa saja jika tidak mendapatkan kerja sampai waktu tertentu dan akan terus mencari pekerjaan yang sesuai dengan passion atau kengingina mereka. hal ini dikarenakan tenaga kerja terdidik tidak ingin dirugikan dengan menerima pekerjaan apa saja sedangkan pendidikan yang ditamatkan membutuhkan biaya dan waktu yang cukup lama, seperti yang dikutip dalam teori human capital adalah bahwa seseorang dapat meningkatkan penghasilannya melalui peningkatan pendidikan. setiap tambahan satu tahun sekolah berarti, di satu pihak, meningkatkan kemampuan kerja dan tingkat penghasilan seseorang, akan tetapi dipihak lain menunda penerimaan penghasilan selama setahun untuk meningkatkan kemampuan kerja dan tingkat penghasilan selama satu tahun untuk mengikuti sekolah tersebut dan berharap untuk meningkatkan penghasilan dengan peningkatan pendidikan (simanjuntak, 2001). maka dari itu hasil perhitungan teorema bayes terdapat 3% tenaga kerja terdidik yang tidak menerima pekerjaan apa saja dan mempertimbangkan tingkat upah, jenis pekerjaan, dan tingkat pendidikan. tenaga kerja terdidik mementingkan tingkat pendidikan dalam mencari pekerjaan demi meningkatkan penghasilan yang lebih baik dan status sosial, bahkan beberapa mementingkan jenis pekerjaan demi sesuai dengan passion tenaga kerja masing-masing. berdasarkan sampel penelitian, jenis-jenis pekerjaan yang diminati oleh tenaga kerja terdidik sangat beragam sesuai dengan minat, skill, dan tingkat pendidikan yang ditamatkan masing-masing tenaga kerja terdidik. 3. probabilitas keputusan tenaga kerja terdidik menerima pekerjaan apa saja, karena menganggap status gender, jurusan pendidikan, dan pengalaman kerja menjadi penghambat mendapatkan kerja. adapun hambatan dari sisi penawaran pekerjaan yang mendesak tenaga kerja menerima pekerjaan apa saja karena tidak mendapatkan pekerjaan yang sesuai yang diakibatkan oleh beberapa syarat lowongan pekerjaan. dari hasil perhitungan teorema bayes, 8% persen tenaga kerja terdidik akan menerima pekerjaan apa saja karena menganggap status gender, jurusan pendidikan, dan pengalaman kerja sebagai penghambat mereka dalam mencari sebuah pekerjaan. penawaran tenaga kerja jika dilihat dari sisi gender tentunya memiliki banyak perbedaan dari berbagai sisi seperti yang disebutkan dalam teori neo klasik berasumsi bahwa pembagian kerja seksual dengan menekankan perbedaan seksual dalam berbagai variabel yang mempengaruhi produktivitas pekerja. perbedaan-perbedaan itu meliputi pendidikan, keterampilan, lamanya jam kerja, tanggung jawab rumah tangga, serta kekuatan fisik. semua ini didasari asumsi bahwa didalam persaingan antar pekerja, pekerja memperoleh upah sebesar marginal product yang dihasilkannya. sama hal nya dengan jurusan pendidikan dan pengalaman kerja, seperti yang dikatakan pada teori neo klasik. dalam hubungan dengan kesempatan kerja untuk memperoleh pekerjaan yang lebih terbuka bagi mereka yang mempunyai tingkat pendidikan yang lebih tinggi atau dengan jurusan pendidikan tertentu. hal ini karena pada umumnya tingkat kelangkahan dari lulusan jurusan pendidikan yang lebih tinggi juga akurat, sehingga tingkat persaingannya untuk mendapatkan pekerjaan yang sesuai juga lebih longgar. 4. probabilitas keputusan tenaga kerja terdidik tidak menenim. pekerjaan apa saja, karena menganggap status gender, jurusan pendidikan, dan pengalaman kerja tidak menjadi penghambat mendapatkan kerja. semakin tinggi tingkat pendidikan semakin tinggi peluang untuk mendapatkan sebuah pekerjaan, dan beranggapan bahwa tidak terlalu banyak syarat-syarat pekerjaan yang menghambat karena telah menempuh sebuah pendidikan tertentu. semakin tinggi tingkat pendidikan pula, tenaga kerja terdidik tentunya tidak asal menerima sebuah pekerjaan karena harus ada harga yang dibayar akan biaya pendidikan yang telah dikeluarkan. berdasarkan hasil perhitungan teorema bayes hanya 31 persen sampel tenaga kerja tendidik yang tidak akan menerima pekerjaan apa aja dan tidak menganggap status gender, jurusan pendidikan, dan pengalaman kerja sebagai penghambat mendapatkan kerja. saat ini, banyak tenaga kerja terutama tenaga kerja perempuan yang menganggap terjadinya kesenjangan gender dalam dunia pekerjaan dan meminta keadilan dan porsi yang sesuai dengan tenaga kerja laki-laki. menurut teor gender ini, perbedaan pria dan wanita pada hakekatnya adalah hasil konstruksi sosial budaya sehingga menghasilkan peran dan tugas yang berbeda. pria selalu lebih superior dari pada wanita. perjuangan untuk persamaan di pelopori oleh kaum feminis internasional cenderung mengejar persamaan dengan konsep sama rata. konsep ini kemudian dikenal dengan istilah perfect quality. perjuangan tersebut sulit dicapai karena berbagai hambatan dari nilai agama dan budaya. maka dari itu ada beberapa tenaga kerja terdidik yang tidak menerima pekerjaan apa saja dan tidak menganggap status gender, jurusan pendidikan, dan pengelaman kerja sebagai penghambat untuk mendapatkan pekerjaan. kesimpulan dan saran kesimpulan berdasarkan uraian hasil dan pembahasan, maka dapat disimpuikan bahwa: 1. tenaga kerja terdidik lulusan sma lebih mendominasi waktu tunggu kerja dengan jumlah 44% (44 orang) responden dari pada tenaga kerja lulusan sl 41% (41 orang) dan lulusan d-i/ii/iii 15% (15 orang) dari total 100 responden. 2. penyebab waktu tunggu bekerja bagi tenaga kerja terdidik yaitu dari sisi permintaan tenaga kerja terhadap tingkat upah, jenis pekerjaan, dan lingkungan pekerjaan yang tidak sesuai. dari sisi penawaran yaitu beberapa syarat lowongan kerja seperti spesifik/status gender, jurusan pendidikan, dan pengalaman kerja sehingga menyebabkan waktu tunggu dan dilema bagi tenaga kerja untuk mencari dan menerima sebuah pekerjaan. 3. dari sisi permintaan (tenaga kerja), tenaga kerja terdidik lebih mengutamakan tingkat pendidikan dibandingkan upah dan jenis pekerjaan dengan persentase tertinggi yaitu sebanyak 35% memilih mengutamakan tingkat pendidikan. 4. dari sisi penawaran (lowongan pekerjaan), tanggapan terhadap persyaratan lowongan kerja seperti, status gender, jurusan pendidikan, dan pengalaman kerja yaitu yang paling menghambat untuk mendapatkan pekerjaan adalah persyaratan pengalaman kerja dengan jumlah tertinggi yaitu 73%. 5. terdapat sebanyak 67% (67 orang) tenaga kerja terdidik bersedia menerima pekerjaan apa saja, jika tidak mendapatkan pekerjaan hingga waktu tertentu. 6. berdasarkan pengujian teorema bayes terdapat sebesar 28% tenaga kerja terdidik menerima pekerjaan apa saja, dan tetap mempertimbangkan tingkat upah, jenis pekerjaan, dan tingkat pendidikan. terdapat sebesar 3% tenaga kerja terdidik tidak menerima pekerjaan apa saja dan tetap mempertimbangkan tingkat upah, jenis pekerjaan, dan tingkat pendidikan. terdapat sebesar 8% tenaga kerja terdidik menerima pekerjaan apa saja dan beranggapan bahwa status gender, jurusan pendidikan, dan pengalaman kerja menjadi penghambat mendapatkan kerja. terdapat 31% tenaga kerja terdidik tidak menerima pekerjaan apa saja dan tidak beranggapan bahwa status gender, jurusan pendidikan, dan pengalaman kerja sebagai penghambat mendapatkan pekerjaan. saran berdasarkan kesimpulan yang telah diambil, berikut ini akan diberikan rekomendasi atau saran terkait penelitian, yaitu: 1. bagi tenaga kerja terdidik. a. pada usia tertentu, para pencari kerja diharapkan lebih aktif dalam mencari informaai tentang lowongan pekerjaan yang sesuai dengan tingkat pendidikan dan keahlian yang dimilikinya. sebab sebagian besar perusahaan lebih mengutamakan pencari kerja dengan usia muda karena usia muda merupakan usia yang masih sangat produktif dalam bekerja. hal ini tentunya tidak sulit lagi, mengingat begitu pesatnya kemajuan teknologi yang ada pada masa sekarang sehingga pencari kerja dapat dengan mudah memperbaharui infomasi yang mereka inginkan, sehingga kemungkinan terjadi kesenjangan information antara pencari kerja dan pemberi kerja dapat dicegah seminimal mungkin. perlu menanamkan jiwa kewirausahaan bagi kelompok pencari kerja dengan pendidikan tinggi agar pengangguran terdidik dapat memberikan solusi dalam menciptakan pekerjaan. karenanya, pencari kerja yang memiliki latar belakang pendidikan yang tinggi dituntut untuk lebih kreatif dan inovatif. b. para pencari kerja perlu membekali diri dengan pengalaman kerja, sebab dengan pengalaman kerja yang mereka miliki, maka mereka akan mendapatkan tambahan informasi yang lebih baik mengenai pasar kerja. faktor pengalaman kerja juga akan memberikan nilai tambah bagi pencari kerja, dimana perusahaan cenderung memilih pekerja yang memiliki pengalaman bekerja lebih banyak dan lebih lama dibandingkan mereka yang pengalaman kerjanya sedikit atau tidak ada sama sekali sehingga dengan memiliki pengalaman kerja, tenaga kerja yang berpengalaman lebih siap untuk memasuki dunia kerja dibandingkan dengan tenaga kerja yang tidak berpengalaman. 2. bagi pemerintah pemerintah daerah kabupaten sumbawa diharapkan untuk lebih sigap dalam mengatasi masalah pengangguran terdidik yang ada. disebabkan kabupaten sumbawa masih membutuhkan perhatian banyak. karena di daerah atau kota tersebut masih sangat minim lapangan pekerjaan tetapi memiliki banyak tenaga kerja terdidik yang siap bekerja. perlu adanya peran pemerintah daerah membangun suatu sistem yang mengelola seluruh informasi di pasar kerja dimana sistem tersebut dapat diakses oleh semua lapisan masyarakat, baik itu masyarakat pencari kerja maupun masyarakat yang sedang mempersiapkan diri untuk turun dalam pasar kerja. pemerintah pun harusnya bisa menciptakan kanal-kanal pendidikan alternatif untuk membuka dan menambah ilmu pengetahuan para pencari kerja agar bisa bersaing dalam pasar kerja. pemerintah juga diharapkan dapat menciptakan lapangan kerja baru yang sesuai dengan dunia pendidikan dan sistem pendidikan tinggi yang ada di indonesia (link and match) agar meminimalisir terjadinya waktu tunggu mencari kerja jangka panjang pagi para tenaga kerja terdidik. 3. bagi dunia pendidikan diharapkan dunia pendidikan menyiapkan jurusan pendidikan yang memang dibutuhkan di pasar kerja dan industri, serta terciptanya tenaga kerja terdidik yang berkualitas dan berdaya saing sesuai dengan link and match. referensi ____. badan pusat statistik kabupaten sumbawa, (2018). sumbawa dalam angka 2018. sumbawa: badan pusat statistik provinsi nusa tenggara barat. agustina. 2014. metode bayes. atmanti h.d. 2005. investasi sumber daya manusia melalui pendidikan. jurnal dinamika pembangunan. kiki, s. (2012). analisis pengaruh pendidikan, keterampilan dan upah terhadap lama mencari kerja pada tenaga kerja terdidik di beberapa kecematan di kabupaten demak. (skripsi yang di publikasikan universitas diponegoro). knox, david & schacht, caroline, (2016) choices in relationship; an introduction to marriage and the family, united states: cengage learning kuncoro. 2014. mudah memahami dan menganalisis indikator ekonom. edisi kedua. upp stim ykpn. yogyakarta. nazir, moh. 2017. metode penelitian. ghalia indonesia. jakarta. simanjuntak, p. j. (2001). pengantar ekonomi sumber daya manusia. lpfeul, jakarta. satrio, a. (2010). pengaruh umur, pendidikan, pendapatan dan pengalaman kerja terhadap lama mencari kerja bagi tenaga kerja terdidik di kota magelang. (proposal yang di publikasikan universitas diponegoro semarang). sukirno, s. (2003). pengantar teori makro ekonomi. pt. salemba, jakarta. sumarsono, sonny. 2003. ekonomi manajemen sumber daya manusia dan ketenagakerjaan. jember: graha ilmu. todaro, m. p. (2011). economic development (pembangunan ekonomi di dunia ketiga alih bahasa haris munandar). erlangga. jakarta. afebi economic and finance review-final.1.1 the leader’s role on civil service reform in asean countries 1 1 the leader’s role on civil service reform in asean countries prijono tjiptoherijanto1* 1 university of indonesia, depok, indonesia abstract in many asian countries, public administration is in the process of considerable change and reform. citizens in these countries have demanded faster, better, and cheaper public service. they have also demanded more efficient goverment. in order to meet these demands, the nation has to change its public services into more democratic, efficient, and citizen-oriented goverment. experiences gathered from malaysia, thailand, and the philippines, in comparison to the situation in indonesia, which the another lived are discussed. jel classification: a10, h10, h19 keywords: civil service reform, leadership values, trust deficit 1. introduction in 1991, the world bank relesed a report entitled “ the reform of public sector management: lesson from experience”1which was drawn from the experience of the world bank and its member countries in the 1980’s. this report approached civil service reform form two complementary perspectives: first, shortterm cost-containment measures aimed at reforming public pay and employment system, and second, medium-term programs to build institutional support for costcontainment and to strengthen the goverment’s ability to manage the civil service. for a short term measure, goverment pay and employment reform has focused on four main problems: a. excessive public sector wage bills, measured both by the ratio of personnel expenditures to goverment revenues or total expenditures, and by the degree to which personnel recurrent expenditures are crowded out by wages; b. surplus2 civil service staff, with “surplus” defined by a range of measures and rates, including the number of civil servants in relation to the number of participants in the modern sector labor forces, and by operating budges too low to support the current number of employees; c. salary erosion, or the decline in wages that reflect not only the high level of inflation in many countries but also the trade-off between expanded employment and lower average pay, and the proliferation of non-wage benefits to offset the fall in real pay; and * corresponding author. email address: prijonoth@yahoo.com 1 world bank, country economic department, “the reform of public sector management: lesson and experiences”, world bank: washington d.c.1991. 2 the notion of “surplus” contains an element of subjectivity; rigorous measures of the concept have proved difficult to devise and apply. criteria used include comparative (crossnational) rations of the number of civil servants to the overall population, or as percentage of the country’s modern sector. mailto:prijonoth@yahoo.com afebi economic and finance review (aefr) vol.02 no.01, june 2017 2 d. wage compression, meaning the small difference between the highest and lowest civil servant salaries making it difficult to attract and retain qualified staff: these reforms were the reaffirmationof the issue of the modernization of the public service experienced by western countries, especially in the organization for economoic cooperation and development.3the following factor helped to push this modernization:first,the economic and financial pressures facing the goverment of such countries in the last quarter of the twentieth century and the early years of the twenty-first century. these pressures led goverment to question the benefits of traditional large-scale public bureaucracies and reinforced demands for greater efficiency and value of money in the operations of civil services. goverments “reassessed their bureaucracies and demanded changes” (hughes, 1998, p.4) second, the public pressure on goverments to deliver services that are more responsive to the public. there has been a growing recognition that the consumer of public service should be at the heart of the arrangements for services delivery. whereas the traditional public administration perspective was based on idea that public sector management was different form business management, there is now a view that public administration “has everything to learn from the private sector” (gunn, 1998, p.1). there is a belief that “better management” can solve a range of economic and social problems faced by goverments (pollit, 1993, p.1) and that management techniques from the private sector should be imported into the civil services and other parts of the public service. third, the growing awareness of the potential of information technology in helping to improve the efficiency and effectiveness of public service operations (see: oecd 1990,p.14). technological developments have transformed the processes of public administration. the developments of information technology in the delivery of public services is one of the four administrative “megatrends” linked with the emegence of the so-called new public management or better known as the npm (hood, p.3). lastly, the desire to improve political control of central goverment bureaucracies is another important factor in helping to explain the modernization agenda. in an number of western liberal democratic countries, the higher civil service has been seen as an entity to be controlled by elected politicians. concerned that permanent officials had become too powerful in the formulation of public policy, the political leaders of many westren countries have attempted “to reassert political control over the bureaucratic machine” (pollitt and bouckaert, 2000, p.155). based on the situation us described by the world bank's report mentioned above, the reformation of bureaucry as a part of the administration reform is needed. bureaucratic reform always need a very clear and consistent direction from the leader of government. 2. administrative culture the de-bureaucratization movement as an administrative reform is more than a political act. it is challenging basic social values. as james q. wilson 3organization for economic cooperation and development (1990 and 1993) “public management development : survey 1990 and survey 1993” paris: oecd, 1990 and 1993. the leader’s role on civil service reform in asean countries 3 commented, “the way in which a bureaucracy operates cannot be explained simply by knowing its tasks and the economic and political incentives that it confronts. culture makes a difference”4 culture is the reflection of the economy and politics. the dominant forces and the newly emerging forces in the economy and politics are also those in culture. however, culture is not simply the ideological reflection of current forces and contradictions in the economy and politics. it is also the accumulation of previous notions, customs, and habits, and which will persist for so long as there are carriers and are part of the social psychology of the people wherever the lived. the bureaucracy has a structure that breeds its own administrative culture. incoming political leadership often reacts to the bureaucracy it inherits by instituting personnel purges, reorganization or both, either to cleanse the sold system and reorient it to the needs of the new dispensations, or to reshape the achievement of its policy and program objectives. therefore, any new political order brings to the regime-bureaucracy relation its own political culture. as the bueaucracy accommodates and eventually trust the new regime, an administrative culture supportive of the political leadership emerges. the biggest hurdle to administrative reforms, however, appears to be the role of politcians in controlling bureaucracy. political leaders is a party-run polity are unlikely to appreciate the importance of a political neutral civil service. they are also not adequately restrained from pursuing extraneous goals in and through the bureaucracy. indulgence by dominant-party politicians has also resulted in widespread political interference in administrative decisions and the politicization of bureaucracy decision-making5. another factor which contributed to the successful of administrative reform is the role of leaders. for better implementation of any change in public services very persistent and visionary leaders are needed. therefore, there has to be quality leadership that will provide guidance and inspiration to the whole community, especially in the bureaucracy as the goverment’s machine. leadership is thus a necessary but insufficient condition for institutionalizing public sector reforms. leadership is the key element in reforming the office and, in larger sense, achieving an engaging and performing civil service in a challenging and globalizing world at present6. 4james q. wilson, “bureaucracy: what goverment agencies do and why they do” basic books. 1989, p.203. 5this kind of politicization in bureaucracy was branded as “bureaucratic polity” in thailand (see: fred riggs, “thailand: the modernization of a bureaucratic polity”, honolulu, east west center press, (1996) and “dominated bureacracy” in the philippines (see: ledivina v. carino, “adominated bureaucracy: an analysis of the formulation of, and reaction to state policies in the philippine civil service”,occasional paper administration, university of the philippines,1989. 6the malaysian prime minister’s dr. mahathir mohammad had a vision for 2020 that established a “malaysian incorporated”; while prime minister thaksin shiniwatra of thailand introduced the “ceo-manager” style for thai civil service. since the birth of the philippine republic in 1946, civil service reform has been undertaken during the administration of presidents roxas, quirino, magsaysay, marcos and aquino. in indonesia the late president soeharto reformed the civil service system in 1974. since then no major changes in public service system have happened in indonesia until announcement of the law no. 5 year 2014 on national civil apparatus (aparatursipil negara/asn) afebi economic and finance review (aefr) vol.02 no.01, june 2017 4 good governance occurs not only when politicians are honest and accountable, but also when civil servants are efficient and productive, since the quality of governancehas been largely dependent on the quality of people who run it. a government that is maintained by responsible, highly competent individuals motivated by a strong desire to serve and improve the lives of others can be assured of goverment that truly works for the people. most of the ills in the goverment can be traced to the lack of this basic quality in service. sadly the reputation of public officials speaks for itself in almost of the developing countries without exception in southeast asia. there is the general perception that the bureaucracy in the region remains largeiy inefficient and corrupt, even if the president or prime minister is honest and sincere and working for the interest and general welfare of the people. the determinant factors which influenced and affected the implementation of public service reform in some of the asean countries which were reform in some of the asean countries which were studied is summarized in table 1 below. table 1 influencing factors in civil service reform country political influences institutional support leadership values malaysia political interference in bureaucratic decision making ethica! guidelines, active usage of ict (information and communication technology. sometimes its called information technology (it) only) political will and leadership support with clear vision thailand top echelons monopolized political and administrative power strong role of csc (civil service commission), well esablished norms and values ceo-manager’s style, creation of senior executive services (ses) philippines tradition of subservience instead of independence and neutral civil service positive contribution of csc, strong and active role of ngos and pos (people's organization) political will for rationalization and decentralization programs indonesia top echelons selected through politically decision making process just recently have csc, not-so-clear division of the roles of institutions responsible for civil service matters need for strong and visionary leaders and more systematic reforms source: author's own perception froom the research's findings 3. conclusion the expending economic activities demand that not only civil servants in general be fully equipped and trained for the great tasks but orientation and motivation should permeate especially to the higher echelons. such orientation is being provided in almost all countries to equip them to undertake more complex the leader’s role on civil service reform in asean countries 5 tasks and create the necessary equipment. it is also to be ensured that better tools and techniques are used at all levels to improve performance and productivity of civil servants. governments need to enhance leadership capacity of public servants, a prerequisite for harmonious, evenly distributed, and peaceful development, clear forecasting and planning to meet future challenges, as well as the maintance of the rule of law and orderly progress. every leader in public service must have adequate management capacity to plan, prioritize, steer implementation, monitor and control, evaluate and recast plans. this condition is a must in malaysia and thailand which both experience political turmoil and have difficulty preserving neutrality among public servants. in addition, indonesia still needs a strong and persistent leader. towards this end, in most asian developing countries, the civil service reform initiated, such as merit-based promotion, entrance to the serviced based on competitive examinations, the protection of the civil servants from arbitrary removal, the protection of their political neutrality, meaningful compensation packages, and the policing and management of the civil service by an independent body should be relentlessy pursured. these are initiatives necessary to achieve the goals of responsiveness, impartiality, and professionalism of public service in these countries. references asian development bank. 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(2006). country assistance strategy program report for republic of indonesia. washington, d.c: world bank. relationship between crude oil price fluctuations, economic growth, inflation and exchange rate in indonesia 1967-2019 83 relationship between crude oil price fluctuations, economic growth, inflation, and exchange rate in indonesia 1967-2019 salwinar aprin nitami1)*, banatul hayati2) 1,2 department economics, faculty of economics and business, diponegoro university, indonesia abstract economic fluctuations can be caused by demand shock and supply shocks. supply shocks are caused by changes in world crude oil prices. as a net importer of crude oil, change in crude oil prices makes domestic economic activity vulnerable to these shocks. the purpose of this study was to determine the effect of fluctuations in world crude oil prices on economic growth, inflation, and exchange rates in indonesia. the type of data used is secondary data sourced from the bp statistical review of world energy and the worldbank. this research uses the var/vecm method during the period 1967-2019. the results showed that world crude oil prices had a significant positive effect on economic growth and had a significant negative effect on inflation and the exchange rate in the long run. in the short term, world crude oil price fluctuations do not significantly affect economic growth, inflation, and the exchange rate. overcoming world oil prices by increasing the availability of alternative energy and maintaining alternative energy prices through administered price policies. to reduce the depreciation of the exchange rate, larger foreign exchange reserves are needed as well as the development of research for the use of cheaper renewable energy. keywords: world crude oil price, economic growth, inflation, exchange rate, var/vecm 1. introduction the economy experiences fluctuations in economic activity as measured by real economic growth, both in the short and long term. economic fluctuations are caused by changes in aggregate demand or aggregate supply. these changes are referred to as supply and demand shocks. supply shocks are shocks that can change the cost of producing goods and services so that they have a direct impact on price changes, for example, an increase in world oil prices by opec (organization of petroleum exporting countries). demand shocks occur due to changes in determinants of aggregate demand such as consumption, investment, government spending, net exports, national income, money supply, inflation, and exchange rates (mankiw, 2006). crude oil is a fossil resource. this commodity is used as the main input in producing energy sources. before it can be utilized, crude oil must go through an oil refinery to be processed into products that can be used directly, such as gasoline, diesel, kerosene, lpg and so on. it is these uses that make crude oil prices a hot topic at the international level. this is because not all countries have sufficient crude oil resources to meet their country's energy needs, while the crude oil *coressponding author. email address: salwinarsatu@gmail.com commodity itself experiences fluctuating price movements. mailto:salwinarsatu@gmail.com afebi economic and finance review (aefr) volume 6, no 2 (2021) 84 based on the bp statistics review of world energy 2020 data report, during the period 1967 to 2019, the price of crude oil in the world initially fluctuated insignificantly, wherein 1967 the oil price of crude oil amounted to the us $ 1.80 per barrel which was able to last until 1970. then in 1971 the price of crude oil rose to us $ 2.24 per barrel and continued to increase until 1974 amounting to the us $ 11.58 per barrel. then in 1975, it decreased by the us $ 11.53 per barrel. however, it experienced a quite drastic increase again until 1980, amounting to the us $ 36.83 per barrel. then the oil price decreased until 1986 by the us $ 14.43 per barrel. after that year, crude oil experienced fluctuating price fluctuations compared to the initial years where the price of crude oil was the only us $ 1.80 per barrel. the highest increase occurred in 2012 which was able to penetrate the price of us $ 111.67 per barrel and ended in 2019 the price of crude oil fell to the us $ 64.21 per barrel. figure 1.1 shows briefly the fluctuations in the price of crude oil in the world. figure 1.1 world crude oil price 1967-2019 (us $ per barrel) source: bp statistical review of world energy 2020 in general, the price is formed by the interaction of market supply and demand, so it is different from the commodity crude oil. the amount of demand for crude oil depends on the needs of the importing country, while the amount of supply depends on the amount of supply where climatic conditions also affect the size of the crude oil reserves owned by the exporting country. muradov, et al (2019) revealed that political factors also affect oil prices because oil and oil products have a very prominent role in important areas of the country's economy. following this statement, the events of 1973 as a result of the fallen war and the iranian revolution in 1979-1980 increased the price of crude oil which was originally only us $ 2.89 per barrel to the us $ 11.58 per barrel in 1974. then, in 1980 the world crude oil price continued to rise, breaking through the price of us $ 36.83 per barrel. these factors cause crude oil to be different from other commodities because there are external factors that can influence the fluctuations in the price of crude oil in the world in addition to the prevailing axioms in the crude oil commodity market. in the indonesian economy, the commodity crude oil is used to support the domestic production of goods and services. therefore, the increase in crude oil consumption in indonesia is on average 0.5 percent per year (bp statistical review of world energy, 2020). seeing this condition, the domestic economy is very vulnerable to movements in the price of crude oil in 0,00 20,00 40,00 60,00 80,00 100,00 120,00 relationship between crude oil price fluctuations, economic growth, inflation and exchange rate in indonesia 1967-2019 85 the world. this is due to changes in indonesia's economic structure which have turned into a net importer of crude oil. unlike the case with an export-oriented economy, it will be profitable because it will provide a windfall profit (sudden gain). indonesia experienced such conditions during the new order era, to be precise in 1973-1974, the boom in crude oil prices in that year gave benefits to the performance of the domestic trade balance. this is due to indonesia's position at that time as a net exporter of crude oil. on the other hand, because crude oil is a non-renewable natural resource, this does not last long. it is proven that in 2001 the performance of domestic crude oil production began to decline. this condition made indonesia have to leave opec's membership and officially became a net importer of crude oil in 2008. after indonesia resigned from opec, energy needs derived from crude oil were supported by imports from abroad. although crude oil is the main input in driving the flow of goods and services, dependence on imports of crude oil will affect the domestic economy. gonzalez and sherzod (2009) state that oil is a commodity that is different from other commodities because oil is one of the production inputs capable of directly affecting economic growth, both positive and negative, causing inflation and a recession. meanwhile, nally (2017) states that oil as a strategic commodity drives the engine of economic growth, accelerates technological change, and increases productivity. the relationship between fluctuations in world crude oil prices and economic growth in indonesia means that when the price of crude oil rises, domestic companies should reduce their output because oil is considered one of the production inputs. so that the resulting output will decrease because the input costs are expensive. the effect is that this reduction in output in the aggregate will cause economic growth to decline. however, looking at real data in indonesia, the level of domestic crude oil consumption shows a significant increase. (bp statistical review of world energy, 2020). this increase in consumption indicates that the domestic economy is not affected by the fluctuating movement of crude oil prices in the world. over time, when indonesia became an importer of crude oil and previously had the largest crude oil reserves, the fluctuations in crude oil prices in the world caused economic turmoil in the country. the data show that the increase in crude oil prices in 2004-2006 led to an increase in inflation which was originally 2004 amounted to 6.06 percent, increased to 10.45 percent in 2005. then continued until 2006 to 13.10 percent. also, in another period the increase in oil prices that occurred in 2011 led to an increase in inflation by 5.13 percent to 5.35 percent in 2011. then in 2017 it also increased the increase in crude oil prices and inflation also increased the price of crude oil, where inflation rose by 3.80 percent which was originally only 3.52 percent. although the increase in the price of crude oil in the world is in line with the increase in inflation in indonesia, the increase in inflation is on a downward trend. the development of indonesia, which turned into a crude oil importer country, made the rupiah exchange rate vulnerable to the effects of these crude oil price movements. this is because the exchange rate is used as a means of exchange in trading crude oil. crude oil import activities require foreign currency to pay import bills. if the price of crude oil in the world increases, the demand for foreign currencies will increase, which will result in the depreciation of the domestic rupiah. 2. literature study the theory of economic fluctuation is based on the effects of shocks that result from changes in aggregate supply and demand. opec's behavior in implementing policies to reduce crude oil supply has increased oil prices. in the short run, the supply curve (sras) will move upward to become the supply curve (sras2). if the aggregate demand (ad) is constant, the economy will move according to the supply curve, which is that from point a moves to point afebi economic and finance review (aefr) volume 6, no 2 (2021) 86 b. in this case, it will automatically increase the price from p1 to p2, the output will fall from y1 to y2. then the increase in price and decrease in output is known as stagflation, namely stagnation (decrease in output) and inflation (increase in prices). figure 1.2 shows the economic fluctuation caused by supply shocks. figure 1.2 supply shock source : mankiw (2006) as shown in figure 1.2, cases of stagflation throughout history have occurred in the 1970s, namely that some industrialized countries in the united states which at that time depended on imports of crude oil were affected by the reduction in oil supply by opec. this has increased the price of crude oil in the world. as long as indonesia becomes a net exporter of crude oil, the abundance of production factors will provide an advantage when the price of crude oil in the world increases. however, the continuous exploitation caused a decrease in crude oil reserves in indonesia and even made indonesia a crude oil importer country and left opec membership in 2008. such conditions make domestic economic activity vulnerable to shocks caused by fluctuations in crude oil prices. world. an increase in world crude oil prices can cause cost-push inflation so that production will decrease which results in high production costs. the decline in production has an impact on unemployment so that economic growth decreases. the inflation that occurs causes the price of indonesian products to be more expensive than foreign prices, resulting in a depreciation of the rupiah. seeing the importance of oil commodities in influencing output in the domestic economy, this study analyzes the macroeconomic variables in indonesia which can be affected by fluctuations in world crude oil prices. as for previous researchers who examined similar topics such as ichsandimas and cahyadin (2014) using research data for the years 1980-2010, the results show that world oil prices have a positive relationship to gdp and inflation. syamila, et al (2020) in their research revealed that every movement in world oil prices does not affect inflation, but on the other hand gdp increases and the exchange rate appreciates, this study compares when indonesia became a net exporter and net importer of crude oil in the 1991-2015 period. besides, nizar (2012) also researched in 2000-2011 using the var method. the difference between this study and the previous research is that during the research period it was carried out, starting from the period of indonesia as a net exporter to the period when indonesia turned into a net importer of crude oil. 3. research methodology this study using the var/vecm analysis method. the model used refers to the standard var model issued by sims, which is a model that functions to form relationships between variables and their past and by entering the lag of all variables in the model (ekananda, 2016). relationship between crude oil price fluctuations, economic growth, inflation and exchange rate in indonesia 1967-2019 87 meanwhile, vecm analysis will be used if a variable is found that is not stationary at the level and there is cointegration. the var model can be written in the following equation: 𝑌𝑡 = 𝛽0 + ∑ 𝛽𝑖𝑌𝑡−𝑖 𝑘 𝑖 + ∑ 𝛽𝑖𝑋𝑡−𝑖+.. . 𝑘 𝑖 + 𝑡 (1) 𝐶𝑂𝑃𝑡 = 𝛽01 + ∑ 𝛽𝑖𝐶𝑂𝑃𝑡−𝑖 𝑘 𝑖=1 + ∑ 𝛾𝑖𝐺𝐷𝑃𝑡−𝑖 𝑘 𝑖=1 + ∑ 𝜗𝑖𝐼𝑁𝐹𝑡−𝑖 𝑘 𝑖=1 + ∑ 𝛿𝑖𝑂𝐸𝑅𝑡−𝑖 𝑘 𝑖=1 + 1𝑡 (2) 𝐺𝐷𝑃𝑡 = 𝛽02 + ∑ 𝛽𝑖𝐶𝑂𝑃𝑡−𝑖 𝑘 𝑖=1 + ∑ 𝛾𝑖𝐺𝐷𝑃𝑡−𝑖 𝑘 𝑖=1 + ∑ 𝜗𝑖𝐼𝑁𝐹𝑡−𝑖 𝑘 𝑖=1 + ∑ 𝛿𝑖𝑂𝐸𝑅𝑡−𝑖 𝑘 𝑖=1 + 2𝑡 (3) 𝐼𝑁𝐹𝑡 = 𝛽03 + ∑ 𝛽𝑖𝐶𝑂𝑃𝑡−𝑖 𝑘 𝑖=1 + ∑ 𝛾𝑖𝐺𝐷𝑃𝑡−𝑖 𝑘 𝑖=1 + ∑ 𝜗𝑖𝐼𝑁𝐹𝑡−𝑖 𝑘 𝑖=1 + ∑ 𝛿𝑖𝑂𝐸𝑅𝑡−𝑖 𝑘 𝑖=1 + 3𝑡 (4) 𝑂𝐸𝑅𝑡 = 𝛽04 + ∑ 𝛽𝑖𝐶𝑂𝑃𝑡−𝑖 𝑘 𝑖=1 + ∑ 𝛾𝑖𝐺𝐷𝑃𝑡−𝑖 𝑘 𝑖=1 + ∑ 𝜗𝑖𝐼𝑁𝐹𝑡−𝑖 𝑘 𝑖=1 + ∑ 𝛿𝑖𝑂𝐸𝑅𝑡−𝑖 𝑘 𝑖=1 + 4𝑡 (5) where: cop = world crude oil price gdp = economic growth inf = inflation oer = exchange rate β = constant i = lag length ε = shock the data type in this research is time series from 1967-2019. the variables used are world crude oil price expressed in us dollar barrels, economic growth and inflation expressed in percent, and the exchange rate expressed in lcu per us dollar. the data sources used are from the world bank and the bp statistical review of world energy. the test step begins with a data stationarity test to determine the stationarity of data that does not contain a unit root. the second step is to test the lag length to find out the optimal lag that can be determined. a lag that is too short causes a model that is not dynamic and a lag that is too long will reduce the degree of freedom. then the third step is a stability test to determine the level of validity of the data to explain the impulse response function, after that the fourth step is a cointegration test to find out the next step is to continue using var or switch to using vecm. the causality test is the fifth test that serves to determine the causality between variables. after that is the vecm estimation test to determine the long-term results (cointegration). impulse response function (irf) and variance decomposition (vd) tests are the last tests that are useful for determining the effect of shocks and the magnitude of their contribution to the variables being tested. 4. result and discussion the results of the analysis in this study were carried out through several stages including the stationarity test, the lag length test, the stability test, the cointegration test, the causality test, the var / vecm estimation test, the impulse response function (irf) test, and the variance decomposition (vd) test. stationarity test the stationarity test is carried out for each variable which functions to test the stationarity so that the variables used do not contain spurious regression. the probability value using the afebi economic and finance review (aefr) volume 6, no 2 (2021) 88 augmented dickey-fuller test shows the stationarity test results as in table 1.1 that only the variables of economic growth and inflation are stationary at the level. meanwhile, the variables of world crude oil prices and exchange rates are not stationary at the level. this is because the probability value is greater than alpha 0.05. a probability value that is greater than alpha 0.05 indicates that the variable contains a unit root. therefore, a stationary test was carried out at the first difference level and the overall stationary variables at the first difference level. table 1.1 adf stationarity test results variable augmented dickey-fuller test level information first difference information cop 0.5401 not stasionery 0.0000 stasionery gdp 0.0000 stasionery 0.0000 stasionery inf 0.0000 stasionery 0.0000 stasionery er 0.9473 not stasionery 0.0000 stasionery source: eviews data processing 10 lag length test determination of the optimal lag is very important to determine. the lag length that is not optimal will cause biased estimates so that the predictions are inaccurate. to find out the optimal lag through various information from various lag criteria. based on table 4.2, it is shown that the selected lag is lag 2. this is because the results of the lag determination test on each criterion that has the highest number of stars (*) are lag 2. so that the optimal lag used is lag 2. table 1.2 lag length test results source: eviews data processing 10 stability test stability testing is one of the steps to determine the level of system stability in the model. to determine the level of stability by looking at the polynomial inverse root characteristics through the modulus value in the table. if the modulus value <1, then the system is stable. based on table 1.3, it can be seen that in the var model that has been compiled it can be said to be stable, this is because the modulus value obtained in the stability test is <1 so lag lag criterion logl lr fpe aic sc hq 0 -866.6972 na 6.70e+10 36.27905 36.43499* 36.33798* 1 -853.2277 24.13287 7.46e+10 36.38449 37.16416 36.67913 2 -833.9170 31.37996* 6.60e+10* 36.24654* 37.64994 36.77689 3 -821.5325 18.06076 7.97e+10 36.39719 38.42432 37.16324 4 -804.9289 21.44628 8.36e+10 36.37204 39.02291 37.37380 relationship between crude oil price fluctuations, economic growth, inflation and exchange rate in indonesia 1967-2019 89 that the test in var can be continued. besides that, the level of data stability in this model can also be seen through the polynomial inverse root value which is presented in figure 1.3. table 1.3 stability test results source: eviews data processing 10 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 inverse roots of ar characteristic polynomial figure 1.3 stability var source: eviews data processing 10 cointegration test the cointegration test needs to be done to see the analysis in the long run. if after testing the data is integrated, the analysis model used is the vecm model. to see the integrated data together, it is shown by a comparison between the trace statistic value and the critical value with a significance level of 5 percent. based on table 1.4, it can be concluded that the four variables experience cointegration as indicated by the statistical value of each trace greater than the critical value of 5 percent. so that in the research model there is a long-term relationship. table 1.4 cointegration test results root modulus 0.122720 0.591627i 0.604221 0.122720 + 0.591627i 0.604221 -0.170770 0.403271i 0.437938 -0.170770 + 0.403271i 0.437938 -0.008128 0.331156i 0.331255 -0.008128 + 0.331156i 0.331255 0.000602 0.130338i 0.130340 0.000602 + 0.130338i 0.130340 afebi economic and finance review (aefr) volume 6, no 2 (2021) 90 level of cointegration trace statistic value critical value none * 108.8342 47.85613 at most 1 * 56.75724 29.79707 at most 2 * 26.60590 15.49471 at most 3 * 12.30995 3.841466 source: eviews data processing 10 causality test the causality test serves to determine the cause and effect relationship between the variables in the study. causality testing can give the possibility of unidirectional causality, twoway causality, or no causality. to find out this relationship, it is seen through the probability value shown in table 1.5. based on table 1.5, it can be concluded that the variables that have a probability value smaller than alpha 0.05 have a causal relationship. the causality relationship found a unidirectional causality, namely, the exchange rate statistically affects inflation and the exchange rate statistically affects the world crude oil price. table 1.5 causality test results null hypotesis obs lag 2 probability information inf does not granger cause gdp 51 0.9475 not causality gdp does not granger cause inf 0.1768 er does not granger cause gdp 51 0.8253 not causality gdp does not granger cause er 0.8387 cop does not granger cause gdp 51 0.8839 not causality gdp does not granger cause cop 0.6101 er does not granger cause inf 51 0.0367 unidirectional causality inf does not granger cause er 0.5863 cop does not granger cause inf 51 0.0594 not causality inf does not granger cause cop 0.8882 cop does not granger cause er 51 0.4972 unidirectional causality er does not granger cause cop 0.0291 source: eviews data processing 10 the causality in the direction of the exchange rate to inflation indicates that exchange rate fluctuations will cause the rise and fall of inflation in indonesia. this is by the structuralist theory which states that the cause of inflation in developing countries is due to structural changes in the economy. such structural changes include exchange rate fluctuations in which indonesia is an open economy so that the domestic exchange rate may depreciate or appreciate any time. the causality of the exchange rate to the world crude oil price shows that the fluctuation of the rupiah exchange rate against the dollar in indonesia can affect the price of crude oil in the world. in line with research conducted by muradov, et al (2019) that the formation of crude oil prices in the world is driven by economic factors, one of which is influenced by the volatility of currency values. a study conducted by brahmasrene, et al (2014) and uddin et al (2013) states that crude oil prices are granger affected by exchange rate fluctuations. this happens because price movements will always occur after a short period of fluctuation in the exchange rate, coupled with the price of crude oil, which is the price of imported goods. vecm estimation test relationship between crude oil price fluctuations, economic growth, inflation and exchange rate in indonesia 1967-2019 91 the vecm estimation step is used to determine the relationship between research variables both in the short term and in the long term. based on table 1.6, it can be shown that the t-statistic value obtained is less than the t-table value of 5 percent significance (1.98). so that there is no significant relationship between world crude oil prices, economic growth, inflation, and the exchange rate in the short term. meanwhile, in the long run, all variables have a significant relationship. as shown in table 1.7, the t-statistic value is greater than the t-table value of 5 percent significance (1.98). the first result is that the world crude oil price has a positive and significant impact on the economic growth of 0.483347 percent. this means that when the price of crude oil has increased by 1 dollar per barrel, economic growth will increase by 0.483347 percent. this positive relationship is in line with research conducted by ichsandimas and cahyadin (2014), septiawan, et al. (2016), with the increase in world crude oil prices causing energy consumption in the world to experience a transition to other alternative energy sources in the form of coal and natural gas. therefore, indonesia has benefited greatly from the consumption transition because the export value of coal and natural gas has experienced a surplus, thus increasing the component in the national income account. based on data from the national energy council (2019) that among the total primary energy production in indonesia, which consists of petroleum, natural gas, coal, and new renewable energy, 64 percent or 261.4 mtoe is exported sourced from coal and lng (liquefied) natural gas). this shows that although imports of crude oil are still high, the exported oil and gas sector commodities still dominate the indonesian economy. the second long-term analysis is that the price of crude oil has a negative and significant effect on inflation of -0.854633 percent. this means that when the price of crude oil has decreased by 1 dollar per barrel, inflation will decrease by -0.854633 percent. price stability is the goal of every country in the world, one of which is to maintain stability from world crude oil price shocks. raheem, et al (2020) stated that each country has a different level of an economy, financial development, and energy laws so that the effect of oil prices will affect the economy differently. the increase in world crude oil price can be transmitted into domestic prices through the company's production costs. when the price of crude oil in the world increases, it will be difficult for companies that import oil to produce goods and services. so the effect of this is the reduction of workers by the company which results in a decrease in supply (output). this will have an impact on the increase in prices consumed by consumers. in a long-term test, the increase in the price of crude oil causes deflation (price reduction) in indonesia. this happens because of the substitution of energy from crude oil into other alternative energy, resulting in a decrease in demand for crude oil. the result of the third analysis shows that the world crude oil price has a negative and significant effect on the exchange rate of -1734,997 rupiah per dollar. this means that when the price of crude oil increases by 1 dollar per barrel, the exchange rate will decrease or depreciate by -1734,997 rupiah per dollar. the results of this long-term research are in line with the research conducted by nizar (2012) and khaliq (2017) which shows that the increase due to world crude oil prices depreciates the exchange rate in indonesia. indonesia's policy of adopting a free-floating exchange rate system determines the exchange rate which is influenced by the balance between supply and demand on the foreign exchange market. along with the increase in imports of crude oil, the exchange rate will continue to follow suit with an increase in foreign exchange. this is because oil import activities require another country's currency that can be used as a transaction in the exchange. afebi economic and finance review (aefr) volume 6, no 2 (2021) 92 therefore, it can be shown that in the long run crude oil import activities cause the exchange rate to depreciate in indonesia, that is, it responds negatively as a result of the increase in crude oil prices in the world. table 1.6 short term estimation results variable coefficient t-statistik gdp 0.040536 0.58217 inf -0.062551 -0.28817 er -14.89627 -0.58807 source: eviews data processing 10 table 4.7 long-term estimation results variable coefficient t-statistik gdp 0.483347 3.27838 inf -0.854633 -3.05510 er -1734.997 -3.49337 source: eviews data processing 10 irf (impulse response function) test the irf test is needed to determine the movement of variables in research caused by the effect of shocks or shocks from a particular variable. the vertical line is the response due to shocks from a variable and the horizontal line is the period of the response. figure 4.3 shows that 1968 was the most influential period for the decline in economic growth due to the shock of world crude oil prices. this year, world crude oil price shocks caused economic growth to fall by -0.262128 percent. then after that period, the response to economic growth increased in a positive trend until 1971 with a response of 0.094229 percent. after experiencing a positive increase, the response to economic growth tended to fluctuate until 1976. the peak of stability in 1980, namely the shock of world crude oil prices caused economic growth to return to a negative trend until 2019. relationship between crude oil price fluctuations, economic growth, inflation and exchange rate in indonesia 1967-2019 93 0 4 8 12 5 10 15 20 25 30 35 40 45 50 res pons e of d(cop ) to d(cop ) 0 4 8 12 5 10 15 20 25 30 35 40 45 50 res pons e of d(cop ) to d(e r) 0 4 8 12 5 10 15 20 25 30 35 40 45 50 res pons e of d(cop ) to d(gdp ) 0 4 8 12 5 10 15 20 25 30 35 40 45 50 res pons e of d(cop ) to d(inf) 0 400 800 1,200 5 10 15 20 25 30 35 40 45 50 res pons e of d(e r) to d(cop ) 0 400 800 1,200 5 10 15 20 25 30 35 40 45 50 res pons e of d(e r) to d(e r) 0 400 800 1,200 5 10 15 20 25 30 35 40 45 50 res pons e of d(e r) to d(gdp ) 0 400 800 1,200 5 10 15 20 25 30 35 40 45 50 res pons e of d(e r) to d(inf) -3 -2 -1 0 1 5 10 15 20 25 30 35 40 45 50 res pons e of d(gdp ) to d(cop ) -3 -2 -1 0 1 5 10 15 20 25 30 35 40 45 50 res pons e of d(gdp ) to d(e r) -3 -2 -1 0 1 5 10 15 20 25 30 35 40 45 50 res pons e of d(gdp ) to d(gdp ) -3 -2 -1 0 1 5 10 15 20 25 30 35 40 45 50 res pons e of d(gdp ) to d(inf) 0 4 8 5 10 15 20 25 30 35 40 45 50 res pons e of d(inf) to d(cop ) 0 4 8 5 10 15 20 25 30 35 40 45 50 res pons e of d(inf) to d(e r) 0 4 8 5 10 15 20 25 30 35 40 45 50 res pons e of d(inf) to d(gdp ) 0 4 8 5 10 15 20 25 30 35 40 45 50 res pons e of d(inf) to d(inf) r esponse to cholesky one s.d. (d.f . adjusted) innov ations figure 1.4 irf results of world crude oil prices on economic growth source: eviews data processing 10 0 4 8 12 5 10 15 20 25 30 35 40 45 50 res pons e of d(cop ) to d(cop ) 0 4 8 12 5 10 15 20 25 30 35 40 45 50 res pons e of d(cop ) to d(e r) 0 4 8 12 5 10 15 20 25 30 35 40 45 50 res pons e of d(cop ) to d(gdp ) 0 4 8 12 5 10 15 20 25 30 35 40 45 50 res pons e of d(cop ) to d(inf) 0 400 800 1,200 5 10 15 20 25 30 35 40 45 50 res pons e of d(e r) to d(cop ) 0 400 800 1,200 5 10 15 20 25 30 35 40 45 50 res pons e of d(e r) to d(e r) 0 400 800 1,200 5 10 15 20 25 30 35 40 45 50 res pons e of d(e r) to d(gdp ) 0 400 800 1,200 5 10 15 20 25 30 35 40 45 50 res pons e of d(e r) to d(inf) -3 -2 -1 0 1 5 10 15 20 25 30 35 40 45 50 res pons e of d(gdp ) to d(cop ) -3 -2 -1 0 1 5 10 15 20 25 30 35 40 45 50 res pons e of d(gdp ) to d(e r) -3 -2 -1 0 1 5 10 15 20 25 30 35 40 45 50 res pons e of d(gdp ) to d(gdp ) -3 -2 -1 0 1 5 10 15 20 25 30 35 40 45 50 res pons e of d(gdp ) to d(inf) 0 4 8 5 10 15 20 25 30 35 40 45 50 res pons e of d(inf) to d(cop ) 0 4 8 5 10 15 20 25 30 35 40 45 50 res pons e of d(inf) to d(e r) 0 4 8 5 10 15 20 25 30 35 40 45 50 res pons e of d(inf) to d(gdp ) 0 4 8 5 10 15 20 25 30 35 40 45 50 res pons e of d(inf) to d(inf) r esponse to cholesky one s.d. (d.f . adjusted) innov ations figure 1.5 irf results of world crude oil prices on inflation source: eviews data processing 10 afebi economic and finance review (aefr) volume 6, no 2 (2021) 94 0 4 8 12 5 10 15 20 25 30 35 40 45 50 res pons e of d(cop ) to d(cop ) 0 4 8 12 5 10 15 20 25 30 35 40 45 50 res pons e of d(cop ) to d(e r) 0 4 8 12 5 10 15 20 25 30 35 40 45 50 res pons e of d(cop ) to d(gdp ) 0 4 8 12 5 10 15 20 25 30 35 40 45 50 res pons e of d(cop ) to d(inf) 0 400 800 1,200 5 10 15 20 25 30 35 40 45 50 res pons e of d(e r) to d(cop ) 0 400 800 1,200 5 10 15 20 25 30 35 40 45 50 res pons e of d(e r) to d(e r) 0 400 800 1,200 5 10 15 20 25 30 35 40 45 50 res pons e of d(e r) to d(gdp ) 0 400 800 1,200 5 10 15 20 25 30 35 40 45 50 res pons e of d(e r) to d(inf) -3 -2 -1 0 1 5 10 15 20 25 30 35 40 45 50 res pons e of d(gdp ) to d(cop ) -3 -2 -1 0 1 5 10 15 20 25 30 35 40 45 50 res pons e of d(gdp ) to d(e r) -3 -2 -1 0 1 5 10 15 20 25 30 35 40 45 50 res pons e of d(gdp ) to d(gdp ) -3 -2 -1 0 1 5 10 15 20 25 30 35 40 45 50 res pons e of d(gdp ) to d(inf) 0 4 8 5 10 15 20 25 30 35 40 45 50 res pons e of d(inf) to d(cop ) 0 4 8 5 10 15 20 25 30 35 40 45 50 res pons e of d(inf) to d(e r) 0 4 8 5 10 15 20 25 30 35 40 45 50 res pons e of d(inf) to d(gdp ) 0 4 8 5 10 15 20 25 30 35 40 45 50 res pons e of d(inf) to d(inf) r esponse to cholesky one s.d. (d.f . adjusted) innov ations figure 1.6 irf results of world crude oil prices on exchange rate source: eviews data processing 10 the irf results for world crude oil prices with inflation are during 1967 to 2019 the period of world crude oil price shocks on inflation in indonesia was most influential in 1969 where this shock increased inflation by 0.844949 percent. then after this period of increase, the inflation response decreased until 1971 with a decrease of -0.051144 percent. however, after that the inflation response returned to a positive trend in 1972 and continued to fluctuate until 1980, the inflation response touched a negative number of -0.009482 percent. after that, the world crude oil price shock resulted in the inflation response starting to stabilize until 2019 on a positive trend. exchange rate movements resulting from world crude oil price shocks responded negatively in 1967 with a response of -323.0540 lcu. this year is the most influential exchange rate response due to the shock of world crude oil prices. after that year, the exchange rate response experienced an increase for the first time in 1968, this response was a period of the highest increase among other years. until 1984 the exchange rate response was still on a positive trend with a response of 100.0661 lcu. after that year, the exchange rate showed a stable movement until 2019, amounting to 99,58667 lcu. test vd (variance decomposition) analysis of variance decomposition is used to determine the contribution or composition of each variable both from the composition of the variable itself and the composition of the other variables. based on table 1.8, it can be seen that during the years 1967-2019, the biggest contribution that influenced economic growth came from the economic growth itself. the highest contribution was in the first year, namely 96.23 percent, then decreased until the last year to 58.58 percent. the next contribution that affects economic growth is the variance of inflation, world crude oil prices, and exchange rates, respectively. until the last year, the variance contribution continued to increase with a contribution value of 35.62 percent, 3.60 percent, and 2.18 percent. the results of the variance in the composition of inflation during 1967-2019 show that the biggest contribution that affects inflation is inflation itself with a contribution value in the first year of 76.94 percent, decreasing until the last year with a contribution value of 70.24 percent. relationship between crude oil price fluctuations, economic growth, inflation and exchange rate in indonesia 1967-2019 95 the second-largest contribution affecting inflation is economic growth, with its contribution value increasing up to the sixth year of 32.98 percent. however, after that year, its contribution decreased until the last year to 29.23 percent. then the next contribution that affects inflation, respectively, is the variance of world crude oil prices and exchange rates. until the last year, the contribution value of each variance decreased by 0.27 percent and 0.23 percent. in summary, the vd inflation results can be shown in table 1.9 table 1.8 variant results of economic growth composition period variance decomposition gdp cop gdp inf er 1 3.768055 96.23194 0.000000 0.000000 6 3.135644 79.77986 16.33289 0.751603 12 3.269567 74.14853 21.30950 1.272403 18 3.373636 70.06400 25.05186 1.510506 24 3.435203 66.94405 27.92631 1.694440 30 3.484491 64.49766 30.17933 1.838517 36 3.524086 62.52812 31.99321 1.954585 42 3.556679 60.90816 33.48512 2.050048 48 3.583954 59.55231 34.73379 2.129946 53 3.603504 58.58054 35.62874 2.187211 source: eviews data processing 10 table 1.9 variant results of inflation composition period variance decomposition inf cop gdp inf er 1 0.741275 22.31630 76.94243 0.000000 6 0.601203 32.98911 65.52141 0.888281 12 0.517812 31.41799 67.45857 0.605630 18 0.429951 30.52656 68.57263 0.470861 24 0.375184 30.09185 69.14214 0.390820 30 0.339753 29.79749 69.52399 0.338769 36 0.314796 29.59108 69.79202 0.302109 42 0.296281 29.43780 69.99101 0.274910 48 0.281996 29.31957 70.14451 0.253926 53 0.272369 29.23989 70.24796 0.239784 source: eviews data processing 10 based on table 1.10, shows that during 1967-2019, the biggest contribution that influenced the exchange rate was the variance of economic growth. in the first year, its contribution was 60.26 percent which then decreased to 57.19 percent in the twelfth year. then the next biggest contribution that affected the exchange rate was the variance of the exchange rate itself, world crude oil prices, and inflation with their respective contributions to in the last year amounted to 26.12 percent, 7.49 percent, and 9.00 percent. afebi economic and finance review (aefr) volume 6, no 2 (2021) 96 table 1.10 variant results of exchange rate composition period variance decomposition er cop gdp inf er 1 10.36980 60.26379 16.53768 12.82873 6 9.458474 57.20836 14.26890 19.06426 12 8.769782 57.19052 12.17474 21.86496 18 8.325261 57.24764 11.05534 23.37175 24 8.047883 57.28831 10.36991 24.29390 30 7.861630 57.31610 9.909433 24.91284 36 7.727948 57.33605 9.578866 25.35713 42 7.627308 57.35107 9.330000 25.69162 48 7.548805 57.36278 9.135875 25.95254 53 7.495469 57.37074 9.003985 26.12981 source: eviews data processing 10 5. conclusion based on the results of the research that has been done, several conclusions can be obtained including: a. in the long term, the increase in world crude oil prices will encourage the substitution of world crude oil into other alternative energy sources so that indonesia's economic growth increases due to export flows and falling inflation due to reduced demand for crude oil. as a net importer of crude oil, the increase in world crude oil prices causes depreciation of the rupiah. b. the causal relationship between world crude oil prices, economic growth, inflation, and the exchange rate has a one-way relationship. this relationship is that the exchange rate statistically has an influence on inflation in indonesia and the exchange rate statistically influences world crude oil prices. so that there is no two-way causality relationship between world crude oil prices, economic growth, inflation, and the exchange rate. c. the first response to world crude oil price shocks was the exchange rate variable with a negative trend. this is followed by the response to economic growth during the initial three periods. inflation is the last variable that responds to world crude oil price shocks on a positive trend after the second period. in general, the basic conclusion from this research is that the increase in world crude oil prices has resulted in a shift in world crude oil consumption to cheaper alternative energy. policy recommendations that can be given to overcome the increase in world crude oil prices are by increasing the availability of alternative energy production as a substitute for world crude oil and the need for an "administered price" policy from the government to maintain the stability of alternative energy prices to substitute world crude oil. the depreciation of the exchange rate that occurs due to the behavior of crude oil imports is difficult to avoid. this is because as long as crude oil imports are still carried out, the exchange rate will continue to depreciate. therefore, the effort that can be taken is to provide greater foreign exchange relationship between crude oil price fluctuations, economic growth, inflation and exchange rate in indonesia 1967-2019 97 reserves to stabilize the exchange rate and reduce dependence on world crude oil through the development of research for the use of cheaper renewable energy. reference brahmasrene, t., huang, j. c. & sissoko, y. 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(2020). pengaruh harga minyak mentah dunia terhadap makroekonomi indonesia: net eksportir dan net importir minyak 1991-2015. jurnal manajemen, ekonomi dan akuntansi, 4(1), pp. 257–270. uddin, g. s. et al. (2013). on the relationship between oil price and exchange rates: a wavelet analysis’, economic modelling, 35, pp. 502–507. https://doi.org/10.1016/j.econmod.2013.07.035. analysis of working decision of elderly in yogyakarta province 30 analysis of working decision of elderly in yogyakarta province yozi aulia rahman1)*, nindya haryo permadi2) 1,2 economics department’s faculty of economics universitas negeri semarang abstract this research aimed to analyse the the social-economis factors influencing the working decisions of elderly in yogyakarta province. the sample used was the elderly population of special region of yogjakarta province aged 60 years amounted to 1.906 people following the number of respondents of susenas in 2016. the analytical tool used is binary logit regression using spss 21.the results show that the number of productive elderly people was 57,50% from the whole number of elderly people. the elderly workers dominantly work in the agriculture sector. their profession is as an entrepreneur and mostly helped by their workers and others are as full time force workers. binary regression test showed that duration of illness, hospitalization, dependent burden, living location, and pension guarantee significantly negative influence to their decision to go working. meanwhile, level of primary education, marital status, and their status in the household positively significant influence to work. in addition, gender, level of secondary and higher education, and their household expenses do not significantly influence to their decision to work in the special region of yogjakarta province in 2016. keywords : demography transition, elderly, working decision, binary logit 1. introduction one of the factors that promote aging is decreased fertility rates, decreased life expectancy and declining facts mortality makes up for decreased fertility (beard et al., 2012). this aging roblem causing impact to workplace (hennekam, 2015). demographic transition in indonesia causes changes in population structure towards the aging process which is marked by an increase in the proportion of the elderly population. based on population data from unfpa and bappenas in 2016, the proportion of the elderly population at the beginning of the project year was 1971 at 4.5%. this number continued to increase until 2015 to 8.5%. then, the proportion of the elderly population is projected in 2020 to be 10%, until the end of the projected year is 15.8%. in contrast to the proportion of the population under 15 years of age and 15-59 years of age who experienced a significant decline. based on bps data for 2017, for the past 5 years, 7 provinces have a proportion of elderly people over the proportion of national elderly. the special region of yogyakarta is a province that has the highest proportion of elderly people in indonesia. in 2016, the proportion of elderly in the special region of yogyakarta amounted to 13.69%, followed by central java 12.05%, east java 11.80%, bali 10.63%, north sulawesi 9.98%, south sulawesi 9.04%, and west sumatra 8.97%. meanwhile, the proportion of indonesian elderly is 8.69% of the total population of indonesia. an increase in the proportion of *corresponding author: yoziaulia@mail.unnes.ac.id mailto:yoziaulia@mail.unnes.ac.id afebi economic and finance review (aefr) volume 5, no 01 (2020) 31 elderly people will increase the dependency of the elderly, while also increasing government spending on public services (simanjuntak, 2001). the high proportion of elderly in the special region of yogyakarta is feared to increase the burden of dependents on the population of productive age. it can be seen that the special region of yogyakarta has the highest elderly dependency in indonesia. in 2015 the dependence rate of the special region of yogyakarta elderly was 20.73% and rose to 21.11% in 2016 (bps, 2017). adams & rau (2004) explained the older people will tend to retire. this is because of the reduced ability and physical endurance of the elderly. the elderly population will consume more resources than they can produce themselves (mason & lee, 2011). although the proportion of the elderly and elderly dependency rates is highest in indonesia, in 2016 the special region of yogyakarta elderly who decided to be active in the labor market was also the highest compared to other provinces that had a proportion of elderly people above the proportion of the national elderly. based on bps data for 2017, the special region of yogyakarta elderly who decided to work as much as 60.04%, while those who decided to do household activities and other activities amounted to 26% and 13.96%. data is presented in the following figure. figure 1. proportion of the elderly population of the province of special region of yogyakarta according to the type of activity in the last week of 2013-2016. source: sakernas (2016) in figure 1, it can be seen the decision of the population of the elderly in the special region of yogyakarta to work has decreased in 2013-2015 from the figure of 54.75% to 49.86%. this condition is supported by an increase in the decision of the unemployed elderly and take care of the household. the decision of the elderly to be unemployed in 2013-2015 increased from 0.07% to 0.27% and the decision to take care of households from 27.32% to 30.93%. thus, elderly people prefer not to work to enjoy their old age with more spare activities. however, the situation changed in 2016. elderly residents in the special region of yogyakarta prefer to be active in the world of work. the decision of the elderly to choose to work increased from 49.86% to 60.04% in 2016. meanwhile, the proportion of the 0 20 40 60 80 100 2013 2014 2015 2016 54.75 53.3 49.86 60.04 0.07 0.17 0.27 0 27.32 27.73 30.93 26 17.86 20.98 18.94 13.96 p e rs e n ta g e working unemployment housewifery others analysis of working decision of elderly in yogyakarta province 32 percentage of elderly who chose not to work decreased. then, the elderly who took care of the household also decreased from 30.93% to 26% and in other activities from 18.94% to 13.96%. the unemployed elderly is 0%. it can be concluded that in 2016 the population of the elderly in the special region of yogyakarta prefers to enter the labor market rather than enjoy their leisure time. based on bps data for 2016, elderly people in the special region of yogyakarta who receive a pension guarantee are dominated by elderly who live in urban areas, which is 80%. meanwhile, the elderly who live in rural areas are only 20%. the purpose of this study is to analyze the factors that influence the decision of the elderly to work or not to work in yogyakarta province. 2. literature study elderly workers are defined as employees aged 50 or older (oecd, 2006). but, based on the republic of indonesia act no. 13 of 1998 concerning elderly welfare, the elderly are residents who are aged 60 years and over. williamson & mcnamara (2001) state that elderly work participation has differences based on gender. work participation of elderly men is higher than for elderly women. this statement is supported by the research of affandi (2017), kalwij & vermeulen (2005), and ling & fernandez (2010) which concluded that older men prefer to remain working despite entering old age. this is because men are considered as the main breadwinner for the family because of the great responsibility as the head of the family (simanjuntak, 2001). the status of the elderly as the head of the household has responsibility for the needs of the household members. junaidi, et al (2017), elderly who have a partner will have a greater probability of working than those who are in a status other than married. giles, et al (2011), the elderly will decide to work to fulfill the life of themselves and their partners. then, the probability of the elderly working is greater if the elderly have a partner who does not work.in addition to factors from individuals and families, the location of the residence is also related to the employment decisions of the elderly. the decision of the elderly still works more in the elderly who live in rural areas. the majority of rural households do not have adequate access to pension guarantees (giles, et al, 2011),. this type of work in rural areas is generally the work of the agricultural sector. reddy (2016) estimates about the patterns and determinants of labour force participation of elderly in india. the factors that can influence the labour force participation of elderly are sector of economic activity, occupation and type of employment, and wages. the results found that the majority of elderly workers are unskilled and have a lower educational achievement and lack of options to quit from labour force due to there is no opportunity to get pension benefit. afebi economic and finance review (aefr) volume 5, no 01 (2020) 33 3. research methodology the data used in this study were sourced from the 2016 susenas of special region of yogyakarta raw data. the number of samples used is following the number of respondents aged 60 years and over, amounting to 1906 residents. descriptive analysis was used to analyze the characteristics of elderly workers in the special region of yogyakarta. whereas, the binary logit regression model is used to analyze socioeconomic factors that influence the work decision of the special region of yogyakarta elderly workers in 2016. the binary logit regression model is used because the dependent variable is a dummy which consists of two categories, namely the value 1 for the elderly who decide to work and the value 0 for those who do not work. the level of trust used is 95% or α (5%). the following research models are used: ln 𝑝 1−𝑝 = 𝛽0+ 𝛽1jk + 𝛽2tp1 + 𝛽3tp2 + 𝛽4tp3 +𝛽5hs + 𝛽6ri + 𝛽7sk + 𝛽8 sdr + 𝛽9 bt + 𝛽10 ltt + 𝛽11 jp + 𝛽12 prt + e. …………………………………………………. (1) information: ▪ ln p / (1-p) = the probability of the elderly working (1 = working; 0 = not working) ▪ jk = gender (1 = male; 0 = female) ▪ tp1 = elementary education / elementary school / junior high school (1 = yes; 0 = other) ▪ tp2 = secondary education / high school graduation (1 = yes; 0 = other) ▪ tp3 = tertiary / undergraduate education (1 = yes; 0 = other) ▪ hs = duration of illness (number of duration of illness last month) ▪ ri = hospitalization (1 = ever; 0 = never) ▪ sk = marital status (1 = married; 0 = other) ▪ sdr = status in the family (1 = head of household; 0 = other) ▪ bt = dependent load (number of household members) ▪ ltt = residential location (1 = urban; 0 = rural) ▪ jp = pension guarantee (1 = there; 0 = none) ▪ prt = household expenses (units of idr) ▪ e = error term 4. result and discussion susenas data in 2016 shows that the elderly population of the special region of yogyakarta who decided to work was 57.5% and the remaining 42.5% decided not to work. total elderly who decide to work in each district/city has a different percentage. the following figure is the distribution of the special region of yogyakarta elderly workers by district/city in 2016. analysis of working decision of elderly in yogyakarta province 34 figure 2. distribution of elderly workers by regency/city in the special region of yogyakarta of 2016. source: susenas, 2016 elderly in the special region of yogyakarta who decided to be active in the labor market most in gunungkidul regency was 35.77% of the total elderly working. this figure is far superior to other regions such as kulonprogo, bantul, and sleman. whereas, the city of yogyakarta, which has the dominant environmental conditions in urban areas, has the proportion of elderly workers at least 9.58%. these results indicate that older people still work more in rural areas than in urban areas. characteristics of elderly workers in this study were seen from the main business sector being carried out and the status/position of employees in their work, and working hours to distinguish elderly as full-time workers or part-time workers. general description of the characteristics of the elderly in the special region of yogyakarta in 2016 based on the 2016 susenas data are presented in the following table. table 1. characteristics of the special region of yogyakarta elderly workers in 2016 characteristics % main business field farming of rice plants & palawija 63.50 mining/excavation 0.27 processing industry 4.38 electricity & gas 0.18 building/construction 3.10 trade, hotels & restaurants 17.43 transportation & warehousing, information & communication 1.37 finance & insurance 0.36 service 8.21 others 1.19 total 100.00 job status / position 20.62% 17.61% 35.77% 16.42% 9.58% kulonprogo bantul gunungkidul sleman city of yogyakarta afebi economic and finance review (aefr) volume 5, no 01 (2020) 35 entrepreneurs 28.74 entrepreneurs are assisted by non-permanent workers/laborers who are not paid 31.02 entrepreneurship is assisted by permanent workers/laborers paid 4.29 labor/employee/employee 8.49 free worker 7.39 family workers or not paid 20.07 total 100.00 working hours part time (<35 hours/week) 42.66 full time (≥35 hours/week) 57.34 total 100.00 source: susenas 2016, processed the elderly who decided to work most worked in the agricultural sector with 63.50%. this figure is greater than the elderly who work in other sectors. in fact, the trade sector which ranked second amounted to 17.43%. meanwhile, other sectors have very low with under 10%. the agricultural and trade sectors are most in demand by the elderly to decide to work because these two sectors do not need conditions such as certain skills, expertise and levels of education (junaidi, et al 2017). generally the elderly work more in the agricultural sector because there is no age limit in the sector such as the service sector and industry in rural areas that apply pension restrictions (simanjuntak, 2001). furthermore, the status of the elderly position in their work is divided into two categories, namely as entrepreneurs/business owners and workers/laborers. status as an entrepreneur/business owner consists of three groups, namely self-employed, trying to be assisted by permanent workers, and trying to be assisted by temporary workers. whereas, the employment status of the elderly as workers/workers consists of 3 groups, namely as the elderly who decide to work the most are the elderly who work as free workers/employees, free workers, and family/unpaid workers (bps, 2017). older workers are different from productive age workers. elderly people who are still active in the world of work generally prefer to be business owners. this is due to physical limitations that cause the elderly to be less able to compete with young workers, plus elderly education which is still low compared to the education of the productive age workers who are now seizing decent business fields. finally, the elderly who are still unable to meet the needs of life prefer to create their own jobs like trading. while the elderly who have limited assets for their working capital prefer to work in informal jobs such as the agricultural sector or in the trade sector but as laborers. based on law no. 13 of 2003 concerning manpower, the division of working hours is divided into two, namely full/full-time workers who work 35 hours more a week and part-time/part time workers who work less than 35 hours a week. based on the 2016 susenas data, the elderly in the d.i province of yogyakarta who decided to work had full/full time working hours of 57.34%. while the elderly who work half a day/part-time is 42.66%. junaidi, et al (2017) states that there are reasons that encourage older people to choose to work full/part-time. first, the elderly work just to increase family income or analysis of working decision of elderly in yogyakarta province 36 just spend their free time, so working with hours is not too long. second, the elderly work as the main breadwinner (head of the household), so that the extension of work time is a survival strategy. this is evident because the elderly work as much as 65.24% as the head of the household, while 34.76 as other household members. socio-economic factors that influence elderly work decisions we used the fit model consists of the omnibus test of model coefficients and hosmer and lemeshow test to test the influence of socio-economic factors to elderly work decisions. the omnibus test of model coefficients is used to determine the effect of independent variables on the dependent variable simultaneously. the goodness of fit test results on the binary logistic model are as follows: table 2. a test of goodness of fit chi-square df sig. omnibus test of model coefficients 425,803 12 0,000 hosmer and lemeshow test 10,304 8 0,244 source : author’s calculation table 2 shows the chi-square value of the omnibus test of model coefficients of 425.803 with a significant probability of 0.000 or less than α (5%), which means that the addition of independent variables can have a real influence on the model, or in other words, the model is declared fit. so, the independent variables in the model simultaneously have a significant effect on the dependent variable. the hosmer and lemeshow test test show the chi-square table value for df 8 at the 5% significance level is 15.507. the chi-square hosmer and lemeshow value of 10.304 are less than the table chi-square value of 15.507 and the significance value is 0.244 or greater than α (5%) so that it can be concluded that the model can be accepted and hypothesis testing can be done. furthermore, table 3 it will measure the accuracy of the model in predicting the likelihood of the elderly deciding to work or not work. classification table is used to classify samples that can be predicted by the model correctly. tabel 3.classification table observed predicted work decision percent not working working work decision not working 471 339 58,1 working 229 867 79,1 percent 70,2 source : author’s calculation table 3 shows that out of 810 elderly people who decided not to work, there were 471 elderly who could be predicted correctly by the model. then, of the 1.096 elderly afebi economic and finance review (aefr) volume 5, no 01 (2020) 37 people who decided to work, there were 867 elderly who could be predicted correctly by the model. so, out of 1.906 elderly people listed in the 2016 susenas raw data, 1.338 elderly people can be correctly predicted by the model. thus, as many as 73.8% of the elderly population can be predicted by the model appropriately. the results of the partial test parameter estimation in binary logit analysis can be seen in table 4 variable in equation. this test was conducted to determine the effect of the significance of independent variables partially on the decision of the elderly to work / not work. the results of the partial test parameter estimation are presented in table 4 below. table 4. model parameter estimation variable b s.e wald df sig odds ratio information jk -0,150 0,147 1,039 1 0,308 0,861 gender tp1 0,413 0,127 10,641 1 0,001 1,512 basic edu tp2 -0,436 0,224 3,780 1 0,052 0,647 intermediate edu tp3 -0,240 0,260 0,852 1 0,356 0,787 high edu hs -0,063 0,010 42,469 1 0,000 0,939 duration of illness ri -0,537 0,189 8,075 1 0,004 0,584 hospitalized sk 1,233 0,125 96,631 1 0,000 3,433 marital status sdr 1,088 0,146 55,642 1 0,000 2,970 houshold status bt -0,096 0,037 6,886 1 0,009 0,909 dependent burden ltt -0,997 0,115 75,434 1 0,000 0,369 living location jp -0,820 0,160 26,261 1 0,000 0,440 pension guarantee ln_prt 0,058 0,085 0,456 1 0,500 1,059 household exp constant -0,673 1,155 0,340 1 0,560 0,510 source : author’s calculation based on the results of binary logit regression using the spss analysis tool, it was found that there were socio-economic factors that influenced the decision of the special region of yogyakarta elderly to work. these factors include education, health, household status, acceptance of pension guarantees, and the location of residence. gender has no significant effect on the decision of the elderly to work. although it has an insignificant effect, gender has a negative direction, which means that older men have a lower probability of working than female. insignificant influence can be seen from the percentage of elderly people who choose to work between men and women who have a not too large difference. the results of the study are different from those of ling & fernandez (2010) which mentions that older men have a 7.48% higher probability of deciding to work compared to female. elderly women tend to leave the labor market earlier than male elderly simanjuntak (1998) states that older men prefer to work because they are the main breadwinners who have responsibility for their families, in contrast to elderly women who prefer to take care of the household at home. elderly in the special region of yogyakarta who decided to work consisted of male elderly by 51.73% and female elderly by 48.27%. these results indicate that the participation of elderly people in the special region of yogyakarta does not occur inequality between men or elderly analysis of working decision of elderly in yogyakarta province 38 women. meanwhile, the decision not to work, between elderly men and elderly women has a large difference. of the total elderly who do not work, elderly women have a greater percentage of 66.50%, while the elderly in men 33.95%. elderly women who are still active in work are dominated by the elderly who live alone and do not have children or husband. this condition forced the elderly women to become their own household heads and had to work to fulfill their needs. elderly women who only live alone and decide to work at 17.76%. this number is greater than the elderly men who live alone in elderly households who decide to work, which is 3.88% of the total male elderly workers. on the other hand, the elderly men who mostly decided to work were the elderly who lived with his wife but did not have children in the household with a percentage of 37.57%. each level of education consisting of primary, secondary, and high education gives different influences. at the level of basic education has a significant positive effect on the decision of the elderly to work. elderly people with a history of basic education have a greater probability than the elderly with education other than basic education. on the other hand, secondary and high education has a negative effect, but the effect is not significant on the decision of the elderly to choose to work. the high employment participation of low-educated elderly people is different from the research of kalwij & vermeulen, (2005) in europe. the higher the elderly education, the higher the likelihood that the elderly to work. in elderly women, education has a greater role in reducing work participation than the elderly male population. giles, et al (2011) added that awareness of the positive influence of a high level of education on elderly work participation depends on government policies to improve the welfare of elderly workers. the results of the study also contradict with the research by junaidi, et al (2017), the elderly who have graduated from elementary school have no significant effect on the involvement of elderly jambi province in the labor market. conversely, at the junior and senior high school/high education level it has a significant influence on the work participation of the elderly. however, the influence of the elderly who have a higher education than elementary school, namely junior high school, senior high school/high education has a lower probability of working than elderly elementary school education or in other words a negative effect. then, elderly junior high school education has a higher probability than senior high school/high education. a good education will also provide good human resources. so, the elderly who have a better education history when they are of productive age already have better jobs that can encourage them to get social security as savings for their living needs when they enter old age and decide not to work. this shows that the higher the level of education, encouraging the elderly to be inactive in the labor market and in accordance with the conditions in the special region of yogyakarta in 2016. analysis of working decision of elderly in yogyakarta province 39 the last level of education that was mostly completed by the elderly in the special region of yogyakarta was basic education (graduating from elementary/junior high school). older workers with basic education amounted to 66.67%, while 33.33% decided not to work. older workers with low levels of education are dominated by workers in the agricultural sector. this is because the agricultural sector does not require conditions such as age or level of education/skills, such as education, health, finance, and event industry. the second-largest elderly business sector is the trade sector. like the agricultural sector, the trade sector does not require a high level of education. moreover, the special region of yogyakarta is an area that is one of the tourist destinations that can develop the trade sector such as labor. this condition will make it easier for the elderly to enter the labor market because of relatively more employment opportunities. sumarsono (2015) revealed that health has the most important role in the work participation of the elderly. health conditions that consist of the number of duration of illness and history of hospitalization have a significant negative effect on the work decisions of the elderly in the special region of yogyakarta. for elderly people who have more than 1 day of duration of illness, the possibility of working will decrease by 0.939 times. meanwhile, for the elderly who have been hospitalized in the past month the possibility of working will decrease by 0.584 times. the elderly of the special region of yogyakarta who has experienced illness in the past month is only 8.55% of the total elderly population. this means that the elderly, almost 92% of elderly health conditions are classified as good. andini, et al (2013) found that the number of duration of illness increasingly encourages the elderly to not work. older workers who did not experience illness in the past week were 60.44%. while the remaining 36.26% experience pain for 1-3 days and 3.30% experience pain for 4-7 days. on the other hand, the elderly who did not work and experienced illness in the past week were 48.98%, and 18.37% experienced illness for 4-7 days. then in the history of hospitalization in the last month consistent with yori & bachtiar (2017) research on elderly job offers in padang city. elderly health is measured by elderly health complaints or not hospitalized. older workers who have been hospitalized, 100% decide to work part-time. meanwhile, 56.4% of elderly workers who had never been hospitalized chose to work full time or 12.8% more than the elderly workers who chose to work part-time.the decision of the elderly to keep working is inseparable from the housing conditions, both in terms of marital status and status as head of the household. the results of research in the special region of yogyakarta show that marital status has a significant positive effect on the decision to work. elderly people with marital status have a greater probability of 3,433 times compared to elderly with a status other than marital status. this can be seen in the 2016 susenas data that the elderly who are still working, amounting to 71.35% have a partner. meanwhile, the elderly who decide to retire at 53.47% is in a status other than marrying like a divorce or have never married. this result is in line with utami's (2017) study which states that older people are married more than older people who are married but married. elderly people with married/still having a partner have a 5.7% higher tendency to work. this statement is analysis of working decision of elderly in yogyakarta province 40 supported by kalwij & vermeulen (2005), that marital status in european countries such as denmark and sweden has a positive influence on male elderly to work. meanwhile, for elderly women, marital status has a negative effect on work participation. kartika & sudibia (2014), stated that the pattern of marital status of elderly men is different from that of women. elderly women who have divorced status have lost their husbands as support for the family economy. this condition forced elderly women to work so that they could meet their daily needs. in the special region of yogyakarta amounted to 77.07% of elderly people other than married were elderly women. marital status is closely related to the status of the elderly in the household. the status of the special region of yogyakarta’s elderly as the head of the household has a significant positive effect on the decision to work. elderly people who have the status of head of the household have a probability to work at 2.970 times greater than those who are in the status of other than as head of the household. elderly workers in the special region of yogyakarta are dominated by the elderly with the status of the household head at 65.24%. meanwhile, the elderly who decide to retire more in the elderly who are in addition to the head of the household. the results of the study is consistent with junaidi, et al (2017) that the elderly who have the status of head of the household has a probability of 3.604 times more to work than the elderly who are in addition to the head of the household. kalwij & vermeulen (2005) added, in the household, there is a collaboration between husband and wife. elderly men who as husbands and have children are more likely to work than older women. elderly men still decide to work because of their duties as head of the household. then, ruhm (1996), the strongest influence on elderly women is greater for not working because of household factors than men who are husband or household head because of economic factors. the decree illustrates that economic matters are more important for elderly men because of being the head of the household, while household matters are more important for elderly women. the next factor in the household is the burden of dependents. the burden of dependents can be in the form of the number of children or all people in the household. based on the results of binary logit regression, the burden of dependence has a significant negative effect on the work decisions of the special region of yogyakarta’s elderly in 2016. elders who have more than 1 person dependency are likely not to work at 0.909 times. on the contrary, elderly people who have less than 1 person are likely to decide to work/retire. the elderly in the special region of yogyakarta who decides to work on average has a dependent burden of 3 people or fewer than the elderly who do not work, who have an average responsibility of 4 people. the results of the study stated that the burden of dependence had a negative effect is consistent with the study of ling & fernandez (2010). elderly people have more than 1 child, the probability of working is 2.6% lower. however, this relationship is insignificant because of the possibility of damage to the extended family system which reduces the dependence of the elderly on their children. according to ling & fernandez (2010), when the population enters old age, they already have children who are mature analysis of working decision of elderly in yogyakarta province 41 and independent in meeting their needs. then the child will help the life needs of parents who are elderly who cause their parents to prefer retirement/not working. unlike the research of kartika & sudibia (2014) and affandi (2009) which states that dependency burden has a positive influence on the work participation of the elderly. the reason for low economic health causes the elderly to continue working to support themselves and not a few of them also support families who live together in disadvantaged families. however, the dependency burden does not affect the work participation of the elderly according to yori & bachtiar (2017) and utami & rustariyuni (2016). this is because someone who has entered old age already has children who majority already have a job so that the elderly do not need to win and support their children. based on the susenas data of special region of yogyakarta in 2016, the elderly who lived alone in their household were 57.28% with employment status and the remaining 42.72% chose retirement. meanwhile, the elderly who only live alone with their partners and do not have children or their children already have their own households, who decide to work for 89.03%. this means that the number of members in the elderly household is increasingly encouraging the elderly to keep working because there is nothing that can support the living needs of the elderly. conversely, the increasing number of household members encourages the elderly not to work assuming their children help with the needs of their elderly parents. the decision of the elderly to choose to work is influenced by different places of residence between the elderly who live in rural and urban areas. special region of yogyakarta’s elderly living in urban areas has a negative and significant influence, meaning that elderly people living in urban areas are likely to work 0.369 times. conversely, the elderly who live in rural areas have the possibility to work more. of the total elderly population who choose to work, 51% live in rural areas and 49% in urban areas. meanwhile, of the total elderly who decide to retire, 30.74% live in rural areas and 69.26% live in urban areas. the tendency of the elderly to work was mostly done by elderly people living in rural areas. elderly people living in rural areas are likely to work 10.7% higher than those living in urban areas. according to simanjuntak (1998), work participation in rural areas is always higher than in urban areas. residents in urban areas are faced with a choice of work on certain characteristics that only work in a particular person according to the classification required. conversely, in rural areas with traditional employment patterns, the work participation of the population is increasing. giles, et al (2001) states rural elderly people tend to continue working compared to the elderly in urban areas with a majority of highly educated, relatively high accumulation of wealth, and types of work that set a normal limit for retirement age. there is a reason that the probability of rural elderly is still working, namely the lower level of welfare of elderly families due to the absence of a pension guarantee or savings or investment for old age which causes the elderly to be forced to work to meet the family's living needs. in addition, because employment opportunities in rural areas such as the agricultural sector are relatively more analysis of working decision of elderly in yogyakarta province 42 and easily accessible because they do not require certain educational requirements compared to urban jobs (junaidi, et al 2017). with the work participation of the elderly, pension guarantee ownership can also influence the decision of the elderly to decide to work or retire. pension insurance in this study has a significant negative effect on elderly work decisions. elderly people who have a pension guarantee are likely to decide to work down by as much as 0.440 times more than the elderly who do not have. of the total elderly in the special region of yogyakarta who has a pension guarantee, 39.02% decide to work and the rest decide to retire. the results of the study are consistent with utami & rustariyuni (2016). elderly people who do not get old-age benefits have a probability of 6.20% greater for work. the presence or absence of old-age benefits is a factor that directly affects the elderly population still working. andini, et al (2013) added that elderly people who continue to work more in the informal sector, such as agriculture, have difficulty receiving access to pension insurance. in this study, elderly workers were dominated by the elderly who worked in the agricultural sector at 63.50%. in addition, the relatively large economic needs of the elderly may also be due to a lack of adequate socio-economic security (affandi, 2009). the economic factor used in this study is the expenditure of elderly households. according to simanjuntak (1998), the high or low household expenditure reflects the level of household income. expenditures of elderly households have a positive effect on the work decisions of elderly people in the special region of yogyakarta in 2016. elderly people with higher household expenditure are likely to decide to work 1.059 times more than the elderly with fewer household expenses. although the effect is not significant, the factors of household expenditure are positive, such as the study of ling & fernandez (2010). elderly people with a low cost of living are 41% less likely to participate in the labor market. while the elderly who have high living costs are likely to be 73% more likely to participate in the labor market. the higher the level of living costs, the greater the need for the elderly to work. however, this condition is inversely proportional to the elderly in the special region of yogyakarta. the average expenditure of elderly households in the special region of yogyakarta is rp.2,934,000/month. in the elderly who decide to work, the average household expenditure is rp.2,629,100/month or less than the average expenditure of elderly households in the special region of yogyakarta in 2016. meanwhile, the elderly who decide not to work have an average household expenditure of rp3,346,700/month or greater than the average expenditure of elderly households in the special region of yogyakarta in 2016. high expenditure illustrates the level of wealth in the form of household income is relatively high, so it has a guarantee to meet the economic needs of the household. ling & fernandez (2010) stated he size of the number of elderly households also depends on the number of elderly household members. this is seen in elderly households in the special region of yogyakarta. elderly households that have the most household members are 11 people who have spent around idr 6-7 million. while the elderly who only live alone or even only 2 people in the household have a household expenditure of less than idr 1 million. so, more and more people in elderly households encourage the analysis of working decision of elderly in yogyakarta province 43 increase in household expenditure. it can be concluded that the high or low expenditure of elderly households does not affect the behavior of the elderly to decide to work or retire. so, the reason for the elderly in the special region of yogyakarta decided to work not based on economic factors such as elderly household expenses. 5. conclusion the elderly in the special region of yogyakarta decided to work the most in gunungkidul regency and at least in yogyakarta city. older workers are more dominant in the agricultural sector, then followed by the trade sector. the position of the elderly job is more as a business owner assisted by temporary workers and at least as workers. in the division of working hours, many elderly workers work full time rather than par time. the decision of the elderly to work is influenced by several social and economic factors. the level of basic education, marital status, and the status of the elderly as the head of the household had a significant positive effect on the work decision of the elderly in the special region of yogyakarta in 2016. on the other hand, the number of duration of illness, history of 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(2011). the labor supply and retirement behavior of china’s older workers and elderly in comparative perspective. iza discussion paper. http://ftp.iza.org/dp6088.pdf. hennekam, s. (2015),"career success of older workers: the influence of social skills and continuous learning ability". journal of management development, vol. 34 iss 9 pp. 1113 – 1133. junaidi., erfit & prihantoro, p. h. (2017). faktor-faktor sosial ekonomi yang mempengaruhi keterlibatan penduduk lanjut usia dalam pasar kerja di provinsi jambi. masyarakat, kebudayaan, dan politik. vol 30 no 2 hal 197-205. kartika, ni p. s. d. & sudibia, i. k. (2014). pengaruh variabel sosial demografi dan sosial ekonomi terhadap partisipasi kerja penduduk lanjut usia. e-jurnal ekonomi pembangunan universitas udayana. vol. 3, no. 6. kalwij, a. s & vermeulen, f. (2005). labor force participation of the elderly in europe: the importance of being healthy. iza discussion paper no. 1887. discussion paper series no 2005-130. ftp.iza.org/dp1887.pdf. ling, g. s. & fernandez, j. l. (2010). labour force participation of elderly persons in penang. international conference on business and economic research. serawak, malaysia. mason, a. & lee, s.h. (2011). population aging and economic progress in asia: a bumpy road ahead?. analysis from the east west center. no. 99. reddy, b.a. (2016). labour force participation of elderly in india: patterns and determinants". international journal of social economics, vol. 43 iss 5 pp 502516. ruhm, c. j. (1996). gender differences in employment behavior during late middle age. journal of gerontology: social sciences 51 b, no.1, s11s17. http://psychsocgerontology.oxfordjournals.org simanjuntak, p. j. (2001). pengantar ekonomi sumber daya manusia. jakarta: lpfe universitas indonesia. utami, n. p. d. & rustariyuni, s. d. (2016). pengaruh variabel sosial demografi terhadap keputusan penduduk lanjut usia memilih bekerja di kecamatan kediri. jurnal ekonomi kuantitatif terapan no 9 vol 2 hal 135-141. undang-undang republik indonesia. nomor 13 tahun 1998 tentang kesejahteraan lanjut usia. jakarta: presiden republik indonesia. undang-undang republik indonesia. nomor 13 tahun 2003 tentang ketenagakerjaan. 1999. jakarta: sekretaris negara republik indonesia. williamson, j. b. & mcnamara, t. k. (2001). why some worker remain in the labor force beyond the typical age of retirement. center for retirement research at boston college. http://ftp.iza.org/dp6088.pdf ftp://ftp.iza.org/dp1887.pdf http://psychsocgerontology.oxfordjournals.org/ rural-urban migration and unemployment tendency 16 rural-urban migration and unemployment tendency mbu daniel tambi1)*, chuo joshua njuh2) 1department of agricultural economics, university of dschang, cameroon 2department of economics, higher technical teacher college, bambili university of bamenda, cameroon abstract the study examined the effect of rural-urban migration on unemployment tendency, while controlling for other variables. we make use of the instrumental variable approach and probit controlling for endogeneity to determine the relationship between rural-urban migration and unemployment. cameroon labour force survey is used to estimate our results. results shows that the likelihood of unemployment decreases among rural-urban migrates compared to their rural counterparts who do not migrate. by the same token, holders of primary, secondary and tertiary levels of are less likely to be unemployed relative to their counterparts with no education, respectively. these findings have a number of policy implementations: the government could create an enabling environment for labour markets to work better for the youths seeking employment and could invest rationally on education to enable the youth become self-reliant instead of job seekers through skill development and training. keywords: effects, rural-urban, migration, unemployment, cameroon 1. introduction over the last decades, identifying the factors accounting for population intra-national and international movements has underlined the growing body of literature on interregional migration. grounded on the observation that entry into labour force is the period where geographic mobility is highest, these movements were explained by employment motives (zax, 1991). earlier studies provided the basis for the analysis of the links between migration choices and employment. as far as intra-national migration is concerned, individuals migrate in response to a gap between an expected urban and a de facto rural wage (harris and todaro, 1970). based on the observation that urban wages are high and institutionally determined, migrants expect to secure either jobs or better-paying jobs at the destination. sjaastad (1962) explained migration decisions as the outcome of human capital investment decisions. this view led to the explanation of labour moves as responses to either interregional wage differentials (greenwood, 1985) or unemployment differences among local labour markets (kriaa and plassard, 1996). the “new economics of migration” added explanatory power to the neo-classical model. it advocated that migration is a collective endeavour enabling rural households to diversify incomes (stark and levhari, 1982). in this literature, migrants choose destinations where they are either well connected or have family/community ties (munshi, 2003). while increasing the probability of migration, these networks are thought to influence the economic returns to migration; although the large empirical literature devoted to the relationship between individual labour market outcomes of migrations have had mixed results. *coresponding author: tambi2015@yahoo.co.uk mailto:tambi2015@yahoo.co.uk afebi economic and finance review (aefr) volume 5, no 01 (2020) 17 both the volumes and patterns of migration have undergone important changes during the last few decades; making migration a critical issue of our times. since the 1960s, the overall volume of international migrants has doubled. in 2000, the population division of the united nations estimated the total number of international migrants to be approximately, 175 million. thus, about 2.9 per cent of the world’s population or one in every 35 persons are moving across borders (iom, 2003). taken together, migrants would make up the fifth most populous “country” in the world (ilo, 2013). these cross-border movements have been accompanied by the increase in the number of urban resident and for the first time, the percentage of urban residents has gone over that of rural residents. africa’s population is very young with more than half aged below 25 years. it is estimated that each year, between 2015 and 2035, there will be half a million more 15-year-olds than the year before (ilo, 2013). estimates by iom, 2003 put africa’s youth population aged between 10 and 24 years at 344.4 million in 2013, representing 31% of total population making the continent the youngest region in the world. employment appears to be the most principal challenge that youths are facing in the world today and a call for concern to the global economy. the future of cameroon, africa and the world at large is in the hands of the youths who are the leaders, engineers, captains of industries and administrators of tomorrow. the future highly depends on the way the youths are motivated in terms of the job market (employment and unemployment), quality of education, health and migration. the young constitute the majority of the cameroon’s population and present a great labour force, they are characterize by tremendous energy, great hunger for new ideas, discoveries, dynamism, impressive technological savvy and intelligence that can catapult cameroon in to untold prosperity and stability, in to higher levels of second generation economic activity (agriculture, manufacturing and distribution) as well as serve as drivers and strong engines for economic development of cameroon. the youths are the nations’ most valuable asset; they represent a tremendous potential competitive advantage in the global economy, if the youths are given the due opportunity, they can transform cameroon into a prosperous and productive country that can compete with the rest of the world. today, the challenge of cameroon is to provide the youths with opportunities to fulfil their potential and contribute to the development of their nation, african continent and the world at large. without jobs or meaningful livelihoods options, young people in cameroon will naturally seek other ways to release their energies, which can be through violence or migration; this has motivated most youths to migrate to the cities from the rural zones. this study attempts to explore the effect of rural-urban migration on urban youth unemployment in cameroon. as a result of the rural-urban movement, in 2017 cameroon fines herself with an unemployment rate of 4% with a population of about 23.3 million people. this revealed that many young people in cameroon are unemployed; many have completely given-up looking for jobs while others are working but still living below the poverty line, this category is known as the working poor. most of the barriers to resolving the unemployment challenge in cameroon includes: (1) the unprecedented economic crisis suffered in the 1990s (2) the educational system of cameroon which focuses mainly on theories and abstract concepts with little or no training in technology and entrepreneurship, (3) low‐quality jobs, (4) skills mismatch, (5) inadequate job matching, (6) the work experience trap, (7) lack of access to capital, (8) little or no entrepreneurship and business training, (9) limited youth participation, (10) social discrimination and corruption, (11) frustration and discouragement, amongst others. rural-urban migration and unemployment tendency 18 it is also true that the cameroon government has become aware of the dangers posed by the growing rate of youth unemployment and has made moves in that regards. this can be seen through the ministries of youth affairs and civic education and that of employment and vocational training. the programs designed by government via these ministries include the rural and urban youth support program known by its french acronym as pajer-u, the integrated project for manufacturing of sporting materials (pifmas), the national employment fund (nef) and the integrated support project for actors of the informal sector (piaasi). all these programs have their success and failure stories. but the bottom line is that, despite all these efforts made by government, a lot more still has to be done. nowadays, there is a socioeconomic and political urgency of responding to the challenge of youth unemployment as a precondition for poverty reduction, sustainable development and lasting peace. it is believed that an essential approach for addressing the challenges of youth unemployment is the need for a national youth policy, an integrated strategy for rural development, as well as job creation. in cameroon, the unemployment rate is 30% while that of underemployment stands at 75% (international labour organization’s 2013 report). it is worth noting that cameroon has a population of over 20 million inhabitants and most of the people belong to the middle class. it may interest you to know that the working population of cameroon is about 12million and only a little over 200,000 people work in the public service. with government being the highest employer, this implies that the other 11.8million people who are not government employed are a call for concern. population growth in cameroon is rapid in most big towns and cities. according to statistics, about 92 per cent of the population in yaoundé is below 45 years. this rapid urban growth brings about social problems which affect particularly the poor and other vulnerable groups in society such as youths. youth unemployment in cameroon is compounded by rampant corruption in most employment sectors and young people’s inadequate knowledge on the existing job market and opportunities. as a result of all these problems, we are therefore interested in examining the effect of rural-urban migration on unemployment in cameroon. to address these issues, the objectives are: to explore the effects of rural-urban migration on unemployment in cameroon, to verify the effect of rural-urban migration on unemployment by gender, to evaluate the effect of levels of education on unemployment in cameroon and to derive policy recommendations on the basis of our analysis. 2. literature review an understanding of the relationship between rural-urban migrations, unemploymentunderemployment is known by a clear definition of important elements before reviewing the relevant literature underlying this study. mcha (2012) in a country level knowledge network in tanzania noted that unemployment-underemployment have been defined in the literature in different ways. following the national employment policy in 2008 as cited by mcha (2012), unemployment is the total lack of work of an individual (15 years +); it include enforced idleness for people that are able and willing to work but cannot find jobs (ilo, 2013). focusing on rural-urban migration, we observed that rural-urban migration is the movement of people in our case youths of age 15 to 34 years from the rural community in search of better jobs. with regards to migration in cameroon, the proportion of persons not born in the locality/subdivision where they reside is 32.7 percent (nis, 2011). however, a slight decrease of migration is noticed compared to 2005 (35.4 percent) while men migrate as well as women at almost similar proportions. considering nso (2014) in overall 27 percent of employed afebi economic and finance review (aefr) volume 5, no 01 (2020) 19 population in malawi is underemployed. there are little sex differences in levels of underemployment. in urban areas, the percentage of employed population who are available to work additional hour is 24 percent compared to 27 percent in the rural areas (ilo, 2013). however, in terms of age groups, following the malawi labour force survey, no major differences are observed in the level of youth underemployment between males and females and between rural areas and urban areas. however, while there are little variations in the level of underemployment in age group by educational level, the level of underemployment among the youths in age group 15-34 declines with level of education (nso, 2014). with regards to the importance of rural-urban migration and the consequences in the urban centres; ajaero and onokala (2013) in examining the effects of rural-urban migration on the rural communities of south-eastern nigeria, shows that rural-urban migration contributes significantly towards the development of their rural communities through monetary remittances and the involvement of the rural-urban migrants in community development projects. however, golub and hayat (2014) documented and analysed the predominance of informal employment in africa and shows that lack of demand for labour rather than worker characteristics is the main reason for pervasive underemployment. golub and hayat (2014) concluded on their analysis of informal employment that improvements in the business climate are the key to boosting investment and technology transfer in labour-intensive tradable industries and thus raising labour demand and employment. gimba and kumshe (2011) in their study on the causes and effects of rural-urban migration in borno state nigeria, affirm that in recent years the rate of rural-urban migration as become alarming as more people drift into the urban centres from the rural areas. in their analysis of 150 respondents drawn from maduguri metropolis indicated that the major causes of rural-urban migration are: search for better education, employment, and business opportunities; due to poverty, unemployment, famine, and inadequate social amenities in the rural areas. gimba and kumshe (2011) unanimously accepted that the effects of rural-urban migration are; pressure on urban housing and environment, high rate of population growth in the urban centres, low quality of life, increase crime rate and slow down pace of development of rural areas. in this struggle, ankrah (1995) also revealed the situation of rural-urban migration in ghana and suggested that migration has the effect of precipitating major social and behavioural change visa-vis committed urbanites who readily adapt to urban life and the situational urbanites that experience greater problems in adjustment to the city. reviewing policy issues in relation to rural-urban migration, unemployment; ankrah (1995) emphasized that the rural youths need the means to stay in their communities with the opportunity to improve their livelihoods and that as agriculture is one of the most promising sectors for rural youth employment, cameroon governments should prioritize investments and programs in irrigation, water resource management as well as improved agricultural practices in order to expand young rural farmers’ capabilities to produce food and conserve the land’s natural resources while providing the young population with the skills and abilities to increase their rural incomes (ankrah, 1995). 3. theoretical framework the economic model of the family as applied by frijters et al (2008), form the conceptual basis of our analysis of the consequences of unemployment due to rural-urban migration. the family’s objective is assumed to be the maximization of utility that it derives from consuming rural-urban migration and unemployment tendency 20 the various goods that it produces using inputs of family members’ time and market-purchased goods and services, as well as employment services are viewed as consumption good from which parents derived utility. the family’s level of consumption of employment services depends on the availability to work and the quality of job a youth that migrate from a rural community to an urban community will get (blau and grossberg, 1990). the time spent by youths to study, received professional training, move from the rural to urban centres, do other activities and to search for jobs as well as social amenities such as seeking preventive and curative medical care is an important input into the production of employment (unemployment) in cameroon. youths may move from rural centres because of family strife, no land to cultivate or land dispute, health conditions, some youths move because they want to gain township experience, learn a trade or seek better opportunities, invitations by friends and family members. however, there exists other youths who no matter what, they cannot move because of the same reasons as above but in an opposite direction, such as youths with much land, social stability... such youths may actually not have the time to move/migrate or make use of public services designed for workers. unfortunately, youths that migrate to the cities and fails to find a job may constitute a real problem in the cities. they will likely increase the rate of juvenile delinquency, insecurity through theft and pick-pocket, environmental congestion and poverty (nis, 2011). not-withstanding, youth’s income generating activities increase the level of household resources, which should improve their well-being. moreover, there is some evidence that youths are more likely than the old to spend their income in ways that improve their social welfare. what then can we say? the net effect of rural-urban migration on unemployment outcomes is an empirical issue. 4. methodology of study linking rural urban migration to unemployment, we used the economic model of the family as applied by frijters et al (2008), this forms the conceptual basis for our analysis of the unemployment consequences of rural-urban migration. based on these authors, the relationship between rural-urban migration and unemployment can be described within the framework of a simple household production model. thus, our generic model of unemployment for the youth i that migrated from rural to urban centres is assumed to be as follows: irum iiii rumue 111  ++= [1] where iue is a binary variable representing migrants si' unemployment, i is a vector of household/environmental characteristics (sex of household head, household size, geographical place of residence, pipe borne water, electricity) and migrant characteristics (education, marital status, type of work contract, age group, occupation, employment duration). irum is ruralurban migration and i is a random error term. the coefficient 1 is the parameter of primary interest and represents the impact that rural-urban migration has on unemployment. ordinary least square (ols) estimates of equation [1] will be reported in the results column, however, this single-equation estimate may be upward or downward biased depending upon the effect that unemployment has on rural-urban migration and on the correlation between omitted variables afebi economic and finance review (aefr) volume 5, no 01 (2020) 21 and rural-urban migration. for example, if rural-urban migration has a positive impact on unemployment, then we would expect the ols estimate of 1  to be biased upward. in empirical estimation, the prime difficulty of the two-way causality that comes in the effect on rural-urban migration and unemployment may cause the classical endogeneity problem. to avoid the strong likelihood of this endogenity bias, confounded by the problem of variables that are missing in the data, we use a two stage least squares estimation approach. thus, the firststage equation in this approach is: iiii sarum 111  ++= [2] whereby isa is social amenities (availability of pipe borne water and electricity; availability of medical centres), the 2sls model should capture the causal effect of rural-urban migrated youths for those migrated youths whose migration/movement is affected by social amenities. importantly, though irum is ordinal, 2sls estimates of 1 can be interpreted as estimating the average marginal effect of a unit increase in irum for migrants whose migration/movement is affected by the availability of medical centre, pipe borne water and electricity. ajakaiye and mwabu (2009) noted that in the presence of endogeneity, a device must be found to vary the ‘treatment variable’ exogenously without changing other unobserved or unmeasured variables with which it is correlated. such device includes instrumental variable (iv) method, natural experiments and randomization. implementation of experimental designs are rare in evaluation of broader health and social programmes (jones, 2007), either because experiments are too expensive, unethical or simply impossible and therefore beyond the scope of this study. this study proposes to use the iv method and the probit controlling endogeneity approach, popularly known as ivprobit approach. endogeneity can arise due to: errors-invariables, omitted variables and simultaneous causality (bascle, 2008). endogeneity and heterogeneity bias can compromise the validity of ols estimators. the iv approach is intended to oxygenize the endogenous regressors using valid, relevant and strong instrumental variable method and the most commonly used iv estimation method is the single equation approach of two-stage least squares (2sls) estimators (bascle, 2008). before presenting the 2sls estimates, we shall present a reduced form analysis of rural urban migration; here we would expect to observe rural-urban migrants with social amenities to have lower movement/migration, because rural-urban migration is negatively affected by migrants with social amenities on their initial place of residence, there is a high probability that they may not likely move. the result column presents the relationship between social amenities and unemployment, given that 2sls estimation allows us to scale these probit marginal effects into the effects on an increase in our ordinal rural-urban migration measure. econometrically, the instrumental variable method is used to estimate causal relationships when controlled experiments are not feasible, in other words when a treatment is not successfully delivered to every unit in a randomized experiment (imbens and angrist, 1994). this instrumental variable method allows consistent estimation when the explanatory variables are correlated with the error terms of a regression relationship. this may occur when rural-urban migration and unemployment tendency 22 unemployment causes at least one of the covariates, when there are relevant explanatory variables which are omitted from the model or when the covariates are subject to measurement error. considering these issues, equation [2] presenting the first stage equation will be computed to obtain equation [3] to capture the second stage least square as follows: iiii sarum 222  ++= [3] we use the social amenities variable as an instrument to overcome the endogeneity problem between rural urban migration and unemployment which cannot be adequately controlled for by observable characteristics. assuming that social amenities are a valid instrument, we use the ivprobit model (probit model controlling for endogeneity) which better respects the binary nature of unemployment as represented by the following equation: iii murue 222 * ˆ  ++= [4] where iue denotes actual unemployment/underemployment and iue * represents desired unemployment/underemployment, note that 1=iue if 0 * ue and zero otherwise and the error terms i2 and i2 follow a bivariate normal distribution with non-zero correlation. the report of the ivprobit model will be presented in the result section. in addition, we can calculate the marginal effects of a variable as the average of the marginal effect of everyone in the sample. treatment variable for the endogenous variable the strength and success of the instrumental variable strategy lies in the identification of the instrument with sufficient predictive power. the iv method is one of the most powerful tools in econometrics, since it allows consistent parameter estimation in the presence of correlation between explanatory variables and disturbances (murray, 2006a). the iv technique is the most widely applied approach to identifying causal or treatment effects and it essentially assumes that some components of non-experimental data are random (rosenzweig and wolpin, 2000). the instruments are variables thought to have no direct association with the outcome and are powerful predictors of treatment (jones, 2007). 2sls instrumental variable estimation is an effective tool when instruments are valid and strong, otherwise this quality is lost (murray, 2006a). stock et al (2002), caution that finding exogenous instruments is hard work. finally, mwabu (2009) mentioned that, three properties of an instrument need to be noted at the outset. first, an instrument is relevant if its effect on a potentially endogenous explanatory variable is statistically significant. second, an instrument is strong, if the size of its effect is ‘large’. finally, the instrument is exogenous if it is uncorrelated with the structural error term. an instrumental variable that meets all these requirements is a valid instrument, but often very difficult to find. we are interested in using social amenities that is the availability of water, electricity and medical centres in urban community. this variable has been confirmed by authors since the seventies. many other researchers have revealed over the years that people, including the youths migrate for economic and social reasons (harris and todaro, 1970). for our provision of social amenities to overcome the potential endogeneity problem between rural-urban migration and unemployment/underemployment: the instrument must be (i) strongly correlated with rural-urban afebi economic and finance review (aefr) volume 5, no 01 (2020) 23 measures and (ii) uncorrelated with unemployment, except through the rural urban migration (murray, 2006a). based on this, two main factors can lead to bias in the estimated impact of rural-urban migration on unemployment: firstly, there are likely to be unobservable characteristics relating to the rural-urban migrants that are correlated with both youth’s unemployment and underemployment. two obvious candidates are family links in the ability of family relations and the migrated youth and the extent with which a family member cares about her relation in terms of their wellbeing relative to leaving them in the village or local community. the second source of potential bias arises from the direct effect of unemployment on rural-urban migrants. if unemployment has a negative impact on rural urban migration, then unemployed and underemployed youths will be less developed both economically and socially than un-migrated non-working youths, creating a downward bias on the estimated impact. on the contrary if unemployment has a positive impact on rural urban migration then the estimated impact would be biased upward. to avoid the individual effect of each migrant youth, we shall use the cluster mean of each instrument, by so doing only the community effect of the migrant will be capture and hence increasing the strength of our instrument on the endogenous variable. it’s also worth mentioning that, our instruments are not directly related to unemployment except through rural-urban migration. through sagan and cragg donald statistics couple with the ideas of mwabu (2009), we shall scale the relevance and strength of our instrument, all these will ensure robust results free from bias as compare to former studies. data presentation in this study, we used the data of cameroon employment and informal sector survey (ceiss) to compute the effects of rural-urban migration on unemployment concurrently while decomposing the results in level of education. following the report of the second edition of the ceiss by the national institute of statistics (nis, 2011); the ceiss 2 was realized in 2010 after the first in 2005 by the ministry of labour and social security in collaboration with other ministries. the 2010 ceiss is a two phase national statistical survey with the first phase being survey on employment and second phase being survey on the informal sector. this survey has as objectives to provide to users a set of indicators on (i) the labour market, the conditions of activity and the incomes and (ii) the informal sector and its contribution in the economy, in terms of employments and added value. the target population of the survey represents 68.7 percent of the overall population; made up of 51.6 percent of women and 48.4 percent of men (nis, 2011). there are about 34500 observations to be computed, among which we have variables on unemployment, underemployment, migration and other determinants variables. the data can be used to estimate the number of persons in the labour force (employed, under-employed and unemployed) and their distribution by sex, major age-groups, educational level, disability status, geographical and rural/urban spread as well as the ecological manifestations of these. it can equally be used to estimate the number of child workers (or children in employment) aged 5-17 years and its distribution by sex, major age-groups, educational status, geographical, ecological and rural/urban spread etc. rural-urban migration and unemployment tendency 24 in summary, our outcome variable is unemployment; the potential endogenous variable is rural-urban migration which is capture as the proportion of people who were not born in the locality/division where they live. the instruments of our endogenous variables are social amenities such as: (1) availability of electricity services in urban centres and (2) availability of water for good health. the control/exogenous variables are: age group, gender of household head, education, socio-economic status, occupation, and type of work contract, geographical place of residence, household size and employment duration. 5. empirical results weighted sample descriptive statistics from the preliminary result of the sample descriptive statistics in table one below; obtained from the labour survey year 2010, we observed that in cameroon, unemployment was at about 8.3 percent. unemployment occurs when people who are without work are actively seeking work, international labour organization (2014). according to international labour organization report, more than 200 million people globally or 6percent of the world's workforce were without a job in 2012 (international labour organization, 2014). about 53.8 percent of the migrants leaving the rural areas for the urban areas are as a result of electricity. also with regards to water, a slight lesser percentage of people say 41.9 migrate because of that. it also reveals that about 14.8 percent of the rural population move from rural areas to urban areas. it is also reveal that 77.6 percent of the rural-urban migrants are male and whose age ranges from 0 to 99 years old. also many people who already have established businesses or enterprises that belongs to them, will find it very difficult to leave the rural area for the urban areas. it will also be very difficult for a person who has more than just one job to leave the rural areas for the urban city. these migrant are coming from families whose size ranges from 1 to 28 persons and with very poor housing conditions. it is also reveal that 33.3 percent of those with primary level of education will migrate from rural to urban towns, 35.7 percent of those who have obtain a secondary level of education will move from rural settlement to urban settlement while 4.6 percent of rural population with tertiary level of education will migrate from the rural areas to the urban areas. . table 1: weighted sample descriptive statistics variable weighted sample descriptive statistics mean sd min max variable of interest unemployment .0836502 .0780372 0 1 endogenous variable rural-urban migration .1487897 .3558862 0 1 instruments for endogenous variable availability of electricity .5382916 .4985388 0 1 availability of water .4190933 .4934178 0 1 exogenous demographics migrants gender (1= male, 0 otherwise) .7764033 .4166608 0 1 status of work (1= entrepreneur, 0 otherwise) .1221899 .3275098 0 1 types of work/job contract .1236886 .3292308 0 1 has other jobs .1192924 .324137 0 1 age 21.67216 18.14397 0 99 household size 6.691668 3.938016 1 28 https://en.wikipedia.org/wiki/international_labour_organization https://en.wikipedia.org/wiki/international_labour_organization https://en.wikipedia.org/wiki/international_labour_organization afebi economic and finance review (aefr) volume 5, no 01 (2020) 25 household size square 60.28594 80.72698 1 784 housing .8498168 .3572561 0 1 formal .0426982 .2021787 0 1 education level of migrants primary education .3325425 .471131 0 1 secondary education .3567306 .4790413 0 1 tertiary education .0459822 .2094496 0 1 total 34500 source: author; min = minimum, max = maximum in focusing on the main sample result, the respondents noted that their reasons for migrating are: to work, look for job, for health reasons, for apprenticeship, housing problem, joining family, family problems and retirement. these variable outcomes are indicated in the figure below. this figure reveals that most of the people that migrated from rural to urban did so for family reasons to about 50 percent of the total migrants. basic marginal effect estimates of rural-urban migration table three present the results of (a) the ols result in column one, which can either be bias upward or downward; (b) the instrumental variable result in column two (iv 2sls) while (c) the probit model controlling for endogeneity in column three (ivprobit). considering equation one above, the result of the linear regression can either be biased upward or downward depending on the direction of the relationship between rural-urban migration and unemployment effects. therefore, this ols result is not appropriate for inference, this explain why the rural-urban migration is insignificant revealing that the value of rural-urban migration is not appropriate for judgment. the 2sls result solve the problem of endogeneity resulting from the data this can either be from missing variables or omission whereas the ivprobit resolve the problem of endogeneity originating from both the data and elsewhere, hence the estimates of ivprobit is our preferred result. further, following the joint f/(p-value) test for ho: coefficients on instruments = 0/wald/chi2 of 41.88 [14, 19842; 0.0000] for 2sls and 605.33 [10; 0.0000] for ivprobit reveals that the probit result controlling for endogeneity is preferable, these results are presented in table 2. table 2: effects of rural-urban migration on unemployment variable ols (1) 2sls (2) iv probit (3) unemployment rural-urban migration .0006(0.49) -0.004***(-2.68) -0.930*(-1.88) household size -.0009***(-2.66) -0.016***(-2.73) -.0456**(-2.18) household size square .0029*(1.74) -0.006***(-5.21) .01068 (0.85) male -.0011 (-1.02) -0.012**(-2.03) -.0433(-0.74) age .0014***(13.95) 0.017*(1.94) .1198***(5.33) age square -.00031***(-12.49) -0.069***(-7.39) -.0017***(-4.21) entrepreneur .0111***(7.38) 0.000(0.13) .4043***(4.05) primary education -.0195***(-8.54) 0.013(1.48) -.4019***(-3.00) secondary education -.02101***(-9.74) -0.055***(-8.63) -.2158**(-2.07) tertiary education -.0165***(-7.79) -0.02***(-11.19) -.1485*(-1.86) informal -.025***(-20.75) -0.024**(-2.34) 0 constant .0213***(7.69) 0.011***(8.14) -2.611***(-3.00) 2 r /(uncensored 2 r / pseudo 2 r 0.8256 0.8216 0.8411 partial 2 r (on excluded instruments) n/a 416.96[1,19842;0.0000] n/a rural-urban migration and unemployment tendency 26 wald/chi2 test 77.18 [11; 0.0000] 41.88 [14, 19842; 0.0000] 605.33 [10; 0.0000] cragg-donald f-stat test n/a 416.961[16.38] n/a sargan statistic test n/a 9.230[6.427] n/a durbin-wu-hausman 2  test n/a 8.455[0.0003] n/a observations 34500 source: computed by the author. n/b: the reported marginal effects are the average estimated change in probability of participation. absolute value of robust t-statistics in parentheses beneath estimates. * indicates statistical significance at 10%, ** at 5%l, and *** at 1% level. from column 1, we can say that rural-urban migrates pave the probability of about 0.13% of being employed more than their rural counterpart who do not migrate. from our analysis above, table one depicts ols estimate of unemployment, column 2 represent the 2 stage least square and in column 3, consistent iv estimates of rural-urban migration parameter. we observed that rural-urban migration has no significant effect on unemployment. also as household size increases, unemployment also increases at 1 percent significant level, the movement of male from rural areas to urban areas have no significant effect on unemployment. there is a positive relationship between age and the unemployment. this implies that as age increases, the rate of unemployment also increases meanwhile many people who are selfemployed that is owners of enterprises (sole proprietors) will hardly leave rural areas for urban areas thereby reducing the rate of unemployment which is significant at 1 percent. the level of education which comprises of primary, secondary and tertiary levels of education has a 1 percent significant on unemployment. the more persons with primary level of education leave the rural areas for the urban areas, the more unemployment will increase. in a similar manner, rural urban migrants with secondary level of education will only end up increasing the level of unemployment. at a given point, migrants with just a higher level of education will also increase unemployment. from our ivprobit regression, we realized that rural-urban migration has a direct effect on unemployment at 10 percent level of significant, which also shows that as household size increases, the rate of unemployment also increases at 5 percent level of significant. unemployment also increases as the people’s age increases. also as more people do not have their own enterprises or are not sole proprietors, they are force to leave the rural areas for the urban city, as they move to these urban areas, the level of unemployment increases at 1 percent significant level. entrepreneurship effect by the level of education of the migrant in table 3, we found out that, both the male and female migrants are fuelling unemployment in cameroon. however, the male migrants seem to be fuelling more as compared to their female counterparts. further, lesser number of male who left the rural areas to the urban areas because of electricity will be unemployed at 1percent level of significance. also a greater number of female who left the rural area for the urban areas because of the housing condition will be unemployed at 1 percent level of significant than male who left the rural areas for the same reason. many women from large family size who migrated from rural to urban areas was faced with the problem of unemployment at 10 percent level of significant than the men who lift the rural areas for the same purpose at 1 percent level of significant. afebi economic and finance review (aefr) volume 5, no 01 (2020) 27 table 3: effect of level of education on unemployment (marginal effects) variable primary (1) secondary (2) tertiary (3) unemployment rural-urban migration 4.5685***(7.58) 3.306 ***(27.73) -2.061***(-3.73) household size .10485(0.98) .01833(0.93) -.0588 (-1.12) household size square -.00946(-1.00) -.00017(-0.21) .0039(0.97) male .0213***(7.69) -.0123(-0.27) -.0093(-0.10) age -.00969*(-1.64) -.0141***(-5.10) -.0194(-1.49) entrepreneur .8242283 (1.39) .0514861 (0.37) .1683337 (0.74) housing -.31802*(-1.87) -.1058**(-2.12) .1061*(1.86) constant -1.568(-1.38) -.9403***(-2.74) -.01798(-0.05) pseudo 2 r 0.08256 0.08216 0.08411 wald/chi2 test 798.84 [6; 0.0000] 3311.22 [7; 0.0000] 118.20 [7; 0.0000] observations 34500 source: computed by the author from labour force survey 2010 cameroon. more female who left rural communities for urban communities will face unemployment than males of the same age bracket which is seen at 1 percent level of significant. our statistics also shows at 1 percent significant that among those male who were self-employed and left the rural area for the urban areas, very few of them had employment and for the female who were already self-employment in the rural area and left for the urban area, more of them will be faced with unemployment which is significant at 10 percent. our results also shows that more male migrants from rural to urban areas who have just the primary level of education will be unemployed at 5 percent level of significant as well as rural-urban male migrants but at 10 percent level of significant. 6. conclusion the main objective of this study was to examine effect of rural-urban migration on unemployment tendency. the study was conducted in cameroon following increasing number of rural-urban migrants. data would be obtained from the labour survey 2010. from the preliminary result of the sample descriptive statistics obtained from the labour survey year 2010, we observed that in cameroon, unemployment was at about 8.3 percent. from the findings above, it can be concluded that rural-urban migration has a significant effect on decreasing unemployment in rural areas of cameroon. an important conclusion of the results is that rural urban migration, household size square, household age and status of work, positively decrease unemployment in cameroon while household size, male, household age square, primary, secondary, higher and informal education increases unemployment in cameroon. we observed that in cameroon, unemployment was at about 8.3 percent. in focusing on the main sample result, the respondents noted that their reasons for migrating are: to work, look for job, for health reasons, for apprenticeship, housing problem, joining family, family problems and retirement. finally, democracy is a journey not a destination. for cameroon, it is a learning process. as a matter of fact it may not be a perfect system of government, but it has several advantages over other systems. people including the cameroonian must feel the positive rural-urban migration and unemployment tendency 28 impact of democracy in their lives. the situation whereby only a few privileged persons in positions of authority benefit from this system of government at the expense of the impoverished masses portends a great and real danger that may incur the wrath of the unemployed citizens in cameroon if not addressed urgently. cameroon leaders should strive to promote good governance in other to engender rural empowerment, employment and socio-economic development. in terms of policy, strengthen of existing institutions by appointing decent people to head them, respect their tenure and appoint successors rather than political appointee. investment in education (vocational training school): government should invest heavily on education, education that will enable the youth to become self reliance instead of job seekers through skills development and training in the rural areas. infrastructural building that will provide employment to thousand people such as good roads, electricity, provision of portable drinking water etc should be embarked upon by the government of the day. create labour market that work better for the youth and promotion of conducive atmosphere for investment in the rural. future research could be undertaken in the following domains: urban youth unemployment and underemployment in cameroon: role of rural-urban migration. references ajakaiye o and mwabu g (2009): the causal effect of socioeconomic status and supply-side factors on health and demand for health services: a survey of methods and findings. paper presented at the aerc health, economic growth and poverty reduction in africa framework workshop, accra, april, 2009. ajaero c and onokala p (2013): the effects of rural-urban migration on rural communities of southeastern nigeria; international journal of population research. volume 2013, article id 610193 ankrah t (1995): rural-urban migration and socioeconomic development in ghana: some discussions; journal of social development in africa (1995), 10, 2, 13-22 bascle g (2008): controlling for endogeneity with instrumental variables in strategic management research. strategic organization; 6(3):285-327 blau d and grossberg t (1990): “maternal labor supply and children’s cognitive development,” the review of economics and statistics, 74, 474-481. frijters p, david w, shah m and michael a (2008): to work or not to work? child development and maternal labor supply november, 2008. gimba z and kumshe m (2011): causes and effects of rural-urban migration in borno state; case study of maiduguri metropolis. asian journal of business and management sciences, vol. 1 no. 1 168-172 golub s and hayat f (2014): employment, unemployment, and underemployment in africa. world institute for development economics wider working paper 2014/014 greenwood, m. j. (1985). human migration, theory, models, and empirical studies. journal of regional science, 25, pp.521-544. harris, j r and todaro, m p (1970). migration, unemployment and development: a two-sector analysis. american economic review, 60, pp.126-142. afebi economic and finance review (aefr) volume 5, no 01 (2020) 29 ilo (international labour organisation) (2013). towards a fair deal for migrant workers in the global economy. geneva, imben w and angrist j (1995): “children and their parents’ labour supply: evidence from exogenous variation in family size”, the american economic review, 88 (3), 450. iom (international organization for migration) (2003). world migration report, geneva, international organization for migration. working paper report. www.imo.org kriaa, m., & plassard, j. m. (1996). la mobilité géographique des diplômés de l’enseignement supérieur français: processus de double sélection et fonctions de gains. recherches économiques de louvain, 62(1), pp.95-122. jones c (2007): “why have health expenditures as a share of gdp risen so much?” u.c. berkeley working paper mcha (2012): addressing employment challenges in tanzania: strategic policy options and actions by stakeholders. tanzania country level knowledge network, dar es salaam, 15 february, 2012 munshi, k. (2003). networks in the modern economy: mexican migrants in the us labour market. quarterly journal of economics, 118 (2), pp.549-599. murray p (2006a): avoiding invalid instruments and coping with weak instruments. journal of economic perspectives, 20 (4), pp 111-132. mwabu g (2009): the production of child health in kenya: a structural model of birth weight. journal of african economies, vol 18(2): 212-260. nis (national institute of statistics) (2011): second survey on employment and the informal sector in cameroon. the national institute of statistics synthesis report; www.statisticscameroon.org nso (national statistical office) (2014): malawi labour force survey, april 2014 www.nsomalawi.mw rosenzweig m and wolpin j (2000). natural “natural experiments” in economics. journal of economic literature, 38(4):827-874 sjaastad, l. (1962). the costs and returns of human migration. journal of political economy, 70, pp.80-93. stark, o., & levhari, d. (1982). on migration and risk in less developed countries. economic development and cultural change, 31 (1), pp.191-196 stock j, wright h and yogo m (2002). a survey of weak instruments and weak identification in generalized method of moments. journal of business and economic statistics, 20(4):518-529. zax, j s (1991). the substitution between moves and quits. the economic journal, 101, pp.1510-1521.international labour organization. 117-125 http://www.imo.org/ http://www.nsomalawi.mw/ internet usage and ideal number of children in indonesia (the analysis of the 2017 idhs) 1 internet usage and ideal number of children in indonesia (the analysis of the 2017 idhs) yasmin fitriana imanuddin1)* 1departement of economics, faculty of economics and business, university of indonesia, indonesia abstract internet usage in indonesia is growing rapidly each year. information on the internet is considered to affect the way of thinking and the behaviour of its users. this can be seen, among other things, on the women internet user’s desired or ideal number of children. this research aims to study the patterns and differentials of the ideal number of children among women in indonesia according to internet usage and the effect of the use of internet on women’s ideal number of children in indonesia after controlling for the effects of socio-economic factors. this study used data from the results of 2017 indonesia demographic and health survey (dhs). the method used to analyze the data is multinomial logistic regression. the analysis is conducted on all childbearing-aged women (15-49 years old) and married childbearing-aged women. the results of the study show that childbearing-aged women who used the internet wanted less children compared to those who did not use the internet. the results of this study can be used as a reference by the related stakeholders to formulate policies that support fertility level management in indonesia using information and communication technology, the internet in particular. keywords: childbearing-aged women; ideal number of children; indonesia; internet; multinomial logistic regression 1. introduction birth is one of the main components of demographics. birth rate in indonesia is currently stagnant and tends to decline. this situation is concerning because it could change the structure of the population in indonesia. through the national medium-term development plan (rpjmn) 2020-2024, the government wants to improve the quality of life of indonesian people by controlling the population so that the population grows in balance. balanced population growth can be achieved with a fertility condition that is at the replacement level, which total fertility levels of about 2.1 children per woman. this number then becomes the target that the government wants to achieve by 2024. based on the results of the 2015 inter-censal population survey (supas), indonesia's total birth rate in 2015 stands at 2.28. indonesia still needs to strive to achieve a population that grows with a balance due to the considerable difference between the current total birth rate and the desired total birth rate. according to the 2017 idhs results, the percentage of women of childbearing age in indonesia who want a relatively large number of children is still very high. around 33.95% of women want 3-4 children and 15% of women want 5 or more children or non-numeric, while 51.06% of them want 0-2 *coressponding author. email address: fitriana.yasmin@gmail.com mailto:fitriana.yasmin@gmail.com afebi economic and finance review (aefr) volume 6, no. 1 (2021) 2 children. the high percentage of women who want a relatively large number of children can create problems to reach 2.1 in the total birth rate by 2024. having children is the result of fertility intentions that were previously formed through a person's fertility desire. fertility desire is a very broad and varied aspect because it is very personal. the desire for fertility can generally occur due to problems of religious adherence, traditions, economic condition, and so on. figure 1. average ideal number of children of women of childbearing age in indonesia source: idhs 1987, 1991, 1994, 1997, 2002, 2007, 2012, dan 2017 fertility desire is generally measured by the average ideal number of children. the trend in the average ideal number of children according to the idhs results continues to decline to 2.6 in 2017. this figure indicates the number of children that someone actually wants if they do not have children. based on the data collected through the idhs, the more children a person has, the more children are considered ideal. a decline in the total birth rate a few decades ago was necessary, but in the future, this could be a problem for indonesia. the low state of the total birth rate is a condition that needs to be concerned about and needs to pay attention to, especially for policymakers. the low total birth rate can cause population aging in the future which in turn creates a decrease in productivity and can create new burdens, such as an increase in dependency burden. the increase in dependency burden means that the dependents of the productive age population will be greater in the presence of an aging population. this situation will also harm economic growth, create social problems, and other problems. if this trend continues, there are concerns that by 2045, indonesia will have the same fate as developed countries, which is the increase of the elderly population and a reduction in the population of the productive labor force if the number of children owned by each household continues to decline. therefore, it is necessary to think about how to extend the demographic bonus and keep the total birth rate stable at 2.1 because there is a tendency for indonesian families to wanting fewer number of children. 3.2 3.1 2.9 2.9 2.9 2.8 2.6 2.6 0 0.5 1 1.5 2 2.5 3 3.5 1987 1991 1994 1997 2002 2007 2012 2017a v e ra g e i d e a l n u m b e r o f c h il d re n o f w o m e n o f c h il d b e a ri n g a g e year internet usage and ideal number of children in indonesia (the analysis of the 2017 idhs) 3 the indonesian population projection predicts that in 2015-2020 indonesian women of childbearing age will give birth to 2.17 children and until 2045 will be stable in giving birth to 2.1 children. the prediction figure from the indonesian population projection is the government's hope to maintain demographic conditions. unlike the results of the indonesian population projection, the 2019 world population prospect projects that by 2045, indonesia will have a total birth rate of 1.95, which is below the ideal replacement level. for this reason, through the national medium-term development plan (rpjmn) 2020-2024, the government aims to keep the total birth rate stable at 2.1 or two children per woman. total birth rate is an important indicator of population problems. the low birth rate in a country can be a threat to the country's resilience, especially the high dependency ratio caused by an aging population. therefore, to prevent an aging population, it is necessary to analyze the aspects that have caused the decline in the total number of births in the world by looking at the fertility desires that exist in the community. the desire for fertility can be influenced by various information received by the community. in this era, people generally get this information through the internet. the development of technology, especially the internet, can change all aspects of life. the internet has a variety of information from all corners of the world without any restrictions. various new perspectives can be obtained with the existence of the internet. it is estimated that the internet can affect fertility desires for the world's population. in this era, people's lives cannot be far from the internet. based on data from digital 2019 reports conducted by hootsuite and we are social, there are 4.39 billion internet users in 2019 worldwide and an estimated 11 new users per second. in indonesia, the overall internet penetration rate according to the world bank was 39.79% in 2018. urban and rural areas certainly have different levels of penetration. based on susenas, internet penetration in indonesia has a trend that continues to increase every year and there is a significant difference between internet penetration in the two regions. the way people think today is much different from the way people think a few years ago. this is due to the increasingly open access to the outside world, especially for urban communities that have a high level of internet penetration. with the massive development of the internet, researchers have begun to focus on looking at the impact of the internet on life. there are various responses and hypotheses regarding the internet, such as: the internet is a technology that can disrupt traditional family life (conley, 2009); the internet is a growing medium and has the potential to find a partner (rosenfeld and thomas, 2012); and the internet is a technology that allows spill-over from work life to home life or vice versa (wajcman, 2014). from the background description above, it shows that it is necessary to conduct a study on the fertility desire or the ideal number of children related to the effect of internet use in indonesia. research on fertility desires is important because the results of this study can be used to design appropriate policies to support the handling of birth rates. this research on the effect of internet use on the ideal number of children is limited to women in indonesia aged 15-49 years. based on the background of the problems related to threats that can arise from the decreasing total birth rate, the problem formulations in this study are how are the patterns and differences in the ideal number of children according to women in indonesia afebi economic and finance review (aefr) volume 6, no. 1 (2021) 4 according to internet usage and how does internet use affect the ideal number of children according to women in indonesia after being controlled with certain socio-economic factors? based on the problems that have been stated above, this study aims to examine the effect of the internet on the ideal number of children according to women in indonesia. meanwhile, the specific objectives of this study are studying the patterns and differences in the ideal number of children according to women in indonesia according to internet usage and certain social and economic factors and studying the effect of internet use on the ideal number of children according to women in indonesia after being controlled with the influence of certain social and economic factors. 2. literature study 1) determinants of fertility a person's birth rate is often measured directly using the impact of socioeconomic factors on fertility. there are several studies related to socio-economic factors on fertility, one of which is by davis and blake (1956). research conducted by davis and blake describes 11 intermediate variables that affect fertility which is then grouped into three categories, namely the stage of sexual relations, the stage of conception, and the stage of pregnancy. research on socio-economic factors on fertility was also carried out by becker (1960), particularly on the number of children in a family. the theory carried out by becker discusses the quality and quantity of children. becker assumes that the quality and quantity of children have a positive effect on income elasticity at constant prices. however, as income increases with economic growth and development, it is assumed that the demand for quality of children becomes more elastic and increases more rapidly. this results in higher prices for childcare and thus reduces the demand for the number or quantity of children. income is one of the factors that affect the number of children in the household. based on the publication of becker (1960), children have a negative correlation with income, but there is no relationship between children and income. becker assumes that child ownership preferences are viewed from two sides, namely the quality and quantity of children. according to becker, children are judged as inferior goods if they do not have good quality. furthermore, according to becker (1991), demand for children is the number of children wanted when there are no things that prevent the act of having or not having children. the choice of birth is conditioned by the social, educational, cultural, and economic conditions faced by each individual. this demand for children affects the relative price of the child and the full income of a household, where the relative price of the child is the direct cost of caring for the child (such as health and education costs) and the net cost of caring for the child (the contribution of the child to household income). when the relative price increases, the demand for children will effectively decrease. in addition, other costs related to the time spent caring for children are part of the relative costs. time spent caring for children can have a significant impact on demand for children. internet usage and ideal number of children in indonesia (the analysis of the 2017 idhs) 5 2) fertility desire fertility intention has an important role in fertility itself (azmoude et al., 2017). the importance of intention in terms of fertility is because fertility is an action based on intention which is then integrated into life (schoen et al., 1999). fertility intentions are influenced by different factors for each individual and will lead to the actualization of the pregnancy or childbirth which is formed from the desire for fertility. fertility desire and fertility intention are different things. sometimes there is a misunderstanding between fertility desire and fertility intention. the desire for fertility can be in the form of a person's hopes for having children when all potential barriers are not taken into account (miller, 2011), usually measured by the “ideal number of children”. there is a concept entitled theory of planned behavior which can explain how fertility behavior works (ajzen 1991, 2005). the main idea of this concept is that what motivates the fertility intention of a person and a partner starts from a sequential process that begins with traits that unconsciously motivate to have or not have children, then it develops into a conscious desire to have or not have children, which eventually develops into an act or act of behavior which is a tool in the act of having or not having children, which then becomes an event of birth (miller, 2011). the desire for fertility is expected to be a signal for future fertility. the higher the certainty of a person's fertility desire, the greater the likelihood that the desired fertility will occur (schoen et al., 1999). 3) information and communication technology, internet usage, and its impact on society information and communication technology is a vital component of today's everyday life. information and communication technology has many roles for human development, from the aspects of education, health, and improving living standards (bankole and mimbi, 2017; yakunina and bychkov, 2015; lee et al. 2017). sociologists have conducted research on one of the information communication technologies, which is the internet, and its effects on people's lives. daniel bell (1977) conducted a study on the social impact of digital communication media and predicted that there are major consequences of electronic developments that can accelerate the movement of information. castells (1996) also argues that the ability of the internet to integrate various forms of information into one system can have an impact on people's lives, create new forms of identity, and build new forms of social organization. the internet can increase efficiency and make humans more productive and provide convenience by eliminating the need to travel to their destination to carry out activities. because of the internet too, the literacy level of its users is reported to be higher than those who do not use the internet (dimaggio et al., 2001). 4) internet use and fertility the internet can affect transitions in marriage, especially in finding partners who will become parents of their children (rosenfeld and thomas, 2012). with the help of internet mediation, traditional partner formation can be replaced. marriage, which is a determinant that has an impact on fertility, thus the impact of using the internet afebi economic and finance review (aefr) volume 6, no. 1 (2021) 6 on fertility can be mediated through marriage (billari et al., 2017). the internet can also facilitate the balancing of the division of time for work and family. with internetbased work, parents can reduce their time to travel to the office, reduce absenteeism and increase productivity, and of course, increase time spent with family (dettling, 2017). 5) internet and information about fertility interest in having children has a strong association with knowledge about fertility. based on recent research, knowledge about fertility in japan is lower than in other developed countries. this could be one reason why japan has a low birth rate (maeda et al., 2015). maeda researched the knowledge of men and women aged 18-59 and included people who were trying to give birth for at least six months on fertility using the japanese version of the cardiff fertility knowledge scale (cfks-j). there are 44% of the sample from the study who managed to answer the items from the cfksj correctly. based on the results of multivariate linear regression analysis, 65% of the sample who knows things about fertility get knowledge about it from the mass media or the internet. based on theoretical reviews and empirical studies, the analytical framework in conducting the analysis of the internet and the ideal number of children according to women in indonesia is as follows. figure 2. analytical framework 3. research methodology this study aims to analyze the use of the internet and the ideal number of children according to women of childbearing age in indonesia. this study uses secondary data obtained through the results of 2017 indonesian demographic and health survey (idhs). the unit of analysis for this study is women aged 15-49 years or can be categorized as women of childbearing age. this category includes never-married women who are part of women of childbearing age. the samples from idhs that will be used in this study are individual women from women of childbearing age aged 15-49 years. internet usage read about family planning from the internet ideal number of children • age • residential area • highest education level • marriage status • number of living children • occupation • wealth quintiles • husband's desire to have children internet usage and ideal number of children in indonesia (the analysis of the 2017 idhs) 7 this study will use economic research methods to build research models and process the data. the main method of this research is quantitative research and will be supported by qualitative methods to support the findings and provide a broader perspective. this study focuses on cross-sectional data at the national level. the variables used in this study are presented in table 1. table 1. research variables, symbols, operational definitions, and categorization variables operational definitions categorization descriptive inferential dependent variable ideal number of children number of children wanted 1. 0-2 children 2. 3-4 children 3. ≥5 children and non-numeric response independent variable internet usage (internet) the length of internet usage in the last month before census 1. everyday 0. never use the internet * 1. use the internet 2. everyweek 3. less than once a week 4. never 5. no answer read about family planning from the internet (fpinternet) have or never have read about family planning information via the internet 0. no* 1. yes control variable age (age) age of respondent during census 1. 15-24 years old* 2. 25-34 years old 3. 35-49 years old residential area (location) the place where the respondent lived during the census 1. urban 2. rural* highest education level (education) highest education level of the respondent 1. do not go to school 2. primary school 3. middle school 4. high school and above 1. do not go to school and primary school* 2. middle school 3. high school and above marriage status (married) respondents' marital status during the census 0. not married* 1. married number of living children (children) the number of living children owned by the respondent 0. no living children* 1. 1 living children 2. 2 living children 3. 3 living children 4. 4 living children or more occupation (occupation) respondents' type of occupation 0. not working 1. agriculture* 2. others afebi economic and finance review (aefr) volume 6, no. 1 (2021) 8 wealth quintiles (wealth) household income quintile 1. q1 (lowest)* 2. q2 3. q2 4. q4 5. q5 (highest) husband's desire to have children (husband) the number of children the husband wants 1. less 2. equal 3. more 4. do not know 5. do not have a husband 0. do not have a husband* 1. equal 2. others note: * = reference category to support the findings and provide a broader perspective, this study will present the data or observations in a concise and clear manner. descriptive analysis in this study is also important to see the significant relationship between variables. in addition to descriptive analysis, the authors used a multinomial logistic regression model. the multinomial logistic regression model is an analytical tool used to describe the relationship between the dependent variable in the form of multinomial data and the independent variables. the multinomial scale is a measurement that is divided into more than two categories. this study formed two separate models, namely a model of the entire sample of women of childbearing age and a model of women of childbearing age who is currently married. the female model aged 15-49 who is currently married is made to see the difference in the impact when a woman has a husband, who also has a voice in determining the number of children. this model will only look at the direct impact of internet use on the number of children desired by women of childbearing age. the method used to examine the effect of the internet on the ideal number of women in indonesia in this study is logistic regression with a nominal scale dependent variable with the following three categories. • y=1 ; wants 0-2 children • y=2 ; wants 3-4 children • y=3 ; wants ≥5 children and non-numeric response next, the model can be described as follows. 1. women of childbearing age 𝑔𝑗(𝑥) = 𝛽𝑗0 + 𝛽𝑗1𝐼𝑛𝑡𝑒𝑟𝑛𝑒𝑡 + 𝛽𝑗2𝑓𝑝𝑖𝑛𝑡𝑒𝑟𝑛𝑒𝑡 + 𝛽𝑗3𝑎𝑔𝑒 + 𝛽𝑗4𝑙𝑜𝑐𝑎𝑡𝑖𝑜𝑛 + 𝛽𝑗5𝑒𝑑𝑢𝑐𝑎𝑡𝑖𝑜𝑛 + 𝛽𝑗6𝑚𝑎𝑟𝑟𝑖𝑒𝑑 + 𝛽𝑗7𝑐ℎ𝑖𝑙𝑑𝑟𝑒𝑛 + 𝛽𝑗8𝑜𝑐𝑐𝑢𝑝𝑎𝑡𝑖𝑜𝑛 + 𝛽𝑗9𝑤𝑒𝑎𝑙𝑡ℎ + 𝛽𝑗10ℎ𝑢𝑠𝑏𝑎𝑛𝑑 2. women of childbearing age who is currently married 𝑔𝑗(𝑥) = 𝛽𝑗0 + 𝛽𝑗1𝐼𝑛𝑡𝑒𝑟𝑛𝑒𝑡 + 𝛽𝑗2𝑓𝑝𝑖𝑛𝑡𝑒𝑟𝑛𝑒𝑡 + 𝛽𝑗3𝑎𝑔𝑒 + 𝛽𝑗4𝑙𝑜𝑐𝑎𝑡𝑖𝑜𝑛 + 𝛽𝑗5𝑒𝑑𝑢𝑐𝑎𝑡𝑖𝑜𝑛 + 𝛽𝑗6𝑐ℎ𝑖𝑙𝑑𝑟𝑒𝑛 + 𝛽𝑗7𝑜𝑐𝑐𝑢𝑝𝑎𝑡𝑖𝑜𝑛 + 𝛽𝑗8𝑤𝑒𝑎𝑙𝑡ℎ + 𝛽𝑗9ℎ𝑢𝑠𝑏𝑎𝑛𝑑 4. result and discussion 1) difference in the ideal number of children bivariate descriptive analysis is carried out to explain the sample description when viewed by the ideal number of children (the desired number of children). table internet usage and ideal number of children in indonesia (the analysis of the 2017 idhs) 9 2 is a summary of the sample statistics when viewed by the ideal number of children (the desired number of children). table 2. summary of descriptive statistics for the unit of analysis by ideal number of children variable ideal number of children (number of children wanted) 0-2 3-4 ≥5 and nonnumeric total internet usage everyday 10.013 5.461 1.469 16.943 59,10 32,23 8,67 100 everyweek 2.574 1.484 474 4.532 56,80 32,74 10,46 100 less than once a week 840 509 239 1.588 52,90 32,05 15,05 100 never 11.083 8.842 5.019 24.944 44,43 35,45 20,12 100 no answer 15 10 2 27 55,56 37,04 7,41 100 read about family planning from the internet yes 6.228 3.742 838 10.808 57,62 34,62 7,75 100 no 18.279 12.534 6.350 37.163 49,19 33,73 17,09 100 age 15-24 8.935 3.901 1.395 14.231 62,79 27,41 9,80 100 25-34 6.764 5.235 1.640 13.639 49,59 38,38 12,02 100 35-49 8.826 7.170 4.168 20.164 43,77 35,56 20,67 100 residential area rural 13.963 8.469 3.088 25.520 54,71 33,19 12,10 100 urban 10.562 7.837 4.115 22.514 46,91 34,81 18,28 100 education level do not go to school 215 288 337 840 25,60 34,29 40,12 100 primary school 4.934 4.233 2.679 11.846 41,65 35,73 22,62 100 middle school 14.787 8.337 3.324 26.448 55,91 31,52 12,57 100 high school and above 4.589 3.448 863 8.900 51,56 38,74 9,70 100 marriage status married 15.744 12.385 5.437 33.566 46,90 36,90 16,20 100 not married 8.781 3.921 1.766 14.468 60,69 27,1 12,21 100 number of living children 0 8.744 3.949 1.582 14.275 61,25 27,66 11,08 100 1 5.245 2.692 737 8.674 60,47 31,04 8,50 100 2 6.879 4.037 1.313 12.229 afebi economic and finance review (aefr) volume 6, no. 1 (2021) 10 56,25 33,01 10,74 100 3 2.436 3.488 1.387 7.311 33,32 47,71 18,97 100 ≥4 1.221 2.140 2.184 5.545 22,02 38,59 39,39 100 occupation not working 10.362 6.053 2.836 19.251 53,83 31,44 14,73 100 agriculture 2.495 2.223 1.471 6.189 40,31 35,92 23,77 100 others 11.655 8.013 2.892 22.560 51,66 35,52 12,82 100 wealth quintiles 1 4.361 3.819 2.443 10.623 41,05 35,95 23,00 100 2 4.791 2.957 1.438 9.186 52,16 32,19 15,65 100 3 4.943 2.981 1.232 9.156 53,99 32,56 13,46 100 4 5.100 3.203 1.082 9.385 54,34 34,13 11,53 100 5 5.330 3.346 1.008 9.684 55,04 34,55 10,41 100 husband's desire to have children less 408 895 324 1.627 25,08 55,01 19,91 100 equal 10.676 7.951 2.427 21.054 50,71 37,76 11,53 100 more 3.226 2.111 806 6.143 52,52 34,36 13,12 100 do not know 858 884 1.576 3.318 25,86 26,64 47,50 100 do not have a husband 9.357 4.465 2.070 15.892 58,88 28,10 13,03 100 total 24.525 16.306 7.203 48.034 51,06 33,95 15,00 100 note: unit of measurement: women of childbearing age the internet is considered to be a source of information and can change the perspective of its users. this is because, on the internet, there is all information from many different points of view. in addition, the internet can also make life or daily activities easier. it can be seen from table 2, the fewer women use the internet, the percentage of both categories of the ideal number of children increases. the majority of women of childbearing age who use the internet every day want 0-2 children, which is 59.10% and 8.67% of them answered that they want five or more children or it's up to god (non-numeric). when women of childbearing age did not use the internet at all, the percentage who answered that they wanted to have five or more children or non-numeric became 20.12%. as is well known, the use of the internet can provide a variety of information, including information about family planning. based on the results of the univariate analysis, only 22.45% of the total sample had read about family planning via the internet. women who read information about family planning via the internet tend to prefer fewer children than those who do not. for those who read family planning via internet usage and ideal number of children in indonesia (the analysis of the 2017 idhs) 11 the internet, there is 7.75 percent of them wanted to have five or more children or nonnumeric, while when women who did not read information about family planning via the internet, 17.09% of them wanted to have five or more children or non-numeric. in every relationship between partners, the desired number of children between wives and husbands is not always the same. sometimes it is the difference in the ideal number of children between partners that makes a mismatch in fertility desires and the actual fertility. according to 2017 idhs, in general, men want slightly more children than women. the cross table between the husband's desire to have children and the number of children desired by women of childbearing age gives quite an interesting result. it can be seen from table 2 that women whose husbands want fewer children actually have a greater percentage of wanting to have five or more children or non-numeric than women whose husbands want more and others. there were 19.91% of women whose husbands wanted fewer children who wanted to have five or more children or non-numeric and 13.12% of women whose husbands wanted more children. in other conditions, women who do not know what their husband wants are more likely to want to have five or more children or non-numeric, while those who do not have a husband tend to want 0-2 children. 2) determinants of the ideal number of children the result of multinomial logistic regression in this study showed that the overall model could well describe the influence between internet use and other observed factors on the number of children desired by the sample. table 3 is a table of multinomial logistic regression results to determine the effect of internet use on the ideal number of children. table 3. multinomial logistic regression results based on odds ratio of internet use and ideal number of children according to childbearing-aged women in indonesia characteristics ideal number of children (number of children wanted) 0-2 3-4 0-2 to ≥5 or non-numeric to 3-4 β odds ratio β odds ratio β odds ratio internet usage 0,194 1,214 0,114 1,121 0,079 1,083 read about family planning from the internet 0,282 1,326 0,345 1,412 -0,063 0,939 age 15-24 reference category 25-34 -0,303 0,739 -0,119 0,888 -0,184 0,832 35-49 -0,370 0,691 -0,465 0,628 0,095 1,100 residential area urban 0,182 1,200 0,096 1,101 0,086 1,090 rural reference category education level do not go to school and primary school reference category middle school 0,341 1,407 0,217 1,242 0,124 1,132 high school and above 0,124 1,132 0,421 1,523 -0,297 0,743 marriage status 0,299 1,349 0,371 1,450 -0,072** 0,931 number of living children 0 reference category 1 0,474 1,606 0,332 1,394 0,142 1,152 afebi economic and finance review (aefr) volume 6, no. 1 (2021) 12 2 0,303 1,354 0,335 1,398 -0,032** 0,968 3 -0,725 0,484 0,265 1,303 -0,990 0,372 ≥4 -1,695 0,184 -0,503 0,605 -1,192 0,304 occupation not working reference category agriculture -0,037** 0,963 0,056** 1,057 -0,093 0,911 others 0,107 1,113 0,208 1,232 -0,102 0,903 wealth quintiles q1 reference category q2 0,371 1,449 0,102 1,107 0,269 1,308 q3 0,425 1,530 0,161 1,175 0,264 1,302 q4 0,484 1,623 0,267 1,306 0,218 1,243 q5 0,485 1,624 0,225 1,252 0,260 1,297 husband's desire to have children do not have a husband reference category equal 0,200 1,221 0,365 1,441 -0,166 0,847 others -0,769 0,463 -0,470 0,625 -0,300 0,741 constanta 0,822 2,231 0,173 1,189 0,629 1,876 note *** p<0.01, ** p<0.05, * p<0.1 table 4. multinomial logistic regression results based on odds ratio of internet use and ideal number of children according to childbearing-aged women that are married in indonesia characteristics ideal number of children (number of children wanted) 0-2 3-4 0-2 to ≥5 or non-numeric to 3-4 β odds ratio β odds ratio β odds ratio internet usage 0,149 1,160 0,110 1,116 0,039** 1,039 read about family planning from the internet 0,197 1,218 0,213 1,237 -0,015** 0,985 age 15-24 reference category 25-34 -0,137 0,872 -0,036** 0,965 -0,101 0,904 35-49 -0,186 0,831 -0,331 0,718 0,146 1,157 residential area urban 0,187 1,206 0,082 1,085 0,105 1,111 rural reference category education level do not go to school and primary school reference category middle school 0,354 1,425 0,247 1,280 0,107 1,113 high school and above -0,069 0,934 0,284 1,328 -0,353 0,703 number of living children 0 reference category 1 0,678 1,971 0,402 1,494 0,277 1,319 2 0,405 1,500 0,323 1,382 0,082** 1,085 3 -0,644 0,525 0,205 1,228 -0,849 0,428 ≥4 -1,592 0,203 -0,556 0,574 -1,036 0,355 occupation not working reference category internet usage and ideal number of children in indonesia (the analysis of the 2017 idhs) 13 agriculture -0,006** 0,994 -0,005** 0,995 -0,001** 0,999 others 0,108 1,114 0,120 1,127 -0,012** 0,989 wealth quintiles q1 reference category q2 0,412 1,509 0,117 1,124 0,294 1,342 q3 0,479 1,614 0,157 1,170 0,322 1,380 q4 0,568 1,764 0,293 1,340 0,275 1,316 q5 0,572 1,771 0,270 1,310 0,302 1,352 husband's desire to have children do not have a husband reference category equal 0,201 1,223 0,347 1,415 -0,146 0,864 others -0,760 0,468 -0,479 0,619 -0,280 0,755 constanta 0,810 2,248 0,531 1,700 0,279 1,322 note *** p<0.01, ** p<0.05, *p<0.1 the internet has quickly become the main tool for finding health information (rice and katz, 2001; webb et al., 2010), including fertility and family planning (epstein and rosenberg, 2005; daniluk and koert, 2013). with the use of the internet, various information and perspectives from all over the world can be accepted and implemented in a person so that they want to have a certain number of children. with this information, internet users will have more knowledge so that they can think or determine how many children they want or think are ideal, not just surrender everything to god. based on the regression results in tables 3 and 4, the entire sample model of women of childbearing age and the sub-sample of women of childbearing age who are currently married have similar results, those who have used the internet have a higher tendency to want to have fewer children than those who never used the internet. the internet has become more accessible over time, providing information to a large population. governments around the world are taking advantage of the internet as a medium for disseminating information about family planning and contraceptive tools using websites. research conducted by nelson (2013) shows that brazilians who have internet access are relatively more exposed to family planning, sexual health, and fertility knowledge than those without internet access. community exposure to information related to family planning can then influence the desired number of children. the same thing happened to women in pakistan. based on the results of research conducted by khan and bari (2015), the media can change behavior by providing new information or choices and can form the identity of the audience who receives it. in addition, the internet also provides convenience in the form of reducing costs for finding information (for example: finding a partner, effective and inexpensive contraceptives, how to educate children, and the costs and benefits of having children) (guldi et al., 2017). based on the regression results, the use of the internet has an influence on a person's desire to have a certain number of children. women who never accessed the internet tended to fall into the group who wanted more than five children and gave non-numerical responses. afebi economic and finance review (aefr) volume 6, no. 1 (2021) 14 more evidence that internet use can affect fertility was reported by bocconi university in 2019. the internet has been shown to increase the number of children born to highly educated women in germany. the internet also has a positive effect on overall satisfaction and time spent with children on weekdays. since the internet expands and then increases economic activity, additional income (assuming children are a normal good) can increase the number of pregnancies that lead to births. at the same time, this can increase the opportunity cost of having a child and thus reduce the number of pregnancies that lead to birth. (rindfuss et al., 1996; martin 2000; adsera 2004; blossfeld et al., 2005; kravdal and rindfuss 2008; pailhe´ and solaz 2012). according to becker (1960), when income increases with economic growth, the demand for quality children increases the shadow price of children and then reduces the number of children desired. furthermore, women of childbearing age who have read information about family planning via the internet have a higher tendency to want to have fewer children than those who have never read information about family planning via the internet. based on the regression results, the entire sample of women of childbearing age and the subsample of women of childbearing age who are currently married have similar results. these results are consistent with the government's goal in 2017, which is to reduce the total birth rate. since 2016, the national population and family planning board (bkkbn) has targeted the poor, densely populated urban areas, fishing villages, slum areas, and other underdeveloped areas to have an awareness of the importance of the quality of children compared to the number of children. this is done to implement quality human development. the results obtained from this regression indicate that the internet has an important role in disseminating information, especially information about family planning. women who read about family planning on the internet tended to want to have fewer children and did not give non-numerical responses. webb et al. (2010) found that online interventions can positively influence a person's health behavior, this is also supported by the results of a study conducted by wojcieszek and thompson (2013) which found that there was a significant increase in knowledge about family planning after an online intervention. the provision of information about family planning online via the internet has been proven to affect the way of thinking and behavior of population fertility in several countries. providing information via the internet is more effective in changing the way people think than the traditional way because of the convenience provided by the internet. the empirical evidence of this statement is proven by the research results of daniluk and koert (2015). after reading articles on fertility and family planning via the internet, the knowledge about fertility and beliefs about fertility that exist in canadian communities can change. based on recent research, low birth rates are thought to occur due to a lack of knowledge about fertility. japanese citizens have lower knowledge of fertility compared to other developed countries, this could be one of the reasons why japan has a low birth rate (maeda et al., 2015). interest in having children has a strong association with knowledge of fertility. therefore, to prevent childlessness due to a lack of information on fertility, people who are not interested in having children need internet usage and ideal number of children in indonesia (the analysis of the 2017 idhs) 15 to know the facts about fertility. there needs to be an increase in fertility education interventions from reliable sources that can be disseminated via the internet because often the information provided by the internet is inaccurate. 5. conclusion the results of the inferential analysis show that internet use and socioeconomic characteristics influence the ideal number of children or the number of children desired by women of childbearing age. some factors are not proven to be statistically significant in affecting the overall infertility of women of childbearing age, which is employment in agriculture. for the ideal number of children of women of childbearing age who are married, factors that are not proven to be statistically significant are the use of the internet and reading family planning information through the internet, employment in agriculture, and higher education. women aged 15-49 who have used the internet are more likely to want to have fewer children and do not answer non-numerically than those who never use the internet. those who have read information about family planning via the internet have a higher tendency to want to have fewer children and do not answer non-numerically than those who have never read information about family planning through the internet. the socioeconomic conditions that women have also cause them to be more likely to want to have fewer children and not answer non-numerically. the socioeconomic conditions that cause this are those who live in urban areas, have secondary and higher education, have relatively few children, work (both in agriculture and other fields), wealth level, and their husbands have the same desire for the number of children. the internet is proven to affect the ideal number of children for women of childbearing age in indonesia. therefore, to achieve the objectives of the rpjmn, it is necessary to pay attention to strategies that can control the ideal number of children, such as using the internet as a medium to educate the public, especially in terms of fertility and family planning. the government can raise awareness through the internet more intensively about the dangers that can arise when the fertility rate is too far from the figure of 2.1. it is hoped that with education through the internet, the public will be more aware of other fertility and population problems so that government plans can be achieved. reference adsera, a. 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(2015). correlation analysis of the components of the human development index across countries. procediaecon finance 24:766–771. microsoft word d7b2-eec5-30db-e994 the impact of china shock on deindustrialisation over time 88 the impact of china shock on deindustrialisation over time nugraheni dwi utami* faculty of economics and business, graduate program in economics, universitas indonesia, depok, indonesia abstract this paper analyses the impact of chinese import competition on deindustrialization measured by real value added and employment share in 61 developed and developing countries over 1970-2010 period. by employing quantile regression with instrumental variables to correct potential endogeneity bias, the results suggest that the main driver of deindustrialization in employment in developed countries is technological change. there is heterogeneous effect of china shock. in developed countries, the effect is destructive in term of both employment and real value added in the lower quantile of distribution, with the higher magnitude for the former. in the higher quantile, complementary effect outweighs detrimental impact. in developing countries, the negative effect of china’s shock on real value-added rises as the increase in the proportion of manufacturing value-added in countries. the destructive effect on employment in developing countries seems to be harder after 1990 period. keywords: china, competition, deindustrialization 1. introduction a vigorous political debate is in topic over the impact of globalisation on the decline in manufacturing sectors in the developed and developing world. china’s rapid expansion of manufactured exports looms large in these discussions as it has affected the pattern of trade in international markets. china’s share of global manufacturing exports grew from 0.5% in 1978 to 13.7% in 2010. one potential explanation concerning china’s export performance is her ability to provide the world with low-cost products. consequently, it might have had an impact on global prices (kaplinsky, 2006; jenkins, peters & moreira, 2008). we argue in this paper that increased chinese trade has induced faster deindustrialisation. a compelling piece of evidence best represented by autor, hanson & dorn (2013); acemoglu, autor, hanson & price (2016); malgouyres (2017) and federico (2014), shows contracting in employment in low-skill manufacturing sectors in response to chinese import competition. the contribution of this paper is to provide evidence of the impact of china shock on deindustrialisation in countries at different levels of development and to confirm the hypothesis that the main driver of deindustrialisation over time in developed countries is due to technological progress. additionally, it is to show that china shock is affecting developing economies more than advanced economies. most previous findings have to be interpreted in light of two important aspects. first, existing studies focus their analysis on the negative employment effects of import penetration and rarely mentioned other causes that influence deindustrialisation. second, the sample is limited for some countries and the time available to undertake the study was also short (donoso et al. 2015; federico, 2014; dauth et al., 2014; jenkins, peters & moreira, 2008; feenstra and sasahara, 2018). while the evidence provided in these contributions add to the existing literature by evaluating reactions to shocks on regional employment effects, they have not been utilised to examine the comparable effects or to draw a conclusion on the repercussions of chinese’s penetration as a whole. *corresponding author. email address: nugrahenidwiutami@gmail.com afebi economic and finance review (aefr) volume 4, no 02 (2019) 89 a broader and more balanced picture of the relationship between trade and deindustrialisation can be grasped by extending existing literature using econometric methods with better measures and improved data that are able to incorporate the missing aspects mentioned earlier. the contribution of this paper. first, we use relative share of real valueadded and employment in manufacturing to measure deindustrialisation. the benefit of using real value-added instead of nominal is that it minimises the downward bias due to the price effect. second, we use four decades of period panel data that includes notable countries both developed and developing economies which represent 80-90% of the world’s total gdp in ppp. this data allows us to track the pattern of deindustrialization over years, disaggregate the impact of china’s shock on different periods and compare the effect on developed and developing economies. lastly, we employ quantile regression estimation with correction for endogeneity bias using instrumental variables. by conducting these strategies, this thesis contributes to the existing literature. this paper presents three main results. first, while developed countries have already experienced a rapid decrease in manufacturing employment sectors over decades, chinese import penetration has made it worse. the effect on employment deindustrialisation is harder than on real value-added, with a magnitude around 2.1 – 2.6 % points for the former and in the region of 0.5 – 1.9 for the latter. surprisingly, in the countries that have a higher proportion of manufacturing sectors, the effect is complementary. the adverse effect of china clearly affected real value-added with a magnitude around 2.5 – 5.9% points rather than share in manufacturing employment in developing countries. second, the negative impact of china’s shock is empirically greater in developing countries than in developed countries. the level of development also weakens the effect, implying that the wealthier the countries the lower the effect. lastly, over the period 1990-2010, the impact of china’s shock is bigger than previous periods. it happens especially in developing countries, while in developed countries the complementary effect dominates the damaging effect. 2. theoretical framework heckscher-ohlin’s theory explains that the driver of international trade is due to differences in factor input for production which originates. countries tend to export goods whose production makes intensive use of factors of which they have a relatively large supply and imports goods which require large inputs of factors that are locally scarce. a further factor that encourages countries to engage in international trade is based on differences in endowment related to technology in producing goods as modelled by ricardian theory. the differences in technology will affect the need for labour per unit of production in one country relative to other countries. this implies that there would be differences in factor prices which eventually cause differences in national industrial capabilities in producing goods across countries. in international trade, when trade barrier between countries fall, the production and employment structure of countries tends to become more specialised in sectors in which their factor endowments give them a comparative advantage due to production costs. the earnings of their abundant factors tend to increase relative to those of their scarce factors. therefore, hanson (2012) suggests that international specialisation follows the perceived patterns of a country’s comparative advantage. acemoglu et al. (2016), based on the heckscher-ohlin and ricardo-viner models of international trade, note that the stronger import competition with china will reduce the relative price of manufacturing goods and generates reallocation of labour and capital toward sectors whose relative prices have increased. this view is consistent with wood & mayer (2010), who state that the entry of china into world markets has affected the sectoral structures of other economies. given abundant sources of labour-intensive manufacturing resources, china concentrated on exporting labour-intensive manufactured goods and imports goods in which it has a comparative disadvantage in land and resources, for instance primary commodities and skill-intensive manufactured products. the vast expansion of china’s exports and the substantial increase of the impact of china shock on deindustrialisation over time 90 imports in primary products have altered the relative prices on world markets (kaplinsky, 2006: mayer & fajarnes, 2008; fu, kaplinsky & zhang, 2009) and thus shifted demand functions to the left for labour-intensive manufacturers and to the right for primary goods and skill-intensive manufacturers. various studies have investigated the relationship between chinese penetration and employment in other countries, both developed, middle, or developing countries. for example, bernard, jensen & schott (2006), assert that from 1972-1992, import penetration from low-income countries – with china being the largest member of this group by far, encouraged reallocation of industry in the us toward other industries with less exposure to low-wage country imports and greater capitaland skill-intensity, meaning that us manufacturing is shifting resources from comparative-disadvantage activities towards activities consistent with us comparative advantage and accelerating capital deepening across and within manufacturing industries over time. the negative effect of chinese penetration on employment had been examined by autor, hanson & dorn (2013). they find that between 1990-2007, chinese import penetration contributed to a one-quarter increase in unemployment in us manufacturing industries. similarly, acemoglu, et. al (2016), show that approximately 2-2.4 million manufacturing jobs were lost in the us between 1999-2011 as a result of the import competition from china. the relative share of employment related to the us manufacturing sector experienced a steep decline immediately after the new millennium, a question that has been addressed by (pierce & schott, 2016). they linked this decline to the new policy granting permanent normal trade relations (pntr) status to china. the us had applied low tariffs on chinese imports since 1980, but they were subject to annual renewal. the pntr removes uncertainty with regards to tariffs changes due to annual renewals of china’s normal trade relations. pntr have benefited chinese producers by enabling them to enter and expand into the us market. there is debate whether this new policy has benefited the us consumer. chinese’s penetration seems to have reduced us manufacturing employment by coaxing us producers to invest in capitalor skill-intensive production technologies or less labourintensive products that are more consistent with us comparative advantage. it can be observed that industries most affected by pntr exhibit increases in skill intensity. the effects of chinese export exposure may vary across countries depending on the structure of the economy of each country. middleor developing countries compared to developed countries, in general also have a comparative advantage in labour intensive sectors. they may experience further increase in unemployment if they fail to compete with china. however, empirical findings show that there are also benefits resulting from chinese expansion. for example, jenkins, peters & moreira (2008), emphasise that growth trade with china has been positive, though it has created winners and losers in latin america and the caribbean. producers and exporters of raw materials such as agriculture, agroindustry and industrial inputs have been the winners, seeing as their exports to china increased sevenfold between 1999-2005. however, countries that specialised in commodity chains such as yarntextile-garments, electronics, automobiles and auto parts appear to be the losers both in domestic and third markets. this is because chinese competition caused job losses in garments and textiles export industries, plant closures and that employment had declined as a result of competition from china in the us market. after the 2nd unbundling, the production structure became more fragmented and firms in advanced countries produce goods in other countries via labour intensive segments of their supply chain to developing countries. thus, since china has been able to provide labour intensive resources with lower wages relative to other countries, it’s role has increased rapidly and it has been the biggest winner as the supplier of intermediates goods with roughly 11% of global intermediate exports (baldwin & lopez-gonzalez, 2015). the global value chains that run through china may represent a significant opportunity as well as a threat. the negative effect is shown in some countries in east asian and nies (athukorala, 2009). countries like japan, korea and hong kong are less competitive than china due to the high wages which then leads to the comparative advantage being lost on production lines, as an afebi economic and finance review (aefr) volume 4, no 02 (2019) 91 integral part of the global value chain. however, the boost in china’s processing industries has a positive spill over by increasing demand for intermediate goods from other countries in east and south asia. the finding shows that from 1996-2011, china had a positive effect on employment in east asia and asean members by providing export opportunities to these countries (feenstra and sasahara, 2018). however, the improved growth of china’s main exports in the clothing and textile industries appears to have had a detrimental impact on other countries in asia which have the same base. even though there is a positive effect through intra-industry trade caused by china’s rise, it look as if that the effects of the competition are much greater than the positive effects (amann, lau & nixson, 2009). those that suffer the least are the high income countries (e.g. japan and south korea) given that the effects of the competition are alleviated by investment through foreign direct investment (fdi) or subcontracting operations, whereas middle income countries are the main losers as they face strong competition from not only china but also low-income countries in asia. similarly, giovannetti & sanfilippo (2009), also assert that between 1995-2005. chinese’s exports to africa statistically reduced african exports in manufacturing products to their main developed market. specific industries especially in textiles, clothing and footwear were displaced as they failed to compete with chinese competition in regional markets. as a result, the reallocation effect emerged increasing competition, as the theory suggests. iacovone, rauch & winters (2013), reveal that competition with china has significantly influenced production patterns regarding domestic and export markets in mexico. the flow of exports from china challenged mexican firms and cause firms to exit from the market and reduce their product and sales. surprisingly, even though this shock forces some smaller and less productive plants to close down, it prompts larger plants and core products to increase productivity and even expand. 3. research method to examine the impact of chinese penetration across country, we will use quantile regression estimation which allows the coefficients of the main regressor besides the explanatory variables to vary across the distribution of the dependent variable. this method can avoid sample selection bias which is not captured by pooled ols. we will develop the structural transformation model proposed by era dabla-norris et al., (2013). the functional form specified at the level of sector �, country � in year � has the following structure: ���� = + � ℓ����ℎ���� � + ���ℓ����ℎ����� × ℓ���������� + ℓ���������� � + ��ℓ���������� �� � + ∑ ! "!�� + ∑ #$%� +� &���! …………………..…………….(1) dependent variables: the dependent variables are the real value-added and employment share in three sectors of the economy – agriculture, manufacturing and services. the value-added measure is sensitively affected by the relative price. the relative price of manufacturing in countries tends to become smaller as the level of development increases. this price effect can create a downward bias in the nominal value-added share of manufacturing. therefore, we will use real value-added in manufacturing sector instead of nominal value-added in addition to employment shares as dependent variables. explanatory variables: changes in the value of manufacturing goods imported from china will be used as a proxy of china’s penetration following the approach outlined by autor et al. (2013). the intuition of this proxy is because the changes in the foreign supply of manufacturing goods may replace domestic production, decreasing the amount of output produced domestically and lowering demand for labour as regards production. we also add an interaction variable between china’s penetration with gdp per capita to examine the differences in the effect of competition with china with regard to the gdp per capita of countries. the impact of china shock on deindustrialisation over time 92 control: this regression includes a broad set of determinants which may affect the demand and supply factors as the control. these variables can be seen as endowment factors which institutions have limited ability to influence, at least in the short run. first, land area land area measures the size of a country. size may have an effect on output as related to scale effects (rose, 2006). it is due to the effect of scale on a variety of intermediate inputs, effects on market structure and information spillovers. area also may determine the average labour productivity of a country (frankel & romer, 1999). second, population population represents workforce as the labour input factor as regards production in a country (alcalá & ciccone, 2004), as well as demand for output. thus, it may affect both the supply and demand of goods. third, the share of arable land of the total land arable lands is the land area in a country that can be ploughed and cultivated. indeed, it will affect production in the agricultural sector. fourth, a dummy variable for transition economy. it covers some central and eastern europe countries and the former soviet union. the transition of emerging economies from a socialist to a market-based economy may affect the governmental institution. it will have an effect on the entire economy, such as the structure of the business and financial sectors which may increase the speed of structural transformation (svejnar, 2002). fifth, a dummy variable for island economies island countries may have limited access to neighbours. they have to bear the relatively higher costs of land transport (srinivasan, 1986). sixth, the share of mining in total value-added. “dutch disease” theory explains that the boom in natural resources will have an effect on resource movement and spending effect in the economy. labour will shift to the “boom” sector as they offer higher wages and productivity (corden & neary, 1982). seventh, age dependency ratios young and old. it is the percentage of non-working young and old people of the total labour force. the age dependency ratio may have an effect on the supply of labour, savings and consumption performance which may affect the elasticity of demand for agriculture products, manufacturing goods or service (kelley, 1973). finally, the relationship between structural changes and level of development is likely to be curvilinear. the increase in gdp per capita is linked with the decrease in the agricultural sector and increase in services, while the manufacturing sector follows an inverted u-shape. it is expected to increase when development is at an early stage, but then decrease when the economy reaches a certain level of development. thus, gdp per capita and (gdp per capita)2 are included and expected to have a positive and negative coefficient, respectively. the model also includes year dummies to account for technological change. an obvious problem when estimating these regressions is the potential endogeneity of chinese imports. endogeneity bias arise if there is a reverse causality relationship between imports from china and the share in manufacturing real value-added or employment, or there are omitted variables (unobserved factors) that include in the term disturbance which also affects imports from china, such as the improvement in technological production which reduces cost that impacts on the export performance of china and other countries. should this be the case, imports from china may be correlated with the error term, thereby biasing the estimated coefficient on this variable. to overcome this, we will consider the instrumental variable (two-stage least squares) estimation with three excluded instrumental variables: first, i use the initial level of manufacturing imports in 1970 as an instrument to avoid potentially endogenous factors. in 1967, china experienced a cultural revolution shock and has changed from being an exporter of foodstuffs to being a manufacturer of goods. this is the beginning of trade expanding after experiencing the great leap forward (fan, 1972). after that, in 1970, china began to export to non-communist countries, especially to japan, west germany, france, north america and hong kong. in this year, china also started to import capital to increase their exports (ho, 1980). thus, these initial export values can be a good predictor of future trading partners for the chinese and express the comparative advantage regarding intensive labour manufacturing industries. second, i use the first lag of import from china as suggested by reed (2015). using lagged values of the endogenous explanatory variable as instruments can provide an effective estimation strategy if the lag value does not belong in afebi economic and finance review (aefr) volume 4, no 02 (2019) 93 the respective estimating equation and it is sufficiently correlated with the explanatory variable. the final instrument is the distance between the importing countries to china, as suggested by the standard gravity model (frankel & romer, 1999). the distance from china to the export market is potentially correlated with the value of imports but has no effect on the share of manufacturing value-added/employment. the use of the instrumental variable estimator over the ols estimator is justified only if the instruments satisfy two conditions: they must be partially correlated with the endogenous explanatory variables (“instrument relevance” condition) and must not be correlated with the disturbance process of the second-stage equation (“orthogonally” condition). the relevance of the instruments is tested using two alternative tests: the f-test relating to the joint significance of the instruments in the first-stage regression. instrument orthogonality is tested using the hanson j-statistic which also provides a valid test of the suitability of the overall specification of the model. quantile regression with endogeneity correction using the extended quantile regression technique, known as generalised quantile regression (see powell, 2019) will be performed subsequently. using this estimation, we will use markov chain monte carlo (mcmc) simulation as we have more than two independent variables as suggested by chernozhukov & hong (2003). this method allows the model to more closely reach the distribution of the sample matches the actual distribution requires. at the end, to conduct a robustness test, we will examine the second phase of the globalisation period, 1990-2010, where china has made a significant contribution to international trade worldwide. in the robustness test, we will compare this period and the previous period to examine the third hypothesis. 4. result and discussion from the quantile regression results in table 1, we see the impact of china’s penetration on different distributions of the sample countries. imported manufacturing goods from china seem to significantly decrease the manufacturing value added at all levels of distribution. along with increasing the share of manufacturing value-added, the impact gives the impression that it is bigger. group countries that belong to quantile .75 such as indonesia, italy, mexico and sri lanka suffer the most. this might be for the reason that these countries have a similar comparative advantage with china’s products such as in electronics, textile and clothing. they might fail to compete with chinese products; thus, some of the manufacturing output experiences a downward trend. countries such as saudi arabia, the us, nigeria, algeria and hong kong which belong to quantile .10 seem to experience a lower negative effect. the coefficient of variable manufacturing import from china is the smallest compared to other quantiles. this finding also reveals that even though these countries have a small share in manufacturing output and have a different comparative advantage to china, they have still been influenced by china’s shock. the interaction term between gdp per capita and share in real value-added is significantly positive in all quantiles. it indicates that as countries become wealthier, the declining real va affected by china’s shock will be weakened. during period 1970-2010 in almost all quantiles, the year dummies exhibit positive and significant signs, but with decreasing magnitude. this implies that most countries have experienced deindustrialisation in real manufacturing value-added over years. this finding is in line with (rodrik, 2016), who examines deindustrialisation over time. on average, the biggest reduction is countries that belong to quantile .25 such as australia, bangladesh, india, canada and tunisia – 1.819 (-0.199-1.620) percentage points lower in 2009 than in 1970. the impact of china shock on deindustrialisation over time 94 table 1—quantile regression with endogeneity correction va-manufacturing all country (1970-2010) dependent variable: share of real value added in manufacturing sector iv no trend dummy iv with trend dummy q10 q25 q50 q75 q90 q10 q25 q50 q75 q90 va_man va_man va_man va_man va_man va_man va_man va_man va_man va_man lnnom_man_imp -0.416*** -0.940*** -1.148 2.916*** -1.467*** -0.606*** 1.456*** -2.339*** 2.440*** -1.598*** (0.056) (0.146) (0.746) (0.184) (0.108) (0.013) (0.046) (0.026) (0.015) (0.009) ln_ppppc 11.513*** 11.701*** 7.400*** 6.301*** 2.040*** 12.357*** 9.834*** 9.052*** 4.150*** 2.519*** (0.164) (0.837) (1.632) (0.638) (0.140) (0.046) (0.062) (0.123) (0.076) (0.021) ppppcxmanimpchn 0.061*** 0.118*** 0.128 0.339*** 0.176*** 0.130*** 0.201*** 0.302*** 0.294*** 0.197*** (0.008) (0.021) (0.091) (0.021) (0.013) (0.002) (0.006) (0.003) (0.002) (0.001) ln_ppppc2 -0.798*** -0.865*** -0.647*** -0.404*** -0.952*** -0.926*** -0.445*** (0.018) (0.031) (0.118) (0.053) (0.019) (0.003) (0.009) (0.009) (0.005) (0.002) teco -5.684*** 0.201 2.435*** 2.043*** 3.595*** -6.608*** 2.112*** 2.239*** 3.623*** (0.079) (0.189) (0.362) (0.131) (0.131) (0.017) (0.048) (0.056) (0.024) (0.017) ieco 1.565*** 2.114*** 2.114*** 3.460*** 2.986*** 2.002*** 1.552*** 2.196*** 3.459*** 2.694*** (0.199) (0.226) (0.495) (0.182) (0.128) (0.030) (0.035) (0.085) (0.023) (0.021) va_mu -0.177*** -0.132*** -0.065*** 0.057*** 0.276*** -0.197*** -0.078*** 0.067*** 0.271*** (0.002) (0.006) (0.014) (0.003) (0.003) (0.000) (0.001) (0.002) (0.000) (0.000) lnlandarea 0.656*** -0.387*** -0.538*** -0.557*** 0.700*** -0.579*** -0.553*** (0.039) (0.055) (0.045) (0.069) (0.015) (0.002) (0.005) (0.009) (0.004) (0.002) lnpop -0.408*** 0.661*** 0.872*** 1.013*** 0.978*** -0.856*** 0.122*** 0.510*** 0.921*** 0.933*** (0.071) (0.160) (0.157) (0.089) (0.042) (0.004) (0.008) (0.016) (0.006) (0.004) arable 0.041*** -0.030*** -0.039*** -0.043*** 0.043*** -0.020*** -0.039*** (0.003) (0.006) (0.010) (0.001) (0.005) (0.000) (0.001) (0.001) (0.000) (0.000) agedep_young -0.055*** -0.078*** -0.118*** -0.123*** -0.068*** -0.103*** -0.130*** (0.002) (0.008) (0.011) (0.012) (0.002) (0.000) (0.001) (0.001) (0.000) (0.000) agedep_old -0.048*** -0.111*** -0.086*** -0.051*** -0.130*** -0.134*** -0.054*** (0.005) (0.017) (0.022) (0.019) (0.004) (0.001) (0.002) (0.002) (0.002) (0.001) _cons -26.242*** -22.285*** 1.163 19.191** 21.881*** -22.716*** 6.618** 23.672** 20.186*** (1.363) (7.097) (14.117) (2.858) (1.407) (0.333) (0.504) (0.702) (0.450) (0.154) obs. 2501 2501 2501 2501 2501 2501 2501 2501 2501 2501 r-squared year dummies no no no no no yes yes yes yes yes number of countries 61 61 61 61 61 61 61 61 61 61 iv yes yes yes yes yes yes yes yes yes yes standard errors are in parenthesis *** p<0.01, ** p<0.05, * p<0.1 afebi economic and finance review (aefr) volume 4, no 02 (2019) 95 table 2—quantile regression with endogeneity correction manufacturing employment share all country (1970-2010) dependent variable: share of employment in manufacturing sector iv no td iv with td q10 q25 q50 q75 q90 q10 q25 q50 q75 q90 eman eman eman eman eman eman eman eman eman eman lnnom_man_imp -0.000 -0.019*** -0.009*** -0.030*** -0.032*** 0.002*** 0.003*** 0.017*** 0.016*** 0.020*** (0.002) (0.007) (0.003) (0.001) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) ln_ppppc 0.224*** 0.257*** 0.329*** 0.319*** 0.365*** 0.338*** 0.281*** 0.204*** 0.267*** 0.335*** (0.010) (0.019) (0.041) (0.008) (0.003) (0.000) (0.000) (0.001) (0.001) (0.001) ppppcxmanimpchn -0.001*** 0.001 -0.000 0.002*** 0.003*** 0.000*** -0.000*** -0.002*** -0.002*** -0.002*** (0.000) (0.001) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) ln_ppppc2 -0.013*** -0.018*** -0.018*** -0.022*** -0.026*** -0.020*** -0.016*** -0.009*** -0.012*** -0.017*** (0.001) (0.002) (0.002) (0.001) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) va_mu -0.000 0.000 0.000* 0.000*** 0.002*** 0.000*** -0.000*** -0.001*** -0.001*** 0.000*** (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) lnlandarea -0.002*** -0.008*** -0.024*** -0.026*** -0.040*** -0.004*** -0.006*** -0.012*** -0.018*** -0.025*** (0.001) (0.000) (0.002) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) lnpop 0.010*** 0.011*** 0.029*** 0.029*** 0.042*** 0.005*** 0.005*** 0.011*** 0.018*** 0.020*** (0.001) (0.000) (0.004) (0.001) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) arable -0.000*** -0.000*** -0.001*** -0.001*** -0.001*** -0.001*** -0.000*** -0.001*** -0.001*** -0.001*** (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) agedep_young -0.002*** -0.001*** -0.001 -0.001*** -0.001*** -0.001*** -0.001*** -0.001*** -0.001*** -0.001*** (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) agedep_old 0.005*** 0.005*** 0.004*** 0.005*** 0.005*** 0.004*** 0.003*** 0.001*** 0.001*** 0.001*** (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) _cons -0.798*** -0.693*** -1.278*** -0.925*** -1.153*** -1.454*** -1.125*** -0.919*** -1.233*** -1.487*** (0.042) (0.060) (0.250) (0.026) (0.016) (0.001) (0.000) (0.003) (0.004) (0.002) obs. 1230 1230 1230 1230 1230 1230 1230 1230 1230 1230 r-squared year dummies no no no no no yes yes yes yes yes number of countries 30 30 30 30 30 30 30 30 30 30 iv yes yes yes yes yes yes yes yes yes yes standard errors are in parenthesis *** p<0.01, ** p<0.05, * p<0.1 the impact of china shock on deindustrialisation over time 96 table 2 shows the the impact of chinese’s penetration on manufacturing employment in different quantiles over 1970-2010. before being controlled by time dummies, the effect is negative in all quantiles. the pattern indicates that along with increasing in the share of manufacturing employment, the suffer gradually increase. again, the interaction term has opposite sign with variable manufacturing import from china, it implies the damage will reduce as the countries become wealthy. surprisingly when the model is controlled by time dummies, the impact of china’s product generates positive sign in all quantile. it implies that the average countries in the sample over period of study have benefitted in term of employment creation in effect of trading with china. it might be true because the data of import from china includes both final goods and intermediate goods. in the case of intermediate goods, when it is processed in the countries’ destination, it will be the input factor of production. the increase in input is likely to rise labor demand to process it. the countries that gain most is one that belong to quantile .90 such as germany, hong kong, korea, sweden. it is important to note that while other quantile have some developing countries member, in quantile .90 only developed countries that belong to this quantile. it might be the case as the growing role of china in the pattern of south-north trade in the recent decades. in the second phase of globalisation, the world economy is becoming more profoundly integrated due to the decrease in transport costs and substantial effect of technological changes. prior to 1990, china’s exports were dominated by clothing, shoes, children’s toys, food and agricultural goods. in 2008, hanson (2012), documented that the composition of china’s exports changed dramatically as the highest share of exports to gdp is with regards to electronic products. additionally, other goods also experienced substantial growth, such as metals, chemicals, machinery and transport equipment, whereas clothing, shoes and food exports show a declining trend. this might be true due to the dynamics of the chinese market and the increased sophistication of chinese exported goods (rodrik, 2006). moreover, baldwin & lopez-gonzalez (2015) and (sturgeon, 2010) highlight that production for global markets is primarily concentrated in china. this is reflected in the intermediate goods trade flow from high income countries to china. at the same time, china is also a country that supplies intermediate goods for various developed countries. if we relate the robustness test of the impact of china on real va in the period 19701989 vs. 1990-2010 in developed countries, the results are in accordance with dynamic production structure in china. from 1970-1989, developed countries in quantile .25 such as australia, canada, netherlands and sweden experienced a decline in real manufacturing value-added as china increased its imports, but the effect diminishes as the increase in gdp per capita is reflected in the interaction between gdp per capita and manufacturing imports from china. however, between 1990-2010, countries in this quantile benefit from manufacturing goods obtained from china. the opposite story happens in countries belonging to quantile .50, such as portugal, spain and the uk. from 1970-1989, they took advantage of china’s manufacturing goods, although from 1990-2010, they experienced negative effect because of a flood of “made in china” goods. interestingly, countries in quantiles q.75 and q.90, such as germany, japan, korea, singapore and switzerland, gained an advantage from china’s products relating to their real value-added in both periods. moreover, the benefits increased after the 1990s (from 0.085% and 0.089% points during 1970-1989 to 0.97% and 0.75% points in the period 1990-2010, respectively, if their imports from china increased by 1%). logically, it might be true, as recently china export of intermediate goods to rich countries is growing. it should be mentioned that the increase in imports of intermediate goods will increase the production output of numerous developed countries. baldwin & lopez-gonzalez (2015), explain that china is the source of many low-tech intermediate goods that are used in germany, korea, the us and japan. these are embodied in their high-tech components which indicates that advanced-technology companies are undertaking labour-intensive upstream stages such as plastic, rubber and steel parts, that are subsequently used in germany, us, japanese and korean overseas where labour is cheaper. this finding is also in line with the trend of output captured by time dummies. over 1970-1989, even though the coefficient sign is negative, afebi economic and finance review (aefr) volume 4, no 02 (2019) 97 developed countries still maintain positive output growth in all quantiles; in the region of 0.11% 2.98% points in 1988 relative to 1970. from 1990-2009, there is also an increasing trend in the production of manufacturing goods in the region of 0.4%-6.2% in year 2009 relative to year 1990. this implies that developed countries have indeed not experienced deindustrialisation in term of real value added. the effect of china shock on developing countries appears by means of a competition channel. developing countries which lose competitiveness with chinese products in both domestic and international trade will experience contraction in manufacturing sectors. this is shown in the quantile regression results for developing countries; the higher the share of value-added in manufacturing, the higher the contraction. from 1970-1989, the reduction is roughly 1.61% 3.38% points in all quantiles. however, from 1990-2010, the loss is greater at around 4.59%-8.61% points in developing countries if their imports from china increased by 1%. countries that have suffered the most are those that belong to quantile .90 such as brazil, malaysia, philippines and thailand. this might be true as they manufacture similar products to china such as machines, electronics, textiles and clothing. this finding is also consistent with the magnitude captured by time dummies. deindustrialisation in real value-added is approximately 1.512% 3.071% points in 1988 relative to 1970. this decline is much larger during the second phase of globalisation (1990 onwards) at roughly 5.264% 11.141%. this finding is in agreement with (rodrik, 2016), who highlights premature deindustrialisation in developing countries. the relative share of employment in developing countries seem to be severe hurt more than in advanced countries, due to the effect of chinese’s penetration. developing countries in quantile .10, .25, ,50 seem to be hurt much in the second phase of globalization period, whereas in the countries that have relative high proportion of employment in manufacturing such as malaysia tend to benefit due to flow of imported manufacturing goods from china. in developed countries, surprisingly, over 1990-2010, the coefficient is positive in all quantile, meaning that they benefit from trading with china in term of manufacturing employment. during 1970-1989 period, in developed countries, china’s goods significantly destroy the proportion of manufacturing employment in quantile .10, .25, .50, and .75, however from the interaction term, the negative effect diminish as the increase in their income per capita. in the highest quantile, the impact is positive. the reverse condition prevails in developing countries, they benefit more during almost in all quantile before the rise of china. the explanation of these changes is probably due to the dynamic of comparative advantage of china’s product (rodrik, 2006) and the changes in the structure of international trade in recent decades (hanson, 2012). developed countries may benefit from the low prices of china’s product and eventually expand the manufacturing industry in the top level similar with the case of mexico (iacovone et al., 2013). the developed countries may have moved from the labour-intensity production to skill-intensity, so the effect of china’s product which mainly dominated by labor-intensity product become less significant. the developing countries seem to suffer much due to losing in competitiveness from china’s product. countries will contract their manufacturing industries as the decrease in local product demand either from domestic market or foreign. however, the other countries also get benefit especially in the high quantile as they expand their industries which is reflected from the positive coefficient in the variable import from china. 5. conclusion this thesis has examined the impact of china shock on deindustrialisation in developed and developing countries. the rapidly growing role of china in international trade may constitute the most important trade shock from low wage countries to depress global prices. the results suggest that there is a heterogeneous effect of chinese import penetration in developed countries. in the lower quantile of distribution, the effect is negative in terms of both employment and real value-added, with the higher magnitude for the former. in the higher quantile, surprisingly, complementary effect outweighs detrimental impact. in the impact of china shock on deindustrialisation over time 98 developing countries, the effect of china’s shock on real value-added rises as a result of the increase in the proportion of manufacturing value-added in countries. the harmful effect on employment in developing countries seems to be harder after 1990. nevertheless, in the highest quantile, employment creation surpasses employment destruction both in developed and developing countries. this finding may reveal that chinese competition is forcing some smaller and less productive manufacturing sectors to close down and boost the productivity of high-level manufacturing industries in the higher quantile to expand. this might be the case as china provides input with lower prices which may benefit these industries. the limitation of this paper is that the import of manufacturing goods is calculated in nominal ppp. moreover, as price level data to decrease the nominal value to real value was unavailable, we could not provide the value in real terms. consequently, the result might be biased due to changes in price level. next, the data includes both final and intermediate manufacturing goods, so we cannot precisely measure the type of goods that indeed induce damaging or complementary effects. the heterogenous impact of china’s shocks should be responded to differently by country. based on comparative advantage trade theory, trade should be beneficial for both parties. however, empirical evidence does not say so. policymakers must ensure that gains from trade are shared equally. in developed nations, they have a relative abundance of skilled workers who are somewhat easier to move toward higher productive sectors. improving flexibility and accessibility should be beneficial in the transitioning period from a negatively affected sector towards new and better opportunities. developing economies which have a relative abundance of unskilled labour should focus on assistant programmes and stimulate education and skills improvement in the direction of upgrading skills and productivity progression. further analysis should be undertaken based on the latest data, including more precise information on the type of manufacturing goods from china using both real and nominal value. in order to get a balanced picture on the effect of china, export opportunities from each country to china should be considered. disaggregating data samples by skills or by region should be potentially valuable for the sake of assessing the impact of china for further details. references acemoglu, d., autor, d., hanson, g. h., & price, b. 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(2010). has china de-industrialised other developing countries ? qeh working paper series, (175), 1–32. the role of good governance toward economic growth of riau province 64 the role of good governance toward economic growth of riau province y rahmat akbar1)*, resti riandi2) 1,2department of management, persada bunda college of economics, indonesia abstract this study aims to analyze the effect of good governance on regional financial performance and allocation of capital expenditures and their impact on economic growth in districts and cities in riau province. the research was conducted quantitatively with a causal and descriptive research design. the population in this study were 12 districts and cities in riau province. data samples were obtained from the revenue service and the regional financial and asset management office of riau province. the research was carried out by census on budget realization reports from 2016 to 2020 so that 60 data were obtained. the data analysis technique used was partial least square (pls) analysis. the results of this study indicate that good governance has a significant effect on regional financial performance and allocation of capital expenditures. regional financial performance has a significant effect on the allocation of capital expenditures and does not have a significant effect on economic growth. direct capital expenditure allocation has no significant effect on economic growth. indirectly, good governance has a significant effect on economic growth through regional financial performance and allocation of capital expenditures. keywords: good governance, growth, regional finacial performance 1. introduction good governance has become important for every entity both the private sector and the public sector and government. stakeholders use good governance as a measure or benchmark in making decisions, especially investment decisions. an assessment of the implementation of good governance in private and government entities has begun to be carried out both at the national and international levels. in indonesia, governance has been implemented since the reform era wherein that era there has been an overhaul of the government system for a clean democratic process so that governance/good governance is one of the reform tools that absolutely must be applied in the new government both at the centre and regions (adisetiawawan, 2013). however, from the development of reforms that have been going on so far, the implementation of governance in indonesia cannot be said to be fully successful. there are still many frauds and leaks in budget management. regional financial management is an important part of government activities, including regional government activities. the main mission of regional management is to increase the efficiency and effectiveness of the management of regional financial *coressponding author. email address: yrahmat.akbar@stiepersadabunda.ac.id mailto:yrahmat.akbar@stiepersadabunda.ac.id afebi economic and finance review (aefr) volume 6, no. 1 (2021) 65 resources to improve welfare and services to the community. regional financial management is divided into two parts, namely regional revenue management and regional expenditure management. the evaluation of regional financial management and regional development financing has very broad implications. these two components will determine the position of a regional government in implementing regional autonomy (mardiasmo, 2018). local government as an entity that runs the wheels of government at the regional level cannot be separated from the conditions of globalization. awareness of the importance of good governance has increased after the crisis which became known as the reform era. the economic crisis is not only due to macroeconomic factors but also due to bad governance in these countries, such as a lack of legal and accounting standards, financial audits have not been implemented, the absence of supervisory commissioners and ignoring the rights of minority stakeholders. this means that the implementation of good governance will have an impact on national economic growth (fajerin, 2018). regional financial management has a huge influence on the fate of a region because a region can become a strong and powerful region and can develop its greatness or become powerless depending on how to manage its regional finances. in connection with this background, the problem is the management of regional finances in riau province, which in this study will be specifically limited to financial performance and allocation of capital expenditures which can have an impact on economic growth. riau province is one of the autonomous regions in indonesia that organize government and carries out development. to carry out the government and realize this development, a substantial amount of funds is needed and besides that, it must be with its regional strength in addition to assistance from the provincial and central governments. in government administration, the budget becomes a guide in carrying out government activities. ironically, budget management in various regions is still ineffective. this is shown, among others, by the ever-increasing allocation of personnel expenditures, on the other hand, the portion of capital expenditures for regional development has decreased (prihastuti, taufik, & agusti, 2015). three factors in the economic growth of each country, namely capital allocation, population growth and technological progress (todaro & smith, 2020). capital accumulation here is closely related to investment. one of the progress of a region can be shown by good economic growth, where one of the factors that influence economic growth is the investment issued by the local government. to increase investment, the regional financial capacity must also be adequate. the indicator for the size of regional investment is the high ratio of capital expenditures in the budget. the more capital spending, the higher the productivity of the economy because capital expenditure in the form of infrastructure has an impact on economic growth and job creation. the allocation of capital expenditures to local governments is also the role of good governance toward economic growth of riau province 66 influenced by whether the regional financial performance is good or not. thus there is a link between regional economic growth and the allocation of capital expenditures and financial performance. regional financial management is an important part of government activities, including regional government activities. the main mission of regional management is to increase the efficiency and effectiveness of the management of regional financial resources to improve welfare and services to the community. this research implies that local governments must constantly manage their financial performance because it has an impact on increasing capital expenditures, so they must get adequate priority. capital expenditures made by local governments are also used, among others, for the development and improvement of infrastructure in the education, health, and transportation sectors so that the community can also enjoy the benefits of regional development. the availability of good infrastructure is expected to create efficiency and effectiveness in these various sectors. the productivity of the community is getting higher and in the end, there is an increase in economic growth in the area (akbar & mar'aini, 2020). the increase in the share of personnel expenditures in the regional revenue and expenditure budget is closely related to the addition and appointment of new regional civil servants every year, which in many cases do not match their competence and needs. unfortunately, part of the capital expenditure was also used for the construction of official houses, procurement of official cars, and other improper expenditures. supposedly, capital expenditures are used for infrastructure development, such as roads and bridges, which need to be increased (director general of regional finance, ministry of home affairs, 2013). according to government regulation no. 71/2010, capital expenditure is expenditure by local governments whose benefits are more than one fiscal year and will increase regional assets or assets and result in routine expenditures. capital expenditures are classified into two groups, the first group is public expenditure, namely expenditures whose benefits can be directly enjoyed by the community, such as building bridges, buying an ambulance for the public, and others. meanwhile, the second group is personnel expenditure, which is expenditure whose benefits are not directly enjoyed by the community but can be felt directly by the apparatus, for example, building council buildings, purchasing official cars, and others (halim, 2013). the central government (on the website of the ministry of home affairs http://keuda.kemendagri.go.id/artikel/detail/41-belanja-modal-pemda-harus-capai-30persen) continues to urge local governments to increase the percentage of capital expenditures by 30 percent of the total regional revenue and expenditure budget, moreover from the total capital expenditure that has been allocated, most of it is spent on the interests of regional institutions or work units. meanwhile, the percentage of afebi economic and finance review (aefr) volume 6, no. 1 (2021) 67 capital expenditure towards total realized expenditure in regencies/cities in riau province was still much below this percentage. the problem faced by local governments in public sector organizations is regarding budget allocation. budget allocation is the number of funds allocated for each activity program. with limited resources, the government must be able to allocate the revenues obtained for productive regional expenditures (capital expenditures). the program to increase capital expenditures will inevitably touch directly on increasing the development of various infrastructures, such as agricultural facilities, transportation, and other infrastructure that directly support people's productivity and welfare. this means that in the future, all spending will be oriented to the regions because building the nation is regional development and forming capital or capital that is getting bigger in the regions. there is no doubt that infrastructure plays an important role as one of the driving forces for economic growth and the development of this sector becomes the foundation for further economic development. the existence of adequate infrastructure is needed to sustain a higher, more equitable, and more prosperous economic growth for the community. the limitations of infrastructure development have slowed the rate of investment in the country in recent years. on the other hand, it must be admitted that infrastructure in indonesia is still unable to increase the competitiveness of the real sector. because the budget for infrastructure, agriculture, health, and transportation will be doubled, operational costs, official travel, or unproductive capital expenditures must be reduced. the demand for changing the spending structure is strong, especially in regions experiencing low fiscal capacity. this development budget allocation strategy is in turn capable of encouraging and accelerating national economic development, as well as being a tool to reduce regional disparities. furthermore, the planned and more propublic budget allocation for development is expected to mediate and bridge the realization of public welfare and optimal economic growth with the availability of funds in the form of regional income as a source of financing (financing). realizing economic growth requires fixed assets such as infrastructure and infrastructure that can support economic activity. in regional government, additional fixed assets are carried out through the allocation of capital expenditures. with the increased allocation of capital expenditures, it is hoped that economic growth will also increase. the allocation of capital expenditures is of course inseparable from the financial management carried out by local governments. the income of each region is only able to cover routine expenditures, and to cover other expenses each region still expects transfers from a higher-level government. in other words, each region is still dependent on the central government. when viewed from the revenue realization of the riau provincial government compared to the the role of good governance toward economic growth of riau province 68 regional routine expenditure from operating expenditures for the last five years, it has experienced a fairly large difference each year. this means that local revenues are not able to cover routine expenses (horota, riani, & marbun, 2017). like development spending, regional governments undertake capital expenditures to procure regional assets as investment, to finance the implementation of regional autonomy which ultimately aims to increase regional economic productivity. the more capital expenditure, the higher the economic productivity because capital expenditure in the form of infrastructure has an impact on economic growth and job creation. the allocation of capital expenditures to local governments is also influenced by whether the regional financial performance is good or not. thus there is a link between regional economic growth and the allocation of capital expenditures and financial performance. the financial performance simultaneously has a significant effect on the allocation of capital expenditures. although partially the ratio of financial dependence, independence, and the degree of contribution of local companies have a negative effect on the allocation of capital expenditures. the local government financial performance in the form of dependency ratios, degree of fiscal decentralization, fiscal space ratios have a significant effect on the allocation of capital expenditures. the influence of local revenue and capital expenditure on economic growth (yuliana, 2014). research by positioning the allocation of capital expenditures as a mediating variable, among others, was carried out by (sularso & restianto, 2012) on the effect of financial performance on the allocation of capital expenditures and economic growth in districts/cities in central java. from these studies, it is found that the allocation of capital expenditures is influenced by financial performance. the allocation of capital expenditures affects economic growth and economic growth is indirectly influenced by regional financial performance. the implication of this research is that local governments must constantly improve their financial performance because it has an impact on increasing capital expenditures, so they must get adequate priority. in this study, the effect of financial performance on economic growth is not measured directly. a different finding is expressed by prihastuti, taufik and agusti (2015) who found that the allocation of capital expenditures does not mediate the relationship between financial performance and economic growth. the effect of decentralization, the effectiveness of local revenue, and the degree of contribution of regionally owned enterprises to economic growth with the interaction of capital expenditure allocations have no significant effect. this shows that the allocation of capital expenditures does not affect the economy, however, financial performance can directly affect economic growth. the allocation of capital expenditures moderates the relationship between financial performance through self-reliance and regional financial effectiveness with economic afebi economic and finance review (aefr) volume 6, no. 1 (2021) 69 growth. the relationship between regional financial management performance and economic growth is moderated by the allocation of capital expenditures (putro, 2017). the various research results above indicate that the mediating nature of capital spending in the relationship between regional income and economic growth shows positive and negative results. aside from the inconclusive findings of research findings on the mediating nature of capital expenditure allocations, research related to public sector finances has so far only focused on technical discussions of financial accounting and budget allocations without any further discussion regarding the impact/outcome of budget allocations. the scope of the budget becomes relevant and important in the local government environment because it is related to the impact of the budget on government performance, in relation to the government's function in providing services to the community (muis, 2012). one way to measure performance is through the achievement figures for economic growth as a very important indicator for identifying and evaluating development outcomes. the existence of economic growth data will show the extent to which the government has performed in generating added value or public income in a certain period. positive growth indicates an increase in performance and vice versa if negative means a decrease in performance (suwandi & tahar, 2015). the consequence of the implementation of autonomy lies in the readiness and ability of the regions to accept the burdens and responsibilities they have in managing and managing their own households. this means that the regional government of riau province must be able to improve its performance through its various potentials. if this is not done, in addition to increasing the burden on the central government budget, the autonomy which is expected to create independence will be difficult to implement. based on the above problems, the formulation of problems that can be identified is how the effect of good governance directly on regional financial performance and allocation of capital expenditures, as well as how good governance affects regional economic growth indirectly through regional financial performance and allocation of capital expenditures in cities. and districts in riau province. 2. literature study the implementation of good government governance (ggg) in local government is simply by applying the principles of ggg into the system and management of local government properly. the implementation of good government governance has a big role and benefits that can bring positive changes to both local governments, the central government and the general public. the optimal implementation of the implementation of principles of good governance will be able to improve the performance of the existing government and will provide added value for all parties involved. as well as the goal of good government governance is the application of a good governance system the role of good governance toward economic growth of riau province 70 which is expected to increase added value for all parties in the long term and can protect the welfare of society. good governance good governance is an approach concept oriented towards public sector development towards good governance (mardiasmo, 2018). as a system that regulates the relationship between the role of the board of commissioners, the role of the board of directors, shareholders and other stakeholders. good governance is also referred to as a transparent process for determining governance goals, their achievements, and assessing their performance (agoes & ardana, 2011). the concept of managing public sector organizations is fundamental to three main elements, namely economy, efficiency and effectiveness (mardiasmo, 2018). referring to research (masnun, 2018) which concluded in his study that the better the quality of government management, the better regional financial accountability and the principles of good governance have been implemented. likewise with (kaufman, 2005) states that there is a strong positive relationship and influence between good governance and budget allocation. this is measured through government effectiveness which is defined as the government's capacity in formulating and implementing policies, both socially and economically. a well-ordered government becomes the capital of a country in serving the needs of its people. the allocation and realization of budget absorption become more efficient and free of corruption towards a clearer human development because the government is implemented in a people-oriented manner and to achieve this, a country must apply the principles of good governance. h1. good governance has a direct effect on regional financial performance. h2. good governance has a direct effect on the allocation of capital expenditures. regional financial performance regional government financial performance is the achievement of a work result in regional finance which includes the budget and capital expenditures using financial indicators that are determined through a policy or statutory provisions from one budget period. the form of performance measurement is in the form of financial ratios which are formed from the elements of the regional head's accountability report in the form of budgeting calculations. in government organizations to measure financial performance, there are several performance measures, namely regional financial independence, regional original revenue effectiveness, activities (ratio of conformity), degree of decentralization, financial dependence. measurement of financial performance for the public interest can be used as an evaluation and restoring performance against a comparison of work schemes and their afebi economic and finance review (aefr) volume 6, no. 1 (2021) 71 implementation. besides, it can also be used as a benchmark for improving performance, especially local government finances in the next period. the existence of regional autonomy has resulted in the decentralization of the government system in the riau provincial government. therefore, the district and city governments in riau province as the party in charge of running the wheels of government, development and community services are required to submit a regional financial accountability report to assess whether the riau provincial government has succeeded in carrying out its duties properly or not. the regional capacity in managing finances is stated in the budgeting, which directly or indirectly reflects the ability of the regional government to finance the implementation of governmental tasks, development and community social services. evaluation of regional financial management and regional financial financing will greatly determine the position of a regional government in implementing regional autonomy. research conducted by sularso and restianto (2011) on the effect of financial performance on the allocation of capital expenditures in districts/cities in central java. from these studies, it is found that the allocation of capital expenditure is influenced by financial performance. the allocation of capital expenditures affects economic growth and economic growth is indirectly influenced by regional financial performance. this research implies that local governments must constantly improve their financial performance because it has an impact on increasing capital expenditures, so they must get adequate priority. the financial performance is also closely related to economic growth. the results of research by mone et al (2016) prove that regional financial performance has a positive and significant effect on economic growth. meanwhile, the results of research by tobi & idayati (2016) on the east flores regional government show that the level of independence is at a very low level of ability to meet the need for funds for carrying out government tasks, development and community social services so that it affects economic growth. h3. regional financial performance has a direct effect on the allocation of capital expenditures. h4. regional financial performance has a direct effect on economic growth. capital expenditure allocation local governments allocate funds in the form of a capital expenditure budget in budget to increase fixed assets. this capital expenditure allocation is based on regional needs for facilities and infrastructure, both for the smooth implementation of government tasks and the quality of public services. the amount of capital expenditures allocated by local governments in the budgeting is of course strongly influenced by the the role of good governance toward economic growth of riau province 72 financial position of the region. the higher the income of a region, the higher the capital expenditure allocation will be. capital expenditure allocation is a budget for obtaining fixed assets and other assets (halim, 2013). according to government regulation no. 71/2010, capital expenditure is regional government expenditure whose benefits exceed 1 fiscal year and will increase regional assets or assets and further add routine expenditures such as maintenance costs in the general administrative expenditure group. capital expenditures are used to obtain local government fixed assets such as equipment, infrastructure and other fixed assets. how to get capital expenditure by buying through an auction or tender process. some factors mediate regional financial performance that plays a role in economic growth, namely the need to allocate capital expenditures. the capital expenditure budget is based on regional needs for facilities and infrastructure, both for the smooth implementation of government duties and public facilities. therefore, to improve the quality of public services, local governments should change the composition of their spending. so far, regional spending has been mostly used for routine expenditures which are relatively unproductive. the use of spending should be allocated for productive things, for example, development activities (saragih, 2013). the allocation of capital expenditure affects regional economic growth. the policy of implementing regional autonomy and fiscal decentralization is based on the consideration that it is the regions that know more about the needs and service standards for the people in their regions so that the provision of regional autonomy is expected to trigger an increase in the welfare of the people in the regions through increased economic growth (prihastuti, taufik, & agusti, 2015). likewise, yuliana (2014) has proven that capital expenditure has a positive effect on economic growth in districts and cities on the island of sumatra. however, the amount of this capital expenditure allocation is still small, namely 0.319. this needs attention from the government to further increase government spending, especially in capital expenditures. h5. the allocation of capital expenditures has a direct effect on economic growth. economic growth economic growth can be interpreted as an increase in the production capacity of an economy which is manifested in the form of an increase in national income so that economic growth can be used as an indicator of the success of economic development. economic growth is a change in the level of economic activity that applies from year to year. so to find out, a comparison of national income must be made from year to year, which is known as the rate of economic growth. economic growth is measured using the gross regional domestic product (grdp) (sukirno, 2015). afebi economic and finance review (aefr) volume 6, no. 1 (2021) 73 good governance should be realized by managing the budget in an economical, effective and efficient manner to increase the rate of economic growth. based on the results of previous research by fajerin, fahmi and dalimunthe (2018) which states that government management can have a positive and significant effect both directly and mediate by capital spending. one of the government's efforts to increase development is by allocating a budget for expenditure. however, the slowdown in economic growth is not in line with the increase in the allocation of capital expenditures, gdp per capita and the government's commitment to continue realizing good governance. the local governments must continually improve their financial performance because they have an impact on increasing capital expenditures, so they must get adequate priority. in this study, the effect of financial performance on economic growth is measured indirectly. the results of research (sularso & restianto, 2012) in districts and cities in central java, show that financial performance indirectly has a significant effect on economic growth through the allocation of capital expenditures. the allocation of capital expenditure is influenced by financial performance, the allocation of capital expenditure affects economic growth and economic growth is indirectly influenced by regional financial performance. this means that local governments must continually improve their financial performance because they have an impact on increasing capital expenditures so that they must receive adequate priority. on the other hand, research with the same variables as in the results of research (prihastuti, taufik, & agusti, 2015) shows that there is a mediating role in the allocation of capital expenditures in influencing financial performance and economic growth in riau regency / city. the financial performance of districts and cities in the province has an influence on the allocation of capital expenditures with a contribution of 59.29%. while direct financial performance has a significant effect on economic growth with a contribution of 30.25%, however, the allocation of capital expenditures does not have a direct effect on economic growth, so that indirect financial performance (through the allocation of capital expenditures) has no significant effect on economic growth in the district and city in riau province. in this study, the authors try to add the local revenue variable as an influencer of capital expenditure allocations and regional economic growth. h6. good governance has an indirect effect on economic growth through the allocation of capital expenditures regional financial performance. h7. good governance has an indirect effect on economic growth through the allocation of capital expenditures. 3. research methodology the population in this study is the financial statements of 12 regencies and cities in riau province, with sample data from the revenue service and the regional financial and asset management office of riau province. the research was carried out by census the role of good governance toward economic growth of riau province 74 on reports on the realization of the apbd from 2014 to 2018 so that the data was obtained totalling 60. the design of the analysis in this research is quantitative using secondary data, which functions from the report on the realization of the regional income and expenditure budget (akbar y. r., 2020). to obtain the data and information needed in this study, use secondary data from the revenue, financial and asset management office in the form of annual budget realizations published through regional regulations concerning budget accountability where there are financial reports that are used as basic data for analysis. meanwhile, to find out the regional cash flow per month, it is collected by processing data on the realization of the budget for a certain period (e.g. per month or per quarter) obtained from the processing of the regional financial information system (sikd) which has been synchronized with the regional general treasury and the use of a single treasury account. the data collection method used in this research is by collecting secondary data obtained from the media through the website www.dupk.depkeu.go.id. which are the official website of the regional government that publishes apbd data and the riau province central bureau of statistics (bps) for 2016-2020. as revealed in the object of research, the main problem under study is governance (x) which consists of economics, effectiveness and efficiency as exogenous variables. regional financial performance (y1) consists of (regional financial independence, original regional income effectiveness, activity, degree of decentralization, financial dependence as intervening variables. meanwhile, endogenous variables are capital expenditure allocation (y2) and economic growth (z). in analyzing the data to test hypotheses h1 – h7, the analysis tool used is partial least square (pls). pls is a variant-based structural equation analysis that can simultaneously test the measurement model (outer model) as well as test the structural model (inner model). the measurement model is used to test the validity and reliability through the algorithm iteration process so that the measurement model parameters are generated, including the r2 value as the accuracy of the prediction model. while the structural model is used to predict the causality relationship between latent variables through a bootstrapping process which produces a t-statistical test parameter to predict the existence of a causality relationship (jogiyanto & abdillah, 2012). measurement model (outer model) outer model is a measurement model to assess the validity, measurement model parameters (convergent validity, discriminant validity, composite reliability, and cronbach's alpha) including the r2 value as a parameter of the prediction model accuracy (jogiyanto & abdillah, 2012). 1) validity test convergent validity of the measurement model with the indicator reflective model is assessed based on the loading factor (the correlation between the item score or component score with the construct score) calculated by smartpls. the reflective size afebi economic and finance review (aefr) volume 6, no. 1 (2021) 75 is said to be high if it correlates more than 0.70 with the construct to be measured. discriminant validity of the measurement model with reflective indicators is assessed based on the cross-loading measurement with the construct. the model has sufficient discriminant validity if the root average variance extracted (ave) for each construct is greater than the correlation between constructs and other constructs in the model (chin, 1997 in jogiyanto and abdillah, 2012:60). another method for assessing discriminant validity is comparing the square root value of average variance extracted (ave) for each construct with the correlation between other variables in the model. if the ave root value of each construct is greater than the correlation value between constructs and other constructs in the model. 2) reliability test the reliability test in pls can use two methods, namely cronbach's alpha and composite reliability. cronbach'alpha measures the lower limit of the reliability value of a construct, while composite reliability measures the real value of the reliability of a construct. a construct is said to be reliable if the cronbach's alpha value must be more than 0.6 and the composite reliability value must be more than 0.7 (jogiyanto & abdillah, 2012). structural model (inner model) the structural model in smart pls is evaluated using coeficient of determination for the dependent construct, the value of the path coefficient, or the t-value of each path to test the significance between constructs in the structural model. the value of rsquare is used to measure the level of variation in the change in the independent variable on the dependent variable. the higher the r-square value means the better the predictive model of the proposed research model. the path coefficient value or inner model shows the level of significance in testing the hypothesis. as for the score or value, it must be <0.05 (ghozali, 2015). 4. result and discussion the pls analysis process is carried out in three stages, namely evaluation of measurement models, evaluation of structural models and testing of hypotheses. evaluation of the measurement model (outer model) the measurement model (outer model) describes the relationship between indicators and their latent variables. evaluation of the measurement model includes constructing validity and reliability as depicted in figure 1. the role of good governance toward economic growth of riau province 76 source: smartpls output figure 1. outer model convergent validity testing based on outer loading will be declared valid if the loading factor value is above 0.70 (hair, black, babin, & anderson, 2014). outer loading test, several indicators are invalid because the value is below 0.70. the invalid indicators are x1.2 and x1.3 on the governance variable, and indicators x3.1, x3.2, x3.4, x3.5 on the financial performance variable. meanwhile, composite reliability and cronbach alpha have met the requirements above 0.60. likewise, the ave value is above 0.50. so, it can be concluded that the constructs in this study are reliable. so that overall, the results of the construction measurement model (outer model) have met the requirements for further analysis by issuing invalid indicators. evaluation of the structural model (inner model) the structural model in pls is evaluated using the coefficient of determination (rsquare). the higher the r2 value, the better the prediction of the proposed research model. the test results (in table 1) show that the good governance variable can explain the variance that occurs in regional financial performance by 0.173 (17.3%). the variables of good governance and regional financial performance can explain the variance that occurs in the allocation of capital expenditures of 0.652 (65.2%). meanwhile, good governance, regional financial performance and allocation of capital expenditures can explain the variance that occurs in regional economic growth of 0.161 (16.1%), the rest is explained by other factors not included in this research model. afebi economic and finance review (aefr) volume 6, no. 1 (2021) 77 tabel 1. coeficient of determination variable r-square regional financial performance 0.173 capital expenditure allocation 0.652 economic growth 0.161 source: pls output hypothesis test hypothesis testing is seen from the t-statistic and p-value. the hypothesis is accepted if the t-statistic> 1.96 and the p-value <0.05, whereas if the opposite is true the hypothesis is rejected. the test results are in table 2: tabel 2. hypothesis testing results path t-stat p-value result good governance -> regional financial performance 1.962 0.05 accepted good governance -> capital expenditure allocation 4.357 0.00 accepted regional financial performance -> capital expenditure allocation 40.994 0.00 accepted regional financial performance -> economic growth 1.086 0.27 rejected capital expenditure allocation -> economic growth 0.542 0.58 rejected good governance -> regional financial performance -> economic growth 2.047 0.04 accepted good governance -> capital expenditure allocation -> economic growth 3.219 0.00 accepted source: pls output discussion the conditions that exist in the riau province government with the number of data (n) tested were 60 obtained from the total number of districts and cities in riau province with each within a period of 5 years, from 2016 to 2020. consolidated, governance in riau province which is proxied from the economy shows an average value of 86.31% which means that it is in an economic condition with a minimum of 67.37% and a maximum of 97.38%. in terms of effectiveness in budget management, there are still ineffective conditions with a minimum value of 74.75%. although there are still some districts and cities that have very high effectiveness (121.37%), on average, the effectiveness is at an effective level of 92.98%. there is also inefficient the role of good governance toward economic growth of riau province 78 government management with an efficiency level of 101.32% with an average of 75.17%. regional financial performance in terms of financial independence or autonomy is still low with an average of 12.7%. likewise, the activities (harmony) of local governments prioritizing their allocation of funds for routine expenditure and development expenditures are still low with an average of 21.28%. meanwhile, the ability of local governments to realize local own revenue is quite high, with an average of 92%. however, the degree of decentralization, which reflects the contribution of own-source revenue to total regional revenue, is still low with an average of 10.55% and high financial dependence an average of 87%. the allocation for capital expenditure is still at an average rate of 21% with a 5-year economic growth rate of 2.82%. a well-ordered government becomes the capital of a country in serving the needs of its people. the allocation and realization of budget absorption have become more efficient and free of corruption and the direction of human development has become clearer because the government is implemented in a people-oriented manner. the results of this test support the results of previous studies, including kaufmann et. al (2019). the results of these studies indicate that there is a strong positive relationship and influence between good governance, which can also be measured through the effectiveness of government, and the level of development. the effect of financial performance on the allocation of capital expenditures is accepted in this study. these findings indicate that the size of the allocation of capital expenditures determined by regional governments is influenced by regional financial performance, particularly the effectiveness of locally-generated revenue. with a low financial dependency ratio, the less regional dependence on the central/provincial government, which means that the financial capacity of the regional government is better so that it can allocate more capital expenditure. the results of this study support the research conducted previously by sularso and restianto (2011), which states that since regional autonomy there has been an increase in general financial capacity, but mostly due to significant changes in locally-generated revenue growth. meanwhile, the share of the budget to expenditure did not increase. in public sector financial management, analysis of financial performance on investment allocations or capital expenditures has not been done much, but in the private sector, this is very common. good financial performance should increase the allocation of fixed asset investment. the results of this study also tested hypotheses about how financial performance affects economic growth either directly or indirectly through the allocation of capital expenditures. based on the results of the analysis and testing that has been done, it can be concluded that the indirect effect of financial performance on economic growth is rejected in this study. afebi economic and finance review (aefr) volume 6, no. 1 (2021) 79 the results showed that there was no mediating role for the capital expenditure allocation variable which was able to encourage the strength of the influence of financial performance on economic growth. the contribution of the capital expenditure allocation variable is considered relatively small in increasing economic growth. the results of this study support research conducted previously by (prihastuti, taufik, & agusti, 2015), which concluded that indirect financial performance (through the allocation of capital expenditures) has no significant effect on economic growth. then the next discussion is to find out how the influence of the allocation of capital expenditures on economic growth. based on the analysis and testing that has been carried out, the results show that the allocation of capital expenditures does not have a significant effect on economic growth. the increase in the allocation of capital expenditures in the form of fixed assets such as infrastructure, equipment and infrastructure will further increase capital spending and it is hoped that the productivity of the economy will also increase. however, in this study, capital expenditure does not affect the economic growth of the people of an area. this condition is due to the small proportion of capital expenditure, which only ranges from 15% to 20% of the 2014 2018 apbd. the capital expenditure budget fluctuates from year to year. the amount of capital expenditure should be followed by the effectiveness of capital expenditure for the public interest which will directly impact development activities in the region. however, in reality, a large capital expenditure budget is used to add assets such as roads, buildings, land, and others. economic growth by managing existing resources and forming a partnership pattern with the community should create new jobs that will affect the development of economic activity in the area. this economic development is marked by increased productivity and increased per capita income of the population, resulting in improved welfare. these results indicate that in the framework of implementing fiscal decentralization, the riau province government has not been wise in allocating its budget for investment in various sectors, both in the construction of facilities and infrastructure that support development. government investment as referred to in this case is expenditure made by the government which is made by the government in the apbd for capital expenditure or development. as explained in the previous chapter, government spending on capital expenditures in riau province on development is considered to be expansive, which means that if government spending increases, it will encourage higher economic growth. government investment can take the form of infrastructure development and improvement. increased government investment will be able to improve the quality of public services which in turn can increase the level of public participation (contribution) to development. however, government investment that is issued should still prioritize efficiency, effectiveness and savings by the expected development priorities. the fundamental condition for economic development is a level of provision of development capital that is balanced with population growth. it is hoped that additional the role of good governance toward economic growth of riau province 80 infrastructure and improvements by local governments will spur regional economic growth. in theory, consumption-sustained economic growth will not be sustainable growth. sustainable economic growth is growth that is supported by investment. investment-supported growth is thought to be able to increase productivity and thus help increase economic growth. the results of this study do not support previous research conducted by sularso and restianto (2011), which in their research shows that government spending, which includes capital expenditure and personnel expenditure, has a very strong influence on economic growth. but on the other hand, the results of the research are similar to the research by fajerin (2018) that capital expenditure does not have a positive and insignificant effect on economic growth. 5. conclusion based on the results of the analysis and testing that has been carried out, it can be concluded that good governance has a significant effect on regional financial performance and allocation of capital expenditures. regional financial performance has a significant effect on the allocation of capital expenditures and does not have a significant effect on economic growth. direct capital expenditure allocation has no significant effect on economic growth. indirectly, good governance has a significant effect on economic growth through regional financial performance and allocation of capital expenditures. good governance has a partially significant effect on regional financial performance and the allocation of capital expenditures. meanwhile, regional financial performance and allocation of capital expenditures have not been able to have a significant effect on economic growth. therefore, good governance can have a significant effect on economic growth through the mediation of regional financial performance and allocation of capital expenditures. this study obtained some evidence of data analysis based on research findings. the results of the research findings can recommend several policy implications according to priorities that can be given as input to the government. the government must continue to strive to improve government governance through bureaucratic reform. in addition, the government must support anti-corruption programs, increase government effectiveness, have clear rules, political stability, and the quality of rules in society, especially those related to economic activities. district/city governments must continuously improve financial performance because it can have an impact on increasing the allocation of capital expenditures used for public services. carry out the budget allocation function effectively and efficiently. the budget must be right on target to maximize the welfare of the community. the government and the dprd must increase the synergy value in managing the state budget. the government effectively and efficiently runs the apbd for the welfare of the people. meanwhile, the dprd acts as a partner in monitoring the government in implementing the apbd for the realization of an effective and efficient budget allocation. capital expenditures allocated by district/city governments are a stimulus for the regional economy, so they must receive adequate priority. because development is an ongoing process, it is suggested that the investment of the riau provincial government in the absorption of capital expenditures afebi economic and finance review (aefr) volume 6, no. 1 (2021) 81 that are considered to be sufficiently good should be further increased in the proportion of expenditures that always prioritize the public interest, such as in infrastructure development and improvement as well as improving the quality of public services. this is aimed at maintaining the existence of government administration. in addition, in its use, capital expenditures must continue to prioritize efficiency, effectiveness, and savings in accordance with priorities, which are expected to provide support for the strategic programs of the riau provincial government. reference adisetiawawan, r. 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(2014). pengaruh pendapatan asli daerah dan belanja modal terhadap pertumbuhan ekonomi (studi pada kabupaten/kota di pulau sumatera). jurnal akuntansi & keuangan vol 5 no.1, 33-48. the efectiveness of salt business empowerment program (pugar) in demak 55 the efectiveness of people’s salt business empowerment program (pugar) in demak anisa dwi aryani1), siti hilmiati azyzia2)* 1,2 economics, faculty of economics and business, universitas diponegoro, indonesia abstract one of indonesia's coastal areas that have successfully utilize its natural potential is demak regency, central java. in 2018, demak regency salt production had reached 172,446 tons. the production was driven by government policies in the form of assistance and empowerment of the people's salt business for salt farmers in each village in demak. this study aims to determine whether the people's salt business empowerment program (pugar) has been running effectively or not in demak regency, central java. the data used in this study were obtained based on survey results and interviews with salt farmers in eleven villages in demak regency, central java. the research design used accidental sampling to select 32 respondents in demak. the analytical method used is a qualitative descriptive analysis using several indicators, namely the formation of a community salt business group (kugar), channeling assistance from pugar to salt farmers, mentoring and training, and also enhancing technology to increase the productivity of salt farmers. the results showed that of eleven villages in demak district, eight villages had implemented pugar. however, overall this program has not had a significant impact on people’s salt business in demak regency, central java. keywords: salt business, pugar, demak, productivty 1. introduction one of the biggest challenges in the salt industry is how to effectively use the potential of salt land in indonesia, which reaches 68,754.16 ha. according to the directorgeneral of kp3k of the ministry of maritime affairs and fisheries (kkp), the domestic need for salt reaches 4 million tons per year, in detail 1.8 million tons of salt for consumption and 2.2 million tons for the industry. the fulfillment of national salt needs comes from local salt production and the rest is met by salt imports from other countries. the salt fields are located on the coast, which is in a remote location, with limited access being one of the reasons for the low price received by salt farmers, which is much lower than the price at the consumer level. the low price at the level of salt producers will reduce the attractiveness of salt producers in producing salt so that indonesia's dependence on imported salt will be higher. dependence on imported salt, especially for consumption salt, does not really support national food security because salt is a strategic commodity that is continuously needed by the whole community. demak regency is a national salt supplier area with an area of 897.43 km2 in the kedungsepur region with extensive salt ponds. the salt area of demak regency is 1,727,406 ha (according to nop) producing 130,118.39 tons of salt with 987 salt farmers. *corresponding author. email address: hilmiatiazyzia@gmail.com mailto:hilmiatiazyzia@gmail.com afebi economic and finance review (aefr) volume 5, no 01 (2020) 56 land productivity 102,466 tons per hectare (ilyas, 2016) the area of this salt pond covers almost the entire coastal area of demak regency, especially in wedung district, which crosses from berahan kulon village to tedunan. wedung district (and its surroundings) has potential land for people's salt covering an area of 1,834.67 hectares with a total number of salt farmers is 1,339 people. however, the productivity level of salt farmers in this region is still relatively low compared to other salt-producing areas in indonesia. in demak regency, people's salt production managed by salt farmers in the northern coastal area of demak has reached 94,042 (94 thousand) tons. according to data from the ministry of maritime affairs and fisheries in 2014, demak regency is a district with a share of people's salt production to national salt of 4.22%. table 1. share of smallholder salt production in national salt production source: ministry of marine affairs and fisheries (kkp) (2014) table 1 shows that the contribution of salt production in demak regency ranks 9th out of 43 regencies/cities that produce salt. the percentage of 4.22% indicates that demak regency has high salt productivity and can continue to be developed. however, with the import of salt carried out by the government, the condition of the welfare and powerlessness of salt farmers has worsened. therefore, efforts are needed from the government to improve the welfare and empowerment of salt farmers. in order to achieve national salt self-sufficiency, starting in 2011, the ministry of maritime affairs and fisheries (kkp) seeks to increase the effectiveness of national salt production by implementing the pugar (people's salt business empowerment) program which is one of the pnpm mandiri-kp programs focused on improving the productivty of salt farmers who encourage farmers to carry out pugar business through the indicators of the process of achieving pugar goals, namely: (1) the process of establishing kugar in no. regency production (%) no. regency production (%) 1 cirebon 12.56 23 gresik 0.35 2 indramayu 12.43 24 bangkalan 0.35 3 sumenep 11.67 25 buleleng 0.25 4 pati 11.51 26 sumbawa 0.18 5 sampang 10.25 27 pidie 0.16 6 bima 6.25 28 karawang 0.15 7 kota surabaya 6.24 29 kupang 0.13 8 rembang 5.67 30 kota bima 0.12 9 demak 4.22 31 aceh utara 0.12 10 pamekasan 3.57 32 lombok tengah 0.08 11 jepara 2.91 33 nagekeo 0.07 12 pangkep 2.19 34 karangasem 0.06 13 lamongan 1.31 35 kota palu 0.04 14 brebes 1.02 36 selayar 0.03 15 probolinggo 1 37 ende 0.03 16 tuban 1 38 aceh timur 0.03 17 jeneponto 0.98 39 sumba timur 0.02 18 lombok timur 0.91 40 aceh besar 0.02 19 pasuruan 0.64 41 manggarai 0.01 20 takalar 0.64 42 alor 0.01 21 kota pasuruan 0.43 43 ttu 0.01 22 lombok barat 0.37 total 100 afebi economic and finance review (aefr) volume 5, no 01 (2020) 57 demak regency; (2) the process of distributing direct assistance to the people's salt business empowerment in accordance with the joint business plan (rub); and (3) the process of assisting and improving people's salt business technology. the process of implementing pugar with the bottom-up principle means that salt farmers plan, implement, monitor, evaluate activities according to the specified mechanism. the target in the pugar is salt farmers who will later be coordinated in kugar (salt business empowerment group) which in its implementation will be accompanied by pugar facilitators.the pugar in demak regency targets wedung district, demak regency. the number of salt farmers in wedung sub-district is 1,250 people. these farmers are members of 127 groups. they manage people's salt in an area of 1,222 hectares. the salt farmers who were targeted by the pugar blm are spread over 10 villages. namely, betahwalang village, bonang district (there are 2.72 hectares). then, in the wedung subdistrict, they are in tedunan village (41.86 hectares), kendalasem (195.65 hectares), kedungkarang (181.96 hectares), kedungmutih (267.17 hectares), babalan (269.03 hectares), berahan wetan (115.24 hectares), berahan kulon (7.1 hectares), mutih wetan (25.76 hectares), and mutih kulon (66.47 hectares). based on the background of the problems above, this study will discuss "effectiveness of the implementation of the people's salt business empowerment program (pugar) in demak regency". the purpose of this study was to determine the effectiveness of the implementation of the pugar in demak regency. 2. literature study public policy laswell and abraham (1970) define public policy as a projected program with specific goals, values, and practices. public policy implementation is one of the stages of the public policy process. according to webster's dictionary (2002), that implementation provides a means to implement a policy and can have an impact/effect on certain things. according to jones, in implementing the policy there are several conditions, including the presence of people (executors), money, and operational capabilities which are often called resources. people's salt business empowerment program (pugar) the people's salt business empowerment program (pugar) is a national marine and fisheries independent community empowerment program (pnpm mandiri-kp) which is intended to increase job opportunities and the productivty of smallholder salt pond farmers and other people's salt business actors in an effort to support national salt self-sufficiency, both salt, and pepper. consumption and industrial salt with a bottom-up principle. effectiveness effectiveness is how well the work is done, the extent to which people produce outputs as expected (masruri, 2010). the variables used to measure program effectiveness refers to previous research and pugar technical guidelines. widiarto et al. (2013) stated that the determinants of the effectiveness of the pugar can be seen from afebi economic and finance review (aefr) volume 5, no 01 (2020) 58 the process of establishing kugar, the process of distributing blm, the process of mentoring, and improving people's salt business technology, business income, and business feasibility. furthermore, according to the 2014 pugar technical guidelines, the program implementation targets include capacity, gender, local government support, blm distribution, management of salt production facilities and infrastructure, output (production results), and outcome (business income). based on the literature, the research variables to measure effectiveness are gender, capacity building, program assistance, outputs, and outcomes (amanda & buchori, 2015). people’s empowerment community empowerment is a concept that represents a new paradigm in development that is people-centered, participatory, empowering, and sustainable (christens, 2012). the result of the empowerment process is the level of empowerment. the level of empowerment is a measurement of community empowerment related to a possibility that occurs in community members to start and maintain activities that lead to changes in the quality of life of the community. 3. research methodology sampling locations were carried out in 11 villages in demak regency, including the villages of babalan, berahan kulon, berahan wetan, betahwalang, kedungmutih, kendalasem, tedunan, menco, mutih kulon, mutih wetan, and kedung karang. the villages above are some of the villages in demak regency, central java province that produces salt. sampling was carried out for 3 months starting from september to november 2019. data were obtained through direct interview surveys with the community. sampling was done by accidental sampling method in 11 salt-producing villages in demak regency. the number of respondents in this study was 32 people spread over 1 village where the study was located. the analytical method used in this study is a descriptive qualitative analysis using several indicators to determine the effectiveness of pugar. the effectiveness referred to in this study is to see how the implementation of the pugar policy in demak without relating to the production process, where indicators of effectiveness are the establishment of kugar (people's salt business group), distribution of assistance from the pugar for salt farmers, as well as assistance and technology improvement. table 2. indicators of the effectiveness of pugar implementation indicators descriptions sources forming kugar is there any kugar already formed widiarto, hubeis, dan sumantadinata, 2013 aid distribution has the aid from the restoration program been distributed evenly and on time to salt farmers? widiarto, hubeis, dan sumantadinata, 2013 technology improvement is there an increase in the use of new production technologies by salt farmers widiarto, hubeis, dan sumantadinata, 2013 assist on technology is there assistance regarding production technology for salt farmers widiarto, hubeis, dan sumantadinata, 2013 afebi economic and finance review (aefr) volume 5, no 01 (2020) 59 4. result and discussion implementation of pugar in demak district babalan village the community salt business empowerment program (pugar) in babalan village has been running since 2012. the existence of this program provides special benefits for babalan village, namely providing assistance in the form of funds, training, subsidies for salt production equipment, and the establishment of warehouses. in the first two years of its implementation, the program was effective. however, because there is no supervision and person in charge, this program does not run effectively because only some farmers enjoy the benefits of this program. one example is the use of salt storage warehouses that can only be used by a few farmers. then this program assistance is also not on target, namely the assistance provided in the form of suction machines, membranes, and so on. according to the results of interviews with several farmers, there are some tools that are not really needed by salt farmers in babalan village, but the assistance continues to come in the form of modern tools so that the assistance does not increase the productivity of the farmers. berahankulon village in berahankulon village, the pugar is not running actively and functioning properly. some of the farmers complained that the duration of assistance from pugar had decreased. often the farmers apply for new tools or machines but do not get a responsive and fast response from the government so that the pugar in berahankulon village does not run as it should. berahanwetan village the pugar in berahanwetan village, wedung district, demak regency has not been implemented effectively by the local village community, because the information has not been properly disseminated to the public. it is reflected in the methods and tools used by farmers are still simple in the people's salt production process. in berahanwetan village, there is no government role either in determining the lowest price standards, quality standards, and subsidizing production equipment. betahwalang village the pugar in betahwalang village, bonang district, demak regency has not been implemented effectively. the salt farmers in betahwalang village only know about the program, but pugar has not yet reached the village. pugar has not a positive impact in the village. pugar has not been effective in increasing the productivity of salt farmers. the land is used for making salt during the dry season, when the rainy season comes the land is used for fish and tiger shrimp ponds. until now, salt farmers in betahwalang village has not received training from the government. they learn to be selftaught salt farmers. in addition, there has been no technological assistance or tools from the government like in other villages. afebi economic and finance review (aefr) volume 5, no 01 (2020) 60 kedungmutih village the implementation of the pugar in kedungmutih village began in 2011. this program was considered quite successful by the department of marine affairs and fisheries of demak regency and also the village community. the existence of the pugar has a positive impact on salt farmers. the benefits obtained from the pugar include salt farmers receiving assistance through the pugar community direct assistance (blm) fund. this fund is used to provide facilities and infrastructure that support the process of making people's salt, such as buying windmills, tombong (a container for putting salt after harvest), raking, repairing warehouses, and repairing roads to salt farms. the funds allocated for the pugar in kedungmutih village in 2011 were around 200 million for 4 kugar (people's salt business group), 2012 amounted to 250 million with details of 50 million for 4 old kugar and 200 million for 4 new kugar and in 2013 amounted to 210 million for 15 kugar. all these funds come from the state budget of the ministry of maritime affairs and fisheries. kendalasem village in kendalasem village, pugar has been running since 2011 and currently, there are 900 salt farmers. the process of distributing community direct assistance (blm) begins with the making of a joint business plan or proposal carried out by the group. after being approved and known by the village head, the joint business plan (rub) is submitted to the national pugar team through the department of marine affairs and fisheries of demak regency. this program has been running effectively because the assistance provided can save production costs and speed up the salt production process in kendalasem village. the assistance given to salt farmers is in the form of membranes with a minimum number of 3 rolls for each farmer. each roll has a minimum length of 50 meters and a minimum width of 4 meters. the advantage gained by farmers with the help of this membrane is that the harvest period is shorter, namely 3-4 days, whereas if using the manual method the harvest period reaches one week. another aid is a machine that is used to drain water into the farmers' land. with this restoration assistance, farmers feel that the costs incurred are smaller. this is because, with assistance from the government, especially membrane assistance, they can save up to 3.5 million. tedunan village the effectiveness of the pugar, according to interviews with several farmers in tedunan village, said that the government program in the form of a membrane subsidy was very effective in increasing the productivity and income of this salt business. because the membrane price per roll is almost 2 million rupiah, while one plot of land with an area of about 10x10 meters requires 3 rolls of the membrane. the membrane functions to accelerate salt deposition in the hot sun which can shorten the salt harvest time from 1 week to only 2 days with better salt quality. so that salt farmers expect an increase from pugar assistance in order to improve the productivty of farmers as a whole. menco village in menco village, the pugar that was implemented was considered ineffective because until now there has not been any assistance received by salt farmers in menco afebi economic and finance review (aefr) volume 5, no 01 (2020) 61 village. most salt farmers only use equipment and funds obtained personally. the equipment used to produce is also relatively simple because it only relies on personal capital. mutih wetan village the pugar in mutih wetan village was formed in 2011. pugar members or salt farmers in mutih wetan village are mostly obtained from kendalasem village, so it can be said that mutih wetan village is only a provider of salt production land. the pugar community direct assistance (blm) given to salt farmers in mutih wetan village is in the form of 2 rolls of membrane for each salt farmer. the advantage with the help of membrane provision is that the harvest period is faster. before the membrane was available, the harvest period could reach 7 days, while after the membrane assistance was provided, the harvest period only took about 2-4 days. another advantage that salt farmers get is that the costs incurred are smaller. with the average income of salt farmers in mutih wetan village, it reaches rp. 200,000 per day per hectare. although mutih wetan village is only a provider of salt production land, mutih wetan village has the potential to increase salt production and the welfare of salt farmers. so it can be said that pugar can continue to be developed in mutih wetan village and seen from the effectiveness of the salt production obtained and will be a great potential for the welfare of salt farmers in mutih wetan village. mutih kulon village in mutih kulon village no longer produces people's salt. only a few of the residents still work as salt farmers, even those that are not on a large scale and use private land and workers from outside the village. of the total 578.54 hectares of the village area, currently, 90.69 percent (524.65 hectares) are rice fields. the potential of salt land in mutih kulon village is not maximized to produce people's salt. thus, mutih kulon village itself currently no longer has a pugar. and even now, the economy of mutih kulon village is more supported by rice farming. kedung karang village in kedung karang village, the pugar has not been effective in improving community welfare. this is because there are still smallholder salt farmers who do not feel the benefits of the pugar itself. the benefits of pugar were only felt when the program was first launched. providing assistance in the form of a membrane for the layer of land for salt, and a wheel that helps the process of irrigating saltwater. due to the ineffectiveness of restoration on some residents of the kedungkarang community, farmers prefer to manage their salt business independently with simple technology. the impact of this pugar is the shift of the profession of farmers to shrimp farmers during the rainy season and to salt farmers during the dry season. the government is less active in this pugar activity. socialization of the utilization of technology, quality standards, and price standards as well as assistance is only felt by a few people. program membership did not yield good results. afebi economic and finance review (aefr) volume 5, no 01 (2020) 62 table 3. summary of the implementation of pugar in demak regency name forming kugar aid distribution technology improvement assist on technology yes no yes no yes no yes no babalan village v v v v berahanwetan village v v v v berahankulon village v v v v betahwalang village v v v v kedungmutih village v v v v kendalasem village v v v v tedunan village v v v v menco village v v v v mutih wetan village v v v v mutih kulon village v v v v kedung karang village v v v v based on table 3, it can be seen that most of the villages already have kugar. however, the distribution of aid for the pugar still faces many problems, including unequal distribution of aid, a long distribution process, and complicated aid application procedures. as a result, many salt farmers do not feel the benefits of the pugar. another problem faced by salt farmers in most of these salt-producing villages is that there is no assistance regarding production technologies provided, as a result, farmers' productivity does not increase even though production technology has been provided. afebi economic and finance review (aefr) volume 5, no 01 (2020) 63 5. conclusion based on the results of the discussion above, it can be concluded that the implementation of the pugar has not been comprehensively effective. pugar has not a positive impact in the village. pugar has not been effective in increasing the productivity of salt farmers. in addition, the slow distribution of aid also makes salt farmers feel that this policy has not been effective in promoting their productivity. it is hoped that there will be improvements and supervision over the sustainability of this program so that the goal of this program, namely improving the productivity of salt farmers, can be achieved. suggestion for next research is add some important issues related to small scale salt industry in indonesia that needs to be explored, such as low economies of scale, low technology, the character of farmers, and etc. and to strengthen the results and analysis, the next research needs to be provided with the data and statistical analysis, not only perception of farmers and common sense description. reference adiraga, y., & setiawan, a. h. (2013). analisis dampak perubahan curah hujan, luas tambak garam, dan jumlah petani garam terhadap produksi usaha garam rakyat di kecamatan juwana kabupaten pati (periode 2003-2012) (doctoral dissertation, fakultas ekonomika dan bisnis). amanda, r. p., & buchori, i. (2015). efektivitas program pemberdayaan usaha garam rakyat (pugar) tahun 2014 terhadap tingkat keberdayaan petani garam rakyat di kecamatan kaliori. teknik pwk (perencanaan wilayah kota), 4(4), 553-564. berutu, d. a., & susilowati, i. (2014). analisis efisiensi penggunaan faktor-faktor produksi garam di kecamatan kaliori, kabupaten rembang (doctoral dissertation, fakultas ekonomika dan bisnis). christens, b. d. (2012). targeting empowerment in community development: a community psychology approach to enhancing local power and wellbeing. community development journal, 47(4), 538-554. dictionary, m. w. (2002). merriam-webster. on-line at http://www. mw. com/home. htm. ilyas, e. (2016). laporan konsultan manajemen pugar kabupaten demak tahun 2015. demak. kasmel, a., & andersen, p. t. (2011). measurement of community empowerment in three community programs in rapla (estonia). international journal of environmental research and public health, 8(3), 799-817. lasswell, h. d., & kaplan, a. (2013). power and society: a framework for political inquiry. transaction publishers. afebi economic and finance review (aefr) volume 5, no 01 (2020) 64 masruri, m., & muazansyah, i. (2017). analisis efektifitas program nasional pemberdayaan masyarakat mandiri perkotaan (pnpm-mp). journal of governance and public policy, 4(2), 363-393. royani, i., hurri, s., maihani, s. (2017). analisis pemasaran garam rakyat (studi kasus gampong tanoh anoe kecamatan jangka kabupaten bireuen). jurnal pertanian, 1(12), 1032-1045. sari, y. r., setyono, b., & manar, d. g. (2015). implementasi program pemberdayaan usaha garam rakyat (pugar) di desa kedungmutih kecamatanwedung kabupaten demak tahun 2011-2013. journal of politic and government studies, 4(2), 191-205. suherman, t., fauziah, e., & hasan, f. (2011). analisis pemasaran garam rakyat (studi kasus desa kertasada, kecamatan kalianget, kabupaten sumenep). jurnal embryo, 8(2). trikobery, j., rizal, a., kurniawati, n., & anna, z. (2017). analisis usaha tambak garam di desa pengarengan kecamatan pangenan kabupaten cirebon. jurnal perikanan kelautan, 8(2). widiarto, s. b., hubeis, m., & sumantadinata, k. (2013). efektivitas program pemberdayaan usaha garam rakyat di desa losarang, indramayu. manajemen ikm: jurnal manajemen pengembangan industri kecil menengah, 8(2), 144-154. determinants of corporate value (empirical studies of manufacturing sector 2012-2015 bej) 44 6 determinants of corporate value (empirical studies of manufacturing sector 2012-2015 bej) sri suartini1* and suparno padikromo2 1,2 singaperbangsa university, karawang, indonesia abstract the study aims to conduct analysis themselves and provide empirical evidence that independent variable managerial ownership, ownership of instisusional both partian or simultaneous effect on the value of the corporation. this research uses the approach of kuantitative with a sample of 50 manufacturing companies registered in bei during 2012-2015 with purposive sampling method. then technical data analysis done with test statiistik using multiple regression. research results showed variable managerial ownership and institutional ownership affect the value of the company. this finding is interesting that increased value of the company's success depends on the ability of the company to the maximum resources to empower and implement company policies that have been defined not by a factor of incentive manager and supervision of instituonal. jel classification: g10, g17, g32 keywords: institutional ownership, managerial ownership, the value of the company 1. introduction the main goal of the company is to increase the value of the company or shareholders. to realize this goal, the shareholders or management owners submit them to the agency. high value companies can also increase prosperity for shareholders. maximize the value is significantly wider than maximizing profits, based on several reasons, namely maximizing value means considering the influence of the time value of money, it also means maximizing the value of considering various risks against the flow of corporate earnings and the expected flow of quality. of the funds received in the future (haruman, 2008). the increased value of the company could attract investors to invest their capital. for investors who want to invest a definite rate of return or profit to be had from investments in the form of capital gains and dividends attached to, be part of the benefits provided to shareholders. in this case the manager must decide whether the benefits of the company during that period will be distributed wholly or partly distributed as dividends and the rest is held by the company or referred to profit on hold. the increase in the value of the company can be reached if there is cooperation between the management company and the other parties which include shareholders and stakeholders in making financial decisions with the purpose to maximize working capital. indonesia experienced a prolonged crisis since 1998, many people say that the duration of the repair process after the * corresponding author. email address: srisuartini_daw@yahoo.com mailto:srisuartini_daw@yahoo.com afebi economic and finance review (aefr) vol.02 no.02, december 2017 45 crisis caused by weak implementation of corporate governance in the companies in indonesia. the emergence of the issue of corporate governance is also caused by the separation between the ownership control of the company. this is also an important and controversial issues regarding corporate governance is the structure of the stakeholders associated with the rise in the value of the company. the possibility of a company is in a position of financial stress is also strongly influenced by the company's ownership structure. ownership structures to explain the commitment of the owners to save company (ward, 2006). ownership structures according to some researchers believed to affect the operations of the company, which in turn affect the company's performance in achieving the objectives of the company, namely maximizing the company's value. this is caused by the presence of the control they have (wahyudi and pawestri, 2005). the increase and decrease in value of the company is influenced by the structure of ownership. the structure of ownership is very important in determining the value of the company. the structure of stock ownership is considered important for the company and it is believed can affect the performance of the company in achieving value maximization of existing companies as it pertains to the control they have and can also explain the commitment owners to save the company. therefore, the ownership structures have an important role in determining the value of the company the manager as manager of company has different goals, especially in terms of improving the performance of individuals and the compensation will be accepted. if company managers do act selfishly ignoring the interests of the investors, then it will cause the collapse of investor expectations about the return on investment they have invested (faizal, 2004). this can occur due to information asymmetry, where the manager knows the internal information and the company's prospects in the future compared to shareholders and stakeholders. the cause of the conflict between the managers and the shareholders of which the decisionmaking activities related to fundraising (financing decisions) and decision making about how funds are invested are planted. to avoid the chance of adverse management actions in order that shareholders can be done in two ways, i.e. monitoring and bonding. monitoring is carried out by monitoring outside investors, while the binding restriction is created by its own managers in taking action. and this mechanism will bring the cost of so-called agency fees. if the action between the manager of the opposing side goes according to, then it is a problem between the two sides will not happen. in fact, the interests of the unification of the two sides often cause problems. problems between managers and shareholders called the agency problem. in theory concepts enterprises (jensen and meckling, 1976) the existence of agency problem will cause the failure of the company's financial objectives, namely to increase the value of the company by way of maximizing shareholder wealth. this requires external control in which the role of monitoring and supervision that will lead to what it should be. there are several alternatives to reduce the costs of the agency, including the existence of stock ownership by management and share ownership by institutions (haruman, 2008). with the managerial ownership, managers are expected to act in accordance with the wishes of the perpetrators because managers will be encouraged to improve its performance and will be able to increase the value of the company determinants of corporate value (empirical studies of manufacturing sector 2012-2015 bej) 46 (siallagan and machfoedz, 2006). according to ross et al (cited from siallagan and machfoedz, 2006) states that the greater the ownership management in the company management will tend to try to improve its performance for the benefit of shareholders and to their interests on its own. management's share ownership is the proportion of common shares owned by management. there is some research which found that managerial ownership did not affect the value of the company. relationship between managerial ownership with the value of the company is not a monotonous relation arises because incentive that is owned by the manager, and they tried to do with ownership of the alignment of interests of outsiders with an increase ownership of their shares if the company's value increases (wahyudi and pawestri, 2005). other proprietary structure that is institutional ownership, which may act as parties to monitor the company. large institutional ownership showed its ability to monitor management. greater institutional ownership, asset utilization and more efficient companies are also expected to act as a barrier against the waste created by management. institutional ownership is the proportion of shares owned at the end of the year by institutions, such as insurance, bank or any other institution (tarjo, 2008). research conducted sudarma (2004) concluded that the structure of ownership (ownership of managerial and institutional ownership) negative effect against the value of the company. this means that the measurement of the composition of managerial and institutional ownership ownership determines the value of the company. decrease in the number of managerial and ownership composition of institutional ownership and increased public ownership will affect the increase in value of the company. partially, this study concludes that the managerial ownership is not a significant positive influence of corporations and influential institutional ownership is significantly to the value of the company. this result means that the increase in the value of institutional ownership will affect the decline in the value of the company. the value of the company is the perception of investors against the company, which is often associated with the stock price. a high stock price also makes the company's value higher. maximize the value of the company is very important for a company, because the company maximize the value by means of maximizing shareholder wealth also is the main goal of the company. the value of the company could deliver maximum shareholders ' wealth if its stock price went up. the higher the stock price, are increasingly higher wealth distributed to shareholders. to achieve the value of public companies, investors hand over management to a professional who is positioned as a manager or commissioner. thus, it can be concluded that the value of the company is an important concept for investors, because it is an indicator for assessing overall corporate market. the results of this research are not in accordance with the research done sudarma (2004); wahyudi and pawestri (2005) that the managerial ownership did not affect the value of the company. however, in contrast to the research conducted by sillagan and machfoedz (2006); sujoko and soebiantoro (2007), wahyudi and pawesti (2006) that the managerial ownership influence negatively to the company's value. this research is also in line with haruman (2008) that there is a negative influence of institutional ownership of the company. that the positive effect of institutional ownership of companies is also consistent with research done by wang and bjuggren (tarjo, 2008) that the positive effect of institutional ownership of company afebi economic and finance review (aefr) vol.02 no.02, december 2017 47 based on the research results of inconsistencies of researchers interested in studying the influence of the structure of ownership and capital structure of the company. the population in this research is the manufacturing companies listed on the indonesia stock exchange 2012-2014. the manufacturing company is a type of company in his actions to try to manage raw material into finished goods. laborintensive manufacturing companies relatively more than on the type of service companies and trading companies. the manufacturing company is the number of the biggest issuers other than the number of issuers listed on the indonesia stock exchange (idx). in the manufacturing sector, there are many companies that their work continues to evolve. can not be denied this sector has spawned the company's flagship product that consumes some communities in indonesia. most of the investors involved in manufacturing companies. therefore, manufacturing companies selected to be reviewed in this study. based on the background of the authors intend to study and analyze the effect of managerial ownership, institutional ownership of the manufacturing sector companies were listed on the indonesia stock exchange period 2012-2014. where the value of the company as a variable by using the assessment measures the price against the value of the book, while the indicators are used to measure the performance of companies that have the managerial ownership, institutional ownership. the issue will be discussed in this article are: 1) what is the influence of managerial ownership of companies, 2) is the institutional ownership affect the value of the company. 2. examinaion theory 2.1. the theory of agency: agency theory reveals the relationship between the principal (owner of company or the party that mandates) and agents (managers of the company or the party that receives a mandate) that is based on the separation of ownership and control of the company, such person the risk of separation, decision making and control functions-functions (jensen and meckling, 1976). agency theory is the relationship between the agent (management) and principal (owner). in the agency relationship there is a contract in which one or more person (the principal) ordered another person (the agent) to perform services on behalf of the principal and the agent is authorized to make decisions or managing a business is best for school principals . agency theory assumes that all individuals act on their own interests and not the significance. from the other party as a major shareholder or owner of the company is assumed to be only interested in financial results or increase his investment in the company. because of different interests of the respective parties are trying to maximize profits for himself. principals want maximum return on investment as soon as possible and one of them reflected a rise in the portion of the dividend per share. the dealer wants his interests be accommodated with adequate compensation and for its performance. principal agent assessing performance based on their ability to maximize profits allocated to dividend distribution. the higher the income, the greater the share price and dividennya, then the agent is considered successful performers so it deserves a high incentive. the opposite principal agent also meets the demands of high level to get compensation, so that if there is no adequate supervision of the dealer can play some of the company's determinants of corporate value (empirical studies of manufacturing sector 2012-2015 bej) 48 condition as if the target is reached. that game could be the initiative of the principal or the agent of his own. by doing these things can cause the onset of creative accounting in violation of regulations, for example, the existence of accounts receivable that are not collectible that is not eliminated, capitalizing costs an improper revenue recognition, which is not of course that all affect the value of assets on the balance sheets of the "beautify" financial statements, though not the actual value. other steps can also be done with smooth earnings (profit split to other period) so that each year seems to be favorable to the company when in fact losing money or profit down. agency problems arising from conflicts or differences of interest between principal and agent. agency theory tries to explain the determination of the most efficient contract can limit the conflict problem or agency (jensen and meckling, 1976). agency theory also plays a role in providing accounting information so that feedback along with predictive value. agency theory states that the company facing charges and the costs of the supervision contract low tend to report lower income or in other words, will pay for the purpose of management. one of the costs that could improve the company's reputation in the eyes of the public is the costs associated with corporate social responsibility. 2.2. hypothesis one of the mechanisms that can reduce the problems the agency is improving the managerial to hold the stock. it is based on the logic that a rise in the proportion of shares owned by managers will reduce the tendency of managers to react excessively. with a fairly high proportion of ownership then the manager will feel ownership of the company so that it will make every effort to perform actions that can maximize their own well-being. thus will unite the interests of managers with shareholders; this positive impact on performance of the company and increasing shareholder value. wahyudi and pawestri (2005) explains that the managerial ownership in line with the interests of management and shareholders would have benefited directly from the decision and took the loss as a consequence of making a decision wrong. the statement states that the greater the proportion of ownership in the company management, management tends to be more active for the benefit of certain shareholders, namely himself. the number of major managerial ownership should have higher performance; because the cost of the agency. the increase in the proportion of shares owned by managers and directors will reduce the tendency to excessive manipulation actions, so it could unite the interests between shareholders and managers. according to faizal (2004), a measure of the amount of managerial stock ownership in the company may show similarities (alignment of management with the interests of shareholders). the increasing proportion of managerial ownership, the better the performance of the company, will increase the company's value. therefore, managers will be encouraged to improve its performance who also became a shareholder desires to continue to enhance shareholder value. managers at once which will increase shareholder value of the company because of the increase in value of the company, the value of shareholders ' wealth will also increase. research fellow with the value of the ownership of the company's management has a lot of things but the result is also different. the research of salih and taswan (2002) found a significant and positive relationship between the value of the company's management and ownership. while the research done wahyudi and pawestri (2005) find a weak connection between the value of the company's afebi economic and finance review (aefr) vol.02 no.02, december 2017 49 management and ownership. similarly, according to siallagan and machfoedz (2006) concluded that the negative effect of managerial ownership of a company is measured by tobin's q. research conducted by jensen and meckling (1976) found that the greater the ownership of shares by management against a decreased tendency of management to optimize the use of resources so as to increase the company's value occurs. in contrast to research siallagan and machfoedz (2003) stated that by using ols and 2sls found the relationship between managerial ownership and corporate values are negative and linear so it can be inferred that the ownership high management will lower the value of the company and the hypothesis in this study. it can be concluded that: h1: managerial ownership affects corporate value institutional ownership act as observers to the company in general and the manager so that company managers in particular. institutional investors will monitor the progress of the invested company professionally and has high control against management actions. this minimizes the potential for management to conduct fraud, so that it can align the interests of management and the interests of other stakeholders to improve the company's performance. greater institutional ownership, asset utilization and more efficient companies are also expected to act as a barrier against waste management (faizal, 2004). similarly, according to tarjo (2008) found that the greater the ownership by financial institutions, the greater the power and also an urge to optimize the value of the company. shleifer and vishny (haruman, 2007) stated that the number of major shareholders have significance in monitoring the behaviour of the managers in the company. the presence of institutional ownership will be able to effectively monitor the management team and to enhance shareholder value. according to xu and wang, et al. and bjuggren dkk., (in tarjo, 2008) found that the positive influence of institutional ownership of the company and the company's performance. this means showing that institutional ownership become a reliable mechanism so as to motivate managers to improve their performance, which in turn can increase the value of the company. however, in contrast to the above, the study herawaty (2008) shows that institutional ownership did not manage to increase the value of the company, because it reduces the value of institutional ownership of the company. this is due to the majority of institutional investors instead of owner that is not able to monitor the performance of managers with good. the existence of institutional ownership would reduce public confidence towards the company. as a result, the stock market reacted negatively in the form of a decline in trading volume of the stock and the stock price, thereby reducing shareholder value. therefore, the hypothesis in this study are: h2: institutional ownership affect the value of the company 2.3 the theoretical framework based on a review of the literature, theoretical base of managerial ownership variables, institutional ownership, and value the company as mentioned above, the framework can be used as follows: determinants of corporate value (empirical studies of manufacturing sector 2012-2015 bej) 50 3. research methods 3.1. types and sources of data: the data used in this research is the secondary data is data the annual financial report of the manufacturing companies listed on the indonesia stock exchange 2012-2015. the form of the data used in this research is the ratio of the data. the data used is data that can be obtained from the directory indonesia capital market or www.idx.co.id, journals and other reference. the technique of data collection in this research is the documentation of the method of data collection is done by way of the recording and writing of the data to identify the problems associated with the research obtained from capital markets directory indonesia and www.idx.co.id. in this study the documentation in the form of annual report 20122015. 3.2. the population and sample: the population in this research is the manufacturing company publicly listed and actively traded on the indonesia stock exchange 2012-2015. the total population is 214 companies. the selection of the sample in this study with the method of purposive sampling, with several criteria such as: 1. manufacturing companies listed on the stock exchange in the period 20122015, 2. company does not publish annual financial statements 3 years, and 3. if the company does not have the managerial ownership, institutional ownership, and ownership of the company to foreign loss and revoked as a sample. based on these criteria, the sample into 32 companies 3.3. operational variables free variable is the managerial ownership such as ownership structures, institutional ownership, foreign ownership, and ownership is concentrated and the variable terikatnya is the value of the company. 1. 1 managerial ownership) is measured by the proportion of shareholders where the management is actively involved in the decision making of the company (board of directors and commissioners) (diyah and erman, 2009) 2. institutional ownership) is the proportion of shares owned by the owners of institutional holders such as insurance companies, banks, investment companies and other holdings except for subsidiaries and other institutions that have a relationship special. (indahningrum and ruth, 2009) 3. fforeign ownership is ownership of company shares by foreign investors are defined as individuals, legal entities, and governments as well as the status of its parts overseas. foreign ownership is measured by the percentage of foreign ownership is seen from the annual report of the company. (machmud and chairul, 2008) y x1 x2 0,00 0,01 https://ssl.microsofttranslator.com/bv.aspx?from=&to=en&a=%20the%20data%20used%20is%20data%20that%20can%20be%20obtained%20from%20the%20directory%20indonesia%20capital%20market%20or%20www.idx.co.id%2c%20journals%20and%20other%20reference.%20 https://ssl.microsofttranslator.com/bv.aspx?from=&to=en&a=%20the%20data%20used%20is%20data%20that%20can%20be%20obtained%20from%20the%20directory%20indonesia%20capital%20market%20or%20www.idx.co.id%2c%20journals%20and%20other%20reference.%20 https://ssl.microsofttranslator.com/bv.aspx?from=&to=en&a=%20indonesia%20and%20www.idx.co.id.%20 https://ssl.microsofttranslator.com/bv.aspx?from=&to=en&a=%20indonesia%20and%20www.idx.co.id.%20 afebi economic and finance review (aefr) vol.02 no.02, december 2017 51 4. describes how ownership concentration and who is in control of the whole or most of the above as well as the overall ownership of the company or its shareholders majority control of the company's business activities. ownership concentration is measured by the level of ownership by more than 51% indicating the right of control by the majority shareholder. in this study, concentrated ownership is a dummy variable, 1 = 0 = the company concentrated and not concentrated (nuryaman, 2009). 5. value is the value of company share prices seen from companies (hougen in utomo, 2000). the value of a company is measured by the price to book value (pbv). a. the ratio of price to book value is measured by share price divided by the book value. the company's book value is produced by the market price of the stock. 3.4 technical analysis multiple linear regression analysis is the study of the dependence of the dependent variables with more than one independent variable. the goal is to estimate or predict population and mean or average value of the dependent variable based on the value of the independent variable is known by ghozali (2005). this analysis to test the influence of the dependent variable (y) is the company's value on the free variable (x) i.e. managerial ownership, institutional ownership, foreign ownership and possession of the concentrates are concentrated. the formula is: pvb = a + b1mo + b2io + e 4. findings and discussions 4.1 findings: the equation shows that the value of the company's managerial ownership structures affected by ownership, institutional ownership. these results can be explained as follows: pbv = 0,840 0,004mo + 0,015io 1. positive constant value 0.840 indicated that if the ownership structure consists of managerial ownership, institutional ownership, foreign ownership, and ownership is concentrated constant, then the value of the company (pbv) of 0.840 stated. 2. coefficient of managerial ownership-0004 indicating that any increase in the managerial ownership in the company will be followed by a decrease of 1% on the value of the company) of 0.004, assuming the other variables remain; 3. institutional ownership coefficient) values of 0.015 suggests that any increase in institutional ownership of 1% will be followed by the increase of the company value of 0.015, assuming the other variables remain; 4.2. discussion the value of f is 3.360 0.013 and probability. because the probability is much smaller than 0.05, it can be inferred that the variable managerial ownership, institutional ownership, collectively affect the value of the company means the simultaneous ownership structure. (managerial ownership, institutional ownership) influence on the value of companies listed on the stock exchange 20122015. 5.2.1. the managerial ownership against corporate values (pbv): determinants of corporate value (empirical studies of manufacturing sector 2012-2015 bej) 52 test results between the managerial ownership variables against the value of the company showed no significant influence towards managerial ownership of the company. managerial ownership and significant negative influence against corporate values (pbv), which can be seen from the above significant 0:05 value is of 0.709, and negative t value, so the hypothesis (h1 rejected). that is, the size of the managerial ownership cannot affect the value of the company. the results are in contrast to the theory that basically says that the theory of managerial ownership agency can reduce the tendency to excessive manipulation. it can be a unifying interests between managers and shareholders and increase the proportion of managerial ownership can be used as a way to address the problem of agency. the results support the study by jensen and meckling (1976) found that the greater the ownership of shares by management then the smaller the tendency of management to optimize the use of resources resulting in a rise in the value of the company. this result also complies with or research conducted by sudarma (2003) which says that the managerial ownership has a significant negative influence against the value of the company. in contrast to research siallagan and machfoedz (2003) stated that by using ols and 2sls found the relationship between managerial ownership and corporate values are negative and linear so that it can be concluded that management height. ownership will lower the value of the company. research conducted by sujoko and soebiantoro (2003) also has the same results with negative influences the managerial ownership of the company. based on those results can be explained that things might happen is because the management company does not have control over the company. management largely controlled by majority owner until management simply run its own interests and does not seek to maximize the value of the company. the results of this study reject the hypothesis that the positive effect of managerial ownership significantly to the value of the company. 5.2.2. the ownership of the institution against the corporate values (pbv) the test results between institutional ownership variables against the value of a company showing the influence of significant institutional ownership of the company. institutional ownership and significant positive influence against the value of the company, which can be seen from the significant value under 0:05 of 0.041, and a positive value of t, so the hypothesis (h2 accepted). that is, the size of institutional ownership is capable of affecting the company's value. the results make it clear that an increase in institutional ownership in the company, the more power a voice and encouraging institutions to oversee the management and as a result will give greater impetus to optimize the performance of the company so the value of the company will also increase. institutional ownership is a source of power that can be used to encourage control of more optimal management performance in order to anticipate the actions of managers who are not in accordance with the wishes of its owner. the results are consistent with the underlying theory that ownership by institutional investors such as banks, securities companies, insurance companies, pension funds and other institutional ownership will encourage more performance management control optimal performance so that the company will also increase. . the level of institutional ownership also serves as the agent monitor agency to tackle the problem. ownership of the company by the institutions will encourage more effective oversight, since these institutions are professionals who have the ability to evaluate the performance of the company that will ultimately enhance the value of the company. afebi economic and finance review (aefr) vol.02 no.02, december 2017 53 these results are consistent with research conducted by xu and wang, et al. bjuggren and dkk. (in tarjo, 2008), that the positive influence of institutional ownership of the company and the company's performance. this means showing that institutional ownership become a reliable mechanism so as to motivate managers to improve their performance, which in turn can increase the value of the company. shleifer and vishny (quoted by haruman, 2007) stated that the number of major shareholders have significance in monitoring the actions of managers within the company. the presence of institutional ownership will be able to effectively monitor the management team and to enhance shareholder value. the reason that could explain the results of this study because institutional ownership is one of the factors that can affect the performance of the company. with ownership by institutional investors could encourage optimal control over the performance of management, because the stock is a source of power that can be used to support or even worsen the performance? greater ownership by financial institutions, the greater the power of the vote and urged financial institutions to supervise management and as a result will give greater impetus to optimize the value of the company. as for the results of this study hypothesized that significant positive effect of institutional ownership of the company. 5. conclusions, recommendations, and limitations 5.1. conclusion based on the results of the analysis of the results of research that has been done regarding the influence of the structure of ownership of the company, then it can be concluded that: 1. results showed that managerial stock ownership in the company and not the negative effect significantly to the value of the company. the greater the ownership of shares by management then will lower the value of the company. 2. results showed that institutional ownership and significant positive influence toward corporate values (pbv). institutional ownership is a reliable mechanism to motivate managers to improve its performance and than it can increase the value of the company. 3. results showed that foreign ownership was significantly and negatively associated with the company's values (pbv). influential foreign ownership significantly to the value of the company. 4. results showed that concentrated ownership and significant negative no effect against the value of the company. the majority of the shareholders and the company will increasingly dominate decision-making influence (negative impact). 5.2. the limitations of the research this study has limitations as follows. 1. this study only surveyed one of the indicators of corporate governance mechanisms, which produced limited conclusions about the influence of ownership structure of the company. 2. this research was limited to companies listed on the indonesia stock exchange and observation period for 3 years i.e. in the year 2012 to 2015. determinants of corporate value (empirical studies of manufacturing sector 2012-2015 bej) 54 6.3. recommendations: 1. to increase the company's value can be done by using the adjustment and alignment of the debt against company goals such as increasing the proportion of managerial ownership so there is no conflict between insiders and investors. 2. researchers should add variables that affect the value of the company other than ownership structures for example, dividend policy, leverage, the characteristics of the company, and others. 3. subsequent researchers should use the period of observation for more than three years old and used to expand the sample by adding another industry in indonesia stock exchange. references diyah, p., & widanar, e. (2009). the influence of ownership structure of the company: financial decision as intervening variable. journal of economics and business accounting ventura, 12(1), 71-86. dralfoldman, b. (2009). the influence of managerial ownership, institutional ownership, dividends, company growth, free cash flow, profitability against debt policy of the company. journal of business and accounting, 11(3), 189207. faizal. (2004). the analysis of agency costs, and ownership structure to corporate governance mechanisms. national accounting symposium vii. denpasar bali, december 2-3. ghozali, i. (2005). the application of multivariate analysis with spss, printout iv. semarang: diponegoro university publisher. hamonangan, s., & machfoedz, m. (2006). the mechanism of corporate profit and value, the quality of the company. national symposium on accountancy ix. padang. haruman, t. (2008). the influence of ownership structure of financial and corporate values (survey on manufacturing company on the indonesia stock exchange). national symposium on accountancy ix. pontianak. herawaty, v. (2008). the role of corporate governance practices as a moderating variable of influence earnings management against the value of the company. the journal of accounting and finance, 10(2), 97-108. jensen, michael c. and william h. meckling. (1976). theory of the firm: electrical behavior, agency costs and ownership structure, journal of financial economics, vol. 3, pp. 305-60. machmud, n., & djakman, c. d. (2008). the influence of the structure of ownership against a broad disclosure of corporate social responsibility (csr disclosure) on the annual report of the company: empirical study on public companies listed on the indonesia stock exchange year 2006. national symposium on accounting for 11. pontianak afebi economic and finance review (aefr) vol.02 no.02, december 2017 55 nuryaman. (2008). the influence of the concentration of ownership, size of company and corporate governance mechanism against management. national symposium on accountancy xi. pontianak. siallagan, h., & machfoedz, m. (2006). the mechanism of good corporate governance, the quality of earnings and the value of the company, a national symposium on accountancy ix, padang soliha, e., & taswan. (2002). the influence of the policy of debt against the value of the company as well as some of the factors that affected it. journal of business and economics, 9, 149-163 stikubank, semarang, stie. sujoko., & soebiantoro, u. (2007). the influence of the structure of stock ownership, leverage, internal factors and external factors of the company. journal of management and entrepreneurship, 9(1). petra christian university, surabaya. sudarma, m. (2004). the influence of the structure of stock ownership, internal factors and external factors against the capital structure and the value of the company. a summary of the dissertation. the graduate program. university of brawijaya malang:. tarjo. (2008). the influence of institutional ownership concentration and leverage against management's profitability, shareholder value and the cost of equity capital. national symposium on accountancy xi. pontianak. taswan. (2008). the analysis of the influence of insider ownership, debt and dividend policy of the company as well as the factors which affected it. journal of business and economics, september 2003. stie stikubank, semarang. utomo, m. (2000). social disclosure practices at the company's annual report on indonesia (comparative studies between the company's high profile and low profile). national accounting symposium iii. jakarta. wahyudi, u. p., & pawestri, h. (2005). implications of ownership structure of the company: with financial decision as intervening variable. national symposium on accountancy ix. padang 23-26 august. ward, a. (2006). is the "bottom line" is the bottom line? the determinant of ceos forced exit. journal of corporate ownership & control, 4(1), 91-105. bank health analysis with rgec method case study of bank tabungan negara (btn) 115 bank health analysis with rgec method case study of bank tabungan negara (btn) sintia deliana putri1, endang kartini panggiarti2*, chaidir iswanaji3 1,2,3accounting department, faculty of economy, university of tidar abstract the banking sector is one of the important components in the economy because one of the functions is collecting public funds. in collecting public funds, banks must have a good and trustworthy reputation. therefore, banks are required to be able to achieve and maintain good levels of performance, because good levels of bank performance can increase the trust and loyalty of customers and people to use financial products, services and activities from the bank. the performance of a bank is reflected in the financial statements, can also be reflected through published earnings. bank health is also reflected in the performance of a bank, because health assessments are recorded in published financial statements. bank health is very important because a healthy bank will be able to carry out its normal operational activities. in addition, bank health is needed so that public confidence in the banking industry in terms of saving funds is maintained with banking regulations. this study aims to determine the bank health of bank tabungan negara using the rgec (risk profile, good corporate governance, earning, and capital) methods. the data used in this study are 2017-2019 annual report. the results of this study show that the health of banks in 2017 and 2018 was declared healthy, while in 2019 it was declared quite healthy. keywords: banking, bank health, rgec method. 1. introduction the banking sector is one of the important components in the economy in a country because one of the functions in banking is to raise public funds. in raising public funds to be managed, banks must have a good reputation and trustworthy. after the issuance of the banking deregulation package in october 1998 (pakto 1998) led to the growth of new banks due to the ease of permission to establish banks. with the growth of the new bank has led to the occurrence of free competition that is not balanced with the right managerial strategy and both lead to high bad credit figures. as a result, the rupiah depreciated and bank foreign exchange debt became high. in the end 16 banks were liquidated, causing a crisis of public confidence in the banking sector the monetary crisis in indonesia was caused by many banks being liquidated. to overcome and reduce the impact of the crisis, the government issued law no. 10 of 1998 which is an amendment to law no. 7 of 1992 on banking which among others contains the need for adjustment of legislation in the economic sector, especially the banking sector. banking in indonesia continues to develop in a better direction. efforts to improve and improve performance were motivated by the monetary crisis which led to withdrawals caused by the level of public confidence in banks began to decline due to the monetary crisis. kuncoro (2011: 495) stated that customer trust and loyalty to the bank is one of the factors that can help the bank management to develop various policies that can help the bank itself. on the contrary, customers who have a low level of trust in a bank then loyalty is also low, this is certainly not profitable for the bank because the customer can at any time withdraw funds and transfer them to another bank. therefore, banks are required to be able to achieve and maintain a good level of performance, because a good level of bank performance can increase *coressponding author. email address: endangkartini2504@gmail.com mailto:endangkartini2504@gmail.com afebi economic and finance review (aefr) volume 6, no 2 (2021) 116 the trust and loyalty of customers and the public at large to use the products, services and financial activities of the bank. supervision of bank performance needs to be done to monitor bank operations in order to remain in accordance with applicable regulations and regulations. bank indonesia has a duty as a supervisor and provides improvement advice to commercial banks. the performance of a bank reflected in financial statements, can also be reflected through published earnings. the bank's health is also reflected in the performance of a bank, as health assessments are recorded in published financial statements. if a bank performs well, then the health of the bank is also good, and vice versa. the health of the bank is very important because a healthy bank will be able to carry out its operational activities normally. in addition, bank health is required so that public confidence in the banking industry in terms of storing funds is maintained in accordance with banking regulations. the existence of bank health analysis on the sustainability of the bank's performance is very important, making the government to use bank assessment policy to maintain bank performance stability. government regulation with indonesian bank regulation about the performance banking of assessment, which has changed several times because it is adapted to the needs of the banking sector. bank indonesia sets the rules on bank health so that banks are expected to always be in good health, so as not to harm the people concerned with banking. the bank's health assessment is stipulated in bank indonesia circular letter no. 13/24/dpnp dated october 25, 2011, the bank is obliged to conduct its own assessment (self-assessment) periodically on its health level and assess factors including risk profile, good corporate governance, earnings (rentability), and capitals abbreviated to the term rgec. this rgec method is used by banks today to assess the bank's health level because it is an improvement from previous methods. risk profile assessment is used to determine the application of risk management in bank operations using net performing loan (npl) ratio for credit risk and loan deposit ratio (ldr) for liquidity risk. good corporate governance (gcg) aims to facilitate the prevention of problems early so that banks can get through the global financial crisis, in addition to the failure of strategies and fraudulent practices to realize that the importance of good corporate governance. earning is used to determine the bank's ability to obtain profit is assessed based on return on assets (roa), net interst margin (nim), and operating expenses to operating income (bopo). capital is used to determine the level of capital adequacy is assessed based on the capital adequacy ratio (car). bank tabungan negara (btn) is a limited liability company engaged in banking owned by the state (soe). as a government-owned bank, bank tabungan negara certainly has many customers from various circles, with many customers of course the performance of the state savings bank (btn) is very calculated. as explained earlier, profit is a reflection of a bank's performance. as a government-owned bank, the net profit of bank tabungan negara (btn) for the last 3 years (2019-2017) decreased, namely: figure 1. state savings bank net profit 30% 33% 35% 2% net income 2016 2017 2018 2019 bank health analysis with rgec method case study of bank tabungan negara (btn) 117 bank tabungan negara's net profit in 2017 reached rp. 3.02 trillion, an increase of 15.59% compared to 2016, where the net profit that year was rp. 2.61 trillion. meanwhile, in 2018, net profit decreased by 7.28% which amounted to rp.2.81 trillion. then in 2019, bank tabungan negara recorded a net profit of rp. 209.26 billion in 2019 or down from rp2.807 trillion in the previous year. as explained earlier, the profit of the state savings bank decreased. in addition to profit, the bank's performance can also be researched through the health of the bank. the way to assess a bank's health is to analyze the financial ratios available in published financial statements. the following financial ratios of state savings banks in the last 4 years (2019-2016) are as follows: figure1 components of health analysis of state savings bank the graph on financial ratios above is a component in assessing the health of a bank that is experiencing declines and increases in various aspects. in analyzing risk profile, the things that need to be analyzed are non-performing loan and loan to deposit ratio. good corporate governance in analyzing health using self-assessment method. in analyzing earnings, the ratio that needs to be analyzed is return on assets, net interest margin, and operating expenses to operating income. while in capital the thing that needs to be analyzed is the capital adequacy ratio. 2. literature study bank health research conducted by thalassinos (2011) stated that there was a crisis in banking in greece due to a lack of transparency in methodology (no one knows the valuation method) and inconsistent ratings. hendrayana et al. (2015) argues that the health component of bank risk profile has a negative and significant effect on share price changes, good corporate governance has a positive and significant effect on stock price changes, rentability (roa) has a positive and significant effect on stock price changes, while capital (car) has a negative and significant effect on stock price changes. the performance of a bank can also be reflected in the health of a bank, susilo (2000:2223) suggests that the health of a bank is the ability of a bank to conduct banking operations normally and be able to fulfill all its obligations properly through means in accordance with applicable regulations. bank health is a means for supervisory authorities in setting strategies and supervisory focus on banks and is a reflection of the condition and performance of the bank is a means for supervisory authorities in setting strategies and focusing supervision on the bank. the bank's health must be maintained and/or improved in order for public trust in the bank to be maintained. npl ldr roa nim bopo car 2017 2,66 103 1,48 4,2 81,35 18,87 2018 2,82 103 1,17 3,9 85,58 18,21 2019 4,78 113 0,13 3,21 98,12 17,32 0 20 40 60 80 100 120 afebi economic and finance review (aefr) volume 6, no 2 (2021) 118 the bank's health level is the result of an assessment of the bank's condition conducted on the bank's risks and performance. in order to carry out the responsibility for the bank's business continuity, the board of directors and board of commissioners are responsible for maintaining and monitoring the bank's health level. the bank's health level is also used as one of the means in evaluating the conditions and problems faced by the bank and determining follow-up to overcome the bank's weaknesses or problems, either in the form of corrective action by the bank or supervisory action by bank indonesia (bank indonesia regulation no. 13/1/pbi/2011 concerning assessment of the health level of commercial banks). the bank's health assessment is the final estuary or result of aspects of banking regulation and supervision that show the performance of national banking. risk oriented, proportionality, materiality and significance as well as comprehensive and structured are general principles that must be considered by bank management in assessing the level of bank health (bank indonesia circular letter no. 13/24/dpnp). the final result in the bank's health assessment is called a composite rating, where the composite rating is the result that has been analyzed in accordance with the applicable method. the formula to find out the final result of the bank's health analysis: composit rank = the sum of composit value total of all composit value × 100% table 1. bank health rating weight composite rating 86% 100% composite rank 1 71% 85% composite rank 2 61% 70% composite rank 3 41% 60% composite rank 4 ≤ 40% composite rank 5 source: refmasari and setiawan, 2014) a. composite rating 1 (pk-1). conditions that are generally very healthy so that it is considered very capable of facing a significant negative influence from changes in business conditions and other external factors are reflected in the ranking of assessment factors, including risk profile, gcg implementation, rentability, and capital in general are very good. if there are weaknesses then in general the weaknesses are insignificant. b. composite rating 2 (pk-2). generally healthy conditions that are considered capable of facing significant negative influences from changes in business conditions and other external factors, reflected in the rating of assessment factors, including risk profile, gcg implementation, rentability, and capital are generally good. if there are weaknesses then in general those weaknesses are less significant. c. composite rating 3 (pk-3). conditions that are generally quite healthy so that it is considered quite capable of facing significant negative influences from changes in business conditions and other external factors, reflected in the ranking of assessment factors, including risk profile, gcg implementation, rentability, and capital, which in general is quite good. if there are weaknesses then in general the weakness is quite significant and if not managed to be resolved properly by management can interfere with the continuity of the bank's business. d. composite rating 4 (pk-4). generally unhealthy conditions that are considered less able to face the significant negative influence of changes in business conditions and other external factors, reflected in the bank health analysis with rgec method case study of bank tabungan negara (btn) 119 ranking of assessment factors, including risk profile, gcg implementation, rentability, and capital, which are generally not good. there are weaknesses that are generally significant and cannot be properly addressed by management and interfere with the bank's business continuity. e. composite rating 5 (pk-5). generally unhealthy conditions that are considered incapable of facing significant negative influences from changes in business conditions and other external factors, reflected in the ranking of assessment factors, including risk profile, gcg implementation, rentability, and capital, which are generally not good. there are weaknesses that are generally very significant so as to overcome them it takes the support of funds from shareholders or sources of funds from other parties to strengthen the bank's financial condition. rgec method (risk profile, good corporate governance, earnings, and capital) bank indonesia regulation number: 13/ 1 /pbi/2011 concerning health level assessment of commercial banks states that banks are obliged to assess the bank's health level with the scope of assessment of the following factors: a. risk profile assessment of risk profile factors is an assessment of the bank's operations conducted against 8 (eight) risks, namely: 1) credit risk credit risk (non-performing loan) which is a risk that occurs due to the failure of the debtor and / or other parties in fulfilling obligations to the bank. npl = the trouble of credit total of credit × 100% table 2. non-performing loan criteria criterion information npl ≤ 2% very healthy 2% 5% healthy 5% 8% fairly healthy 8% 12% unhealthy npl ≥ 12% unhealthy (source: se bi no.13/24/dpnp year 2011) 2) market risk market risk is where the risk of changing the balance sheet position due to market conditions. 3) liquidity risk (loan to deposit ratio) liquidity risk (loan to deposit ratio), where this risk occurs due to the bank's inability to meet the obligations due from the source of cash flow funding, and/or from high-quality liquid assets that can be used, without disrupting the bank's financial activities and conditions. ldr = total of credit finance from other parties × 100% afebi economic and finance review (aefr) volume 6, no 2 (2021) 120 table 3. loan to deposit ratio criteria criterion information ldr < 75% very healthy 75% ≤ ldr < 85% healthy 85% ≤ ldr < 100% fairly healthy 100% ≤ ldr < 120% unhealthy ldr ≥ 120% unhealthy (source: se bi no.13/24/dpnp year 2011) 4) operational risk operational risk, where the risk due to inefficiency affects the bank's operations. 5) legal risks legal risk is that the risk arises from lawsuits for the weakness of juridical aspects. 6) strategic risk the seventh is strategic risk, where the risk is due to the bank's inaccuracy in decision making as well as failure in anticipating changes in the business environment. 7) compliance risk the eighth is the risk of compliance, where the risks arising from the bank do not comply with and/or do not implement the prevailing laws and regulations. 8) reputation al risk the eighth is reputational risk, where the risk is due to the decrease in stakeholder confidence level which stems from negative perception of the bank. 9) good corporate governance the second component in health assessment is good corporate governance. in the good corporate governance assessment, the company conducts self-assessment periodically in every year at the end of june and december. standards for the implementation of governance other than referring to ojk regulation no. 55/ pojk.03/2016 concerning the implementation of governance for commercial banks have also followed the provisions of ojk circular letter no. 13/pojk.03/2017 concerning the implementation of governance for commercial banks. good corporate governance applies principles according to pbi no. 8/4/pbi/2006, namely: transparency, accountability, accountability, independence (independency), and fairness. 10) earning the third component in health assessment using the rgec method is earning. in the health assessment earning can be measured using the ratio of rentability, because this ratio measures the effectiveness of banks earning profit. besides being used as a measure of financial health, this rentability ratio is very important to observe considering the adequate profit required to maintain the flow of bank capital sources (dahlan siamat: 273). to calculate or assess the rentability of a banking institution, the formula of return on assets (roa), net interest margin (nim), and operating expenses to operating income (bopo) can be used. return of asset (roa) roa (return of asset) is a ratio that can see the extent to which investments that have beeninvested are able to provide a return on profit as expected. roa = income before tax total aktiva bank health analysis with rgec method case study of bank tabungan negara (btn) 121 table 4. return of asset criteria criterion information roa > 1, 5% very healthy 1, 25% < roa ≤ 1, 5% healthy 0, 5% < roa ≤ 1, 25% fairly healthy 0% < roa ≤ 0, 5% unhealthy roa ≤ 0% unhealthy (source: se bi no. 13/24/dpnp year 2011) nim (net interest margin) nim (net interest margin) is a ratio that describes the level of profit earned by the bank compared to the revenue received from its operations. nim = net interest revenue average of productive aktiva × 100% table 5. net interest margin criteria criterion information nim > 3% very healthy 2% < nim ≤ 3% healthy 1.5% < nim ≤ 2% fairly healthy 1% < it ≤ 1.5% unhealthy nim ≤ 1% unhealthy (source: se bi no. 13/24/dpnp year 2011) bopo (operating expenses in operating income) bopo (operating expenses on operating income) indicates the level of operational efficiency of the company. the smaller the bopo value, the better the company's operations. bopo = operational expense operational revenue × 100% table 4 operational expenses criteria on operating income criterion information bopo < 83% very healthy 83% < bopo ≤ 85% healthy 85% < bopo ≤ 87% fairly healthy 87% < bopo ≤ 89% unhealthy bopo > 89% unhealthy (source: se bi no. 13/24/dpnp year 2011) 11) capital the last component in health assessment using the rgec method is capital. assessment of capital factors (capital)includes an assessment of the level of capital adequacy and capital management. the rating of rentability factors(earnings)is carried out based on a comprehensive analysis of the parameters / indicators of rentability by taking into account the significance of each parameter / indicator and considering other issues that affect the bank's rentability. the ratio that can be used to measure the adequacy of capital owned by banks is the capital adequacy ratio (car). car = capital weight active according risk × 100% afebi economic and finance review (aefr) volume 6, no 2 (2021) 122 table5 capital adequacy ratio criteria criterion information car 12%≥ very healthy 9% ≤ car < 12% healthy 8% ≤ car < 9% fairly healthy 6% < car < 8% unhealthy car ≤ 6% unhealthy (source: se bi no. 13/24/dpnp year 2011) kaligis (2013) conducted research on the health of state-owned banks in 2010-2012 stated that the weakest financial performance is owned by the state savings bank, with the acquisition of ldr under regulation for healthy predicate and the lowest return on asset. while azeharie et al. (2017) conducted research on the health of state-owned banks in 2011-2015 resulting in the statement that bri is the healthiest bank. the background of the final task writing entitled "bank health analysis using rgec method (risk profile, good corporate governance, earnings, and capital) at pt bank tabungan negara" is based on the state savings bank experiencing a decrease in profit. profit is one of the benchmarks in financial performance, financial performance can also be reflected in the health of a bank. bank health is an assessment of various aspects that affect the condition / performance of a bank. the health level of bank tabungan negara bank will be analyzed using rgec (risk profile, good corporate governance, earnings, and capital) method in2017-2019. the bank's health level is analyzed using various aspects and methods that in this study researchers will analyze the health of banks using the rgec method (risk profile, good corporate governance, earnings, and capital). researchers will analyze the health level of the bank with the data used is the annual financial report of the state savings bank. 3. research methodology the population in this study was the conventional bank. the sample is a part of the number and characteristics possessed by the population (sugiyono, 2011: 129). the sample used in this study was a conventional bank that experienced a decline in profit over the last three years. sampling techniques are done with purpose sampling, namely sampling techniques with certain considerations (sugiyono, 2011: 129). this technique aims to obtain samples according to research needs. the case study criteria set out in this study include: a. conventional commercial banks that issue annual and publicly accessible financial statements during 2017-2019. b. conventional commercial banks that have suffered a decline in profit in the last 3 years. c. from the 2 criteria above, can be obtained case study of this research is pt bank tabungan negara tbk. this research used the specific data, which is calculation of non-performing loan, loan to deposit ratio, self-assessment return of asset, net interest margin, operating expenses on operating income, and capital adequacy ratio in the annual financial statements of pt bank tabungan negara in 2017-2019. the data that has been taken in the annual report is used to examine the health level of pt bank tabungan negara bank in 2017-2019. the type of data used in this study is quantitative data. quantitative data is statistical data in the form of numbers (teguh, 2005: 181). the source of this research data is secondary data. secondary data is a type of data obtained and excavated through the results of second-party processing of the results of field research. this type of data is often also called external data (teguh, 2005: 121). secondary data used in bank health analysis with rgec method case study of bank tabungan negara (btn) 123 this study is an annual financial report derived from www.idx.com that has been examined by the financial services authority (ojk) for analysis and study of literature, journals, articles, and websites that the author input in the literature study to be used as reference material. the type of research applied in this study is quantitative research, which is analyzing the data in the financial report to find out the health assessment between the bank tabungan negara using the rgec method. the data collection techniques used in this study are library studies and documentation. the data analysis technique used is a financial report analysis technique using bank indonesia regulation no. 13/1/pbi/2011 concerning health level assessment of commercial banks, bank indonesia has established a risk-based bank health level assessment system that is often adopted by rgec method. 4. result and discussion the results of the health component of the state savings bank can be briefly seen in the table on the next page: table 8 rgec method bank health components in 2017 component factors ratio percentage ratio (%) level criterion 1 2 3 4 5 risk profile npl 2,66 ✓ healthy ldr 103 ✓ unhealt hy good corporate governance selfassessment 86,85 ✓ healthy earnings roa 1,48 ✓ healthy nim 4,20 ✓ very healthy bopo 81,35 ✓ very healthy capital car 18,87 ✓ very healthy source: secondary data processed by researchers, 2020 camposit value = sum of composit value total composit value × 100% the health bank 2017 = 4 + 2 + 4 + 4 + 5 + 5 + 5 35 × 100% = 82,85% the conclusion of the health components of the bank that has been calculated above is that the state savings bank in 2017 obtained a final composite value calculation of 82.85% which means it gets a composite rating of 2 or healthy which weighs 71% to 85%. then the results of the calculation of the health component of the state savings bank 2018 above is a description, briefly the health component of the bank can be seen in the table: http://www.idx.com/ afebi economic and finance review (aefr) volume 6, no 2 (2021) 124 table 9 components of bank health rgec method 2018 component factors ratio percentage ratio (%) level criterion 1 2 3 4 5 risk profile npl 2,83 ✓ healthy ldr 103 ✓ unhealt hy good corporate governance selfassessment 87,97 ✓ healthy earnings roa 1,17 ✓ healthy enough nim 3,91 ✓ very healthy bopo 85,58 ✓ healthy enough capital car 18,21 ✓ very healthy source: secondary data processed by researchers, 2020 composit value = sum of composit value total komposit value × 100% the health bank 2018 = 4 + 2 + 4 + 3 + 5 + 3 + 5 35 × 100% = 74,28% the conclusion of the health components of the bank that has been calculated above is that the state savings bank in 2018 obtained a final composite value calculation of 74.28% which means it gets a composite rating of 2 or healthy which weighs 71% to 85%. then the results of the calculation of the health component of the state savings bank 2019 above is a description, briefly the health component of the bank can be seen in the table below: table 10 components of bank health rgec method in 2019 component factors ratio percentage ratio (%) level criterion 1 2 3 4 5 risk profile npl 4,78 ✓ healthy ldr 113 ✓ unhealthy good corporate governance selfassessment 88,62 ✓ healthy earnings roa 0,13 ✓ unhealthy nim 3,20 ✓ very healthy bopo 98,12 ✓ unhealthy capital car 17,32 ✓ very healthy source: secondary data processed by researchers, 2020 camposit value = sum of composit value total composit value × 100% bank health analysis with rgec method case study of bank tabungan negara (btn) 125 the health bank 2019 = 4 + 2 + 4 + 2 + 5 + 1 + 5 35 × 100% = 65,71% the conclusion of the health components of the bank that has been calculated above is that the state savings bank in 2019 obtained a final composite value calculation of 65.71% which means it gets a composite rating of 3 or healthy enough that weighs 61% to 70%. discussion of the bank's health components in 2017-2019 are: a. risk profile component, namely non-performing loan, has increased percentage over the last three years due to the increase in the number of non-performing loans even though it is accompanied by an increase in total credit overall. b. the risk profile component of the loan to deposit ratio has increased in percentage over the last three years due to an increase in total credit that is not balanced by third party funds. c. the good corporate governance component has increased in percentage over the last three years due to good governance of bank tabungan negara and in accordance with bank indonesia regulations. d. the earning component of return on asset has decreased over the last three years due to the decrease in profit earned even though it is accompanied by an increase in total assets. e. the earning component, namely operating expenses in operating income, has increased in percentage over the last three years due to the increase in operating expenses, although coupled with the increase in operating income. the calculation of the health component of the state savings bank in 2017-2019 will be more clearly displayed on the chart on the next page: figure2 health components of state savings bank 2017-2019 npl ldr gcg roa nim bopo car 2017 2,66 103 86,85 1,48 4,2 81,35 18,87 2018 2,83 103 87,97 1,17 3,91 85,58 18,21 2019 4,78 113 88,62 0,13 3,2 98,12 17,32 0 20 40 60 80 100 120 afebi economic and finance review (aefr) volume 6, no 2 (2021) 126 the final health calculation of the state savings bank 2017-2019 that has been calculated in the previous subsection will be displayed in the chart as follows: figure3 health state savings bank the contribution of the rgec component to the health of the bank is a. risk profile contributes to: 1) know the risks that occur if the customer fails to pay his obligations. 2) know the risks that occur when the bank fails to meet its obligations, whether it can interfere with the bank's activities or vice versa. b. good corporate governance serves to find out if the company under research has implemented the aspects set by bank indonesia and can have good corporate governance. c. earning contributes to: 1) knowing if the investment has been made can give the expected result. 2) know the level of profit to be received. 3) know the level of operational efficiency of the company. d. capital function to know the level of adequacy and management of capital. 5. conclusion based on the research and data analysis that has been done, it can be concluded that: a. the bank's health component is risk profile which is calculated using non-performing loan (npl) and loan to deposit ratio (ldr) components. non-performing loans (npl) received a healthy rating with a percentage of 2.66% in 2017, then 2.83% in 2018, to 4.78% in 2019. the npl of bank tabungan negara compared with the banking industry according ojk is 2,37 in 2018 and 2,53 in 2019. from this data, we know that npl of bank tabungan negara better than banking industry. the loan to deposit ratio (ldr) remains unhealthy with a percentage of 103% in 2017 and 2018 to 113% in 2019. ldr compared with banking industry with a percentage 94,04 in 2018 are 93,64 in 2019. so, the loan to deposit ratio of bank tabungan negara better then banking industry. the information banking industry obtained from the financial services authority from quarterly semester in 2019. b. the second component of the bank's health, good corporate governance (gcg), has remained healthy for the last 3 years. c. the third component of health bank is earning. return on asset (roa) was ranked healthy in 2017, fairly healthy in 2018, and unhealthy in 2019. roa banking industry is 2,50 in 2018, and 2,44 in 2019. roa from banking industry is tend to decrease either with bank tabungan negara. net interest margin (nim) has been ranked very healthy for the last 3 years. nim according banking industry is tend decrease, which is 5,00 in 2018, and 4.80 in 2019, but the bank tabungan negara is better than the banking industry. operating 82,85 74,28 65,71 0 10 20 30 40 50 60 70 80 90 2017 2018 2019 kesehatan bank bank health analysis with rgec method case study of bank tabungan negara (btn) 127 expenses in operating income (bopo) in 2017 were ranked very healthy, then fairly healthy, then unhealthy. according to the banking industry, bopo is 78,33 in 2018, and 79,58 in 2019. about this data, we know that bank tabungan negara tend to unhealthy in 2019. so bank tabungan negara is far from better than banking industry. because bopo from banking industry tend to high, this is different than bank tabungan negara tend to decrease. d. the last component of the bank's health is capital which uses the calculation of capital adequacy ratio (car) ranked very healthy with a percentage of 18.87% in 2017, then 18.21% in 2018, and 17.32% in 2019. according to the information from ojk, the car of banking industry 23,42% in 2018, 23,31% in 2019. from this data, we know that banking industry better than bank tabungan negara. reference azeharie, dkk. desember 2017. analysis of bank health at indonesia stateowned bank using rgec method at bri, bni, and bank mandiri for periods 2011-2015. 3rd international conferences on information technology and business (icitb). directory: jurnal.darmajaya.ac.id/index.php/icitb/article/view/1040. 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(may 20, 2020). state savings bank annual financial report. https://www.idx.co.id/portals/0/staticdata/listedcompanies/corporate_actions/new_inf o_jsx/jenis_informasi/01_laporan_keuangan/04_annual%20report//2018/bbtn/bbt n_annual%20report_2018_ind.pdf. (may 20, 2020). state savings bank annual financial report. https://www.btn.co.id/-/media/userdefined/document/hubungan-investor/ind/laporantahunan/laporan_report_btn_2019_v2.pdf. (may 20, 2020). bank indonesia regulation number: 13/ 1 /pbi/2011 concerning assessment of health level of commercial banks. sugiyono. 2011. quantitative, qualitative and r&d research methods. bandung: afabeta. bank indonesia circular letter no. 13/24/dpnp dated 25 october 2011 concerning bank health assessment. bank indonesia circular letter no. 14/14/pbi/2012 concerning transparency and publication of bank statements. ojk circular letter no. 13/pojk.03/2017 concerning the implementation of governance for commercial banks. suryabrata, sumadi. 2011. research method. yogyakarta: rajagrafindo persada. susilo, sigit triandaru, and a. totok budi santoso. 2000. banks and other financial institutions. jakarta: salemba four. taswan. 2010. banking management. yogyakarta: upp stim ykpn. hold fast, muhammad. 2005. economic research method. jakarta: pt. king grafindo persada. thalassinos, john e., & konstantinos. 2011. measuring a bank’s financial health: a case study for the greek banking sector. european research studies. directory: https://www.ersj.eu/repec/ers/papers/11_3_p8.pdf. (14 mei 2020). tirto.id. (2020, february 17). btn 2019 profit decreases 92%: from rp2.8 trillion to rp209.2 billion. retrieved april 20, 2020 from https://tirto.id/laba-btn-2019-anjlok-92-dari-rp28triliun-jadi-rp2092-miliar-ezz8. law of the republic of indonesia number 07 of 1992 concerning banking. law of the republic of indonesia number 10 of 1998 concerning banking. laporan profil industri perbankan triwulan iv (ojk.go.id) https://lipsus.kontan.co.id/v2/perbankan/read/320/perbankan-dalam-pusaran-krisis-moneter-1997-1998 https://lipsus.kontan.co.id/v2/perbankan/read/320/perbankan-dalam-pusaran-krisis-moneter-1997-1998 https://www.idx.co.id/portals/0/staticdata/listedcompanies/corporate_actions/new_info_jsx/jenis_informasi/01_laporan_keuangan/04_annual%20report/2017/bbtn/bbtn_annual%20report_2017_ind.pdf https://www.idx.co.id/portals/0/staticdata/listedcompanies/corporate_actions/new_info_jsx/jenis_informasi/01_laporan_keuangan/04_annual%20report/2017/bbtn/bbtn_annual%20report_2017_ind.pdf https://www.idx.co.id/portals/0/staticdata/listedcompanies/corporate_actions/new_info_jsx/jenis_informasi/01_laporan_keuangan/04_annual%20report/2017/bbtn/bbtn_annual%20report_2017_ind.pdf https://www.idx.co.id/portals/0/staticdata/listedcompanies/corporate_actions/new_info_jsx/jenis_informasi/01_laporan_keuangan/04_annual%20report/2018/bbtn/bbtn_annual%20report_2018_ind.pdf https://www.idx.co.id/portals/0/staticdata/listedcompanies/corporate_actions/new_info_jsx/jenis_informasi/01_laporan_keuangan/04_annual%20report/2018/bbtn/bbtn_annual%20report_2018_ind.pdf https://www.idx.co.id/portals/0/staticdata/listedcompanies/corporate_actions/new_info_jsx/jenis_informasi/01_laporan_keuangan/04_annual%20report/2018/bbtn/bbtn_annual%20report_2018_ind.pdf https://www.btn.co.id/-/media/user-defined/document/hubungan-investor/ind/laporan-tahunan/laporan_report_btn_2019_v2.pdf https://www.btn.co.id/-/media/user-defined/document/hubungan-investor/ind/laporan-tahunan/laporan_report_btn_2019_v2.pdf https://www.btn.co.id/-/media/user-defined/document/hubungan-investor/ind/laporan-tahunan/laporan_report_btn_2019_v2.pdf https://www.ersj.eu/repec/ers/papers/11_3_p8.pdf https://tirto.id/laba-btn-2019-anjlok-92-dari-rp28-triliun-jadi-rp2092-miliar-ezz8 https://tirto.id/laba-btn-2019-anjlok-92-dari-rp28-triliun-jadi-rp2092-miliar-ezz8 https://www.ojk.go.id/id/kanal/perbankan/data-dan-statistik/laporan-profil-industri-perbankan/documents/lpip%20triwulan%20iv%202019.pdf afebi economic and finance review-final.3.3 diversification of farmer income in west java 20 8 diversification of farmer income in west java adhitya wardhana1*, reni tri handayani2, and eksa pamungkas3 1,2,3 padjadjaran university, bandung, indonesia abstract agricultural land has decreased the impact on farmers in meeting their needs. the transition to agriculture complicates industry in its effort to meet the needs of farmers. another issue, climate change will disrupt plant crops that will result in inefficient farming. farming inefficiencies are a reason for farmers to diversify. this study was based on a micro data survey data of agricultural enterprise household income in the regencies / cities of west java on a household level. limits of household income diversification of farming is when the household has to venture outside the agricultural sector or one of the cores and the sources of income comes from salaries / wages of laborers / employees outside the agricultural sector. the results showed that with the increasing age of the household head the diversity decreases, the higher the education of the head of household the more it encourages the diversification of income, the more the additional land area increases diversification, the easier access to credit for adding revenue diversification, increasing the income of farmers that tend not to diversify, the more houses and stairs in school which support farmers to diversify, the more productive the household income lowers with diversification. jel classification: d31, o12, o13 keywords: climate change, diversify, diversity of income, farming, inefficiency 1. introduction along with the time agricultural land area experienced a decrease more and more. the decrease impacts the farmers that have a hard effort in fulfilling their life needs. the transition of the farming sector to the industry sector closes the farming sector scope especially land problems so the farming sector does not run optimally. the farmer population becomes more burdened to obtain income. the strategic plan of the ministry of agriculture 2015-2019 has many serious concerns in the farming sector one of which is the land area that continuously experience decrease as a cause of productive land conversion to non agriculture use. other than land problems, another farming problem in west java is climate change that is not stable so it will disturb the crop farming agriculture which causes farming to be not efficient the inefficiency of the agriculture causes farmers to search for income outside the primary business of farming for fulfilling routine needs neither everyday needs nor monthly. the businesses that they implement outside their primary business is usually named diversification. one of the reasons to implement diversification is that the needs increase continuously yet the income from the primary agriculture sector does not increase, so in the long term will cause poverty. observed from the * corresponding author. email address: adhitya.wardhana@fe.unpad.ac.id mailto:adhitya.wardhana@fe.unpad.ac.id afebi economic and finance review (aefr) vol.02 no.01, june 2017 21 poverty rate (west java agricultural census 2013), the agriculture sector is a sector that has the highest rate of poverty. because of that income diversification of the agriculture business becomes the best alternative for fulfilling life needs. based on figure 1, the highest level of poverty is able to be seen in the agriculture sector. a high percentage compared with other sectors indicates that less land, low income, the output price received by farmers are not compatible with the spending creates poverty levels to occur in the agriculture sector. this occurrence becomes a reason that many farmers implement diversification of their business which is for increasing income as a form for covering needs which increase continuously. figure 1 poverty based on primary income sources (west java agricultural census 2013) the labor condition of agriculture in west java (figure 2) experienced development that is fluctuated even occurring negative growth. the development of this agriculture sector is very alarming if observed from the long term point of view. the larger the population the higher the chance for agricultural land to switch functions to become housing complexes or places to live. a low productive age that works in the agriculture sector causes labor growth that fluctuates. the condition from the picture is able to become a reason why farmers implement land diversification. income diversification is often connected with risk treatment as a cause of income uncertainty. because of that a business diversity needs to be implemented and there needs to be asset use to increase income or added value income for farmers. generally farmers use agriculture diversification as a cause of agricultural land that decreases more and more. agriculture 44% mining 1% industry 7% buildings 12% trade 14% transport & communication 6% finance & insurance 0% services 9% others 7% diversification of farmer income in west java 22 figure 2 agricultural labor force aged 15 and above in west java years 20072014 the low rate of agricultural land made the farmers add production cost so there needs to be credit access that supports the farmers to implement agriculture business diversifications. the social and cultural factor becomes important as the cause of diversification of farming. the obstacles faced are often as a cause of differences in skill and expertise that farmers have in implementing diversification so it will cause an inequality of income from the farmers. based on the background that is already explained this research has a purpose for analyzing the age factor and education of the heads of households, number of household members that still go to school and the number of household members of the productive age that influences agricultural business household income in west java. analyzing the land area that they have and credit access influences income diversification of business households and the amount of income per capita influences household income diversification of agricultural household business in west java. 2. research method the method used in this research is the descriptive analysis method, the research location is implemented in regencies/cities is west java. the data used is secondary data in the form of micro data of agricultural business household income survey implemented by the central body of statistics in the year 2013, this data is the form of cross section data in the household level. other data that are is used are the regional gross domestic product, agricultural labor data and other supporting data. the limit of agricultural business household income diversification is if the household already has a business outside of the primary agricultural sector and one of the sources of income comes from the employee/labor salary/wage outside the farming sector. 𝑌𝑖 = 𝛽0 + 𝛽1𝐴𝑟𝑖 + 𝛽2𝐸𝑑𝑢𝑐𝑖 + 𝛽3𝑂𝑎𝑖 + 𝛽4𝐴𝑙𝑖 + 𝛽5𝐴𝑖𝑖 + 𝛽6𝑆𝑖 + 𝛽7𝑃𝐴𝑖 + 𝑒𝑖 (1) remarks : yi : dummy diversification respondent opinion i 0 500000 1000000 1500000 2000000 2500000 3000000 3500000 4000000 4500000 5000000 2007 2008 2009 2010 2011 2012 2013 2014 afebi economic and finance review (aefr) vol.02 no.01, june 2017 23 ari : i respondent household head age (years) educi : i respondent household head length of school (years) oai : land area owned by respondent i (m 2) ali : dummy credit access respondent i aii : per capita agricultural income respondent i (thousands of rupiah) si : total household members that still go to school respondent i (persons) pai : total household members of the productive age, 15-64 years respondent i (persons) β0 : intercept β1-β7 : coefficient variable clarification ei : error term the method that is used is the binary response (logit) with a cross section data from 24.432 respondents that are agricultural business households in regencies/cities in west java. 3. results and discussion before implementing an analysis there are some implementations that are implemented a statistical test such as the determination coefficient and z test. the determination coefficient value is as large as 0.1675 which means that the ability of the independent variable to influence the dependent variable is as large as 0.1675%. so in this model, the dependent variable only explains as large as 0.1675% and 99.832% is explained outside the model. the z test is implemented for observing the influence of each independent variable to the dependent variable in the logit regression model. this z test result shows that all independent variables are significant, so individually these variables influence the dependent variable. data that is used is micro data which the samples are large enough, so whatever the value of the determination coefficient the result is able to be ignored (woolridge, 2003). the regression count is able to be seen in the following table: table 1 the regression results variable coefficient error standard z statistic prob marginal effect c 0,9102 0,0989 9,20 0,000*** ar -0,0172 0,0013 -13,55 0,000*** -0,0029 educ 0,0545 0,0051 10,67 0,000*** 0,0094 oa 1,22e-05 4,8e-06 2,53 0,011** 2,10e-06 al 0,6537 0,0755 8,66 0,000*** 0,0130 ai -6,7e-04 1,74e-05 -38,59 0,000*** -1,16e-4 s -0,1432 0,0196 -7,28 0,000*** -0,0248 pa 0,6286 0,0159 39,31 0,000*** 0,0109 mc fadden r squared : 0,1675 prob(lr statistic) : 0,0000 remarks : *** significant at 99 %, ** significant at 95 % diversification of farmer income in west java 24 based on counting results with using the logit regression which is observed from the marginal effect. the household head age variable has a value of 0.0029, every increase of 1 household head age, it will decrease the diversification change income as large as 0.0029%. as seen from this counting result, the more age increases the less chance for income diversification to be implemented. the activities of younger households are larger compared with older households, as a cause of some factors such as health, motivation, and age. younger age households do not depend too much on only agricultural land but older age households depend on agricultural land and the less motivation for implementing diversification (demissie and legesse, 2013) the more they age, the less the household head will implement business diversification. business diversification needs a healthy condition and it is seen that younger aged household heads are more productive in implementing business diversification (hardono and saliem, 2004). the variable value of household head length of school as large as 0.0094 (marginal effect) which means an increase of one year length of school of the household head will increase the diversification chance as large as 0.0094%. the role of education has a positive and significant influence to diversification. the education level is a proxy of human resource quality. the education increase will provide a better thinking of creativity so it has a chance for implementing business diversification (hardono and saliem, 2004). the length of school of the household head is a determination of human resource quality increase in implementing work and reaching a higher chance of business. the higher the education level of the household head, the larger the chance of the household for implementing the income diversification. another variable which is land area which is as large as 2.0e06% in the marginal effect count, which means every increase of 1m2, it will increase the business diversification as large as 2.0e06%. the influence of land area is not very large in implementing business diversification. according to demissie and legesse (2013), the low influence of land area to diversification is as a cause of the low condition of the land so farmers will implement diversification in non-farming businesses. for credit access based on the marginal effect count which is as large as 0.0130. the credit access value explains that household agricultural business as large as 0.0130% have credit access compared with households that do not have credit access to implement income diversification. according to reardon (1997) and ellis (2000), a low level of credit access will hamper income diversification. several research mentioned that credit access has a positive and significant influence to income diversification (oluwatayo, 2009). the research implemented bt demurger et al. (2009) explained credit access in north china has a positive influence to farmer household income diversification. the minimal amount of business land forces the farmers for implementing diversification by needing capital in implementing it. then the farmer income value based on the marginal effect count as large as -1.14e-4, so every increase of 1000 farmer income per capita will decrease the diversification chance of income as large as -1.16e-4%. in the presence of a tendency of farmer income increase, the farmers are not motivated for implementing diversification. according to pieniadz et al (2009), if farmer income afebi economic and finance review (aefr) vol.02 no.01, june 2017 25 has already fulfilled incentives that are desired, the passion for implementing income diversification will decrease. based on this research, farming households in west java when the incentives that are desired are reached, the chance to implement diversification decreases. the number of schooling households variable seen from the marginal effect is able to be explained as an increase of 1 household member person that is still in school, there will be a decrease of income diversification as large as 0.0248%. the addition of a household member does not necessarily increase income diversification because the costs of the needs of one household member are still subsidized by the government. generally members of agricultural business households in west java are in the primary and junior high school level so the costs spent are not too large. then the productive age household that is seen from the marginal effect is able to be defined that every increase of 1 productive age household member will increase the chance of income diversification as large as 0.0190%. the members that are productive will influence significantly and positively to income diversification. the presence of a number of household members that are active in the household increases the capacity and ability of the household to participate in several economic activities. this makes it possible for producing a better income than households with a limited number of active household members (demissie and legesse, 2013). household members in the productive age (15-64 years) are considered as household members that are active and expected to be able to increase the income of the household. the more the members of the household are in the productive age, the larger the chance of the household for implementing income diversification. 4. summary based on the background which is already explained, this research has a purpose for analyzing the age and education factors of household heads, number of household members that are still schooling, and number of household members in the productive age that influences income diversification of agricultural business households in west java. analyzing the land area that is owned and credit access influences the diversification of agricultural household income and the amount of agricultural income per capita influences the diversification of agricultural business household income in west java. this research summarizes some results that are analyzed among others: first the age of the household head variable has a negative influence to income diversification. the more age adds the less the implementation of income diversification. younger aged households are more motivated for implementing income diversification compared with older aged households. the old variable of school as an education proxy of household heads has a positive influence to income diversification. the higher the education the more creativity is implemented for business and motivated for implementing income diversification when the land area is less. second the land area variable has a positive influence to income diversification with a coefficient value that is very small. so the addition of land area in west java has little influence to income diversification. credit access has a positive influence to income diversification. the low amount of land area makes diversification of farmer income in west java 26 credit access important for implementing income diversification. farmer income influences negatively to income diversification. farmer income increase tend to not implement diversification. third the schooling household variable has a negative influence to income diversification. the more households that go to school, it is expected for supporting agricultural business that becomes the livelihood without implementing income diversification, when the household is productive, the farmers will not implement diversification yet become more focused on tackling the agriculture business that is routinely done. references central bureau of statistics. agricultural census 2013. demurger et al. (2009). rural households decision towards income diversification, evidence from a township in northern china. centre national de la recherche scientifique. demissie, a., & legesse, b. (2013). determinants of income diversification among rural households : the case of smallholder farmers in fedis district. ellis, f. (2000). the determinants of rural livelihood diversification in developing countries. journal of agricultural economics, 51(2), 289–302. hardono, g. s., & saliem, h. p. (2004). diversifikasi pendapatan rumah tangga di indonesia, analisis data susenas. pusat analisis sosial ekonomi dan kebijakan pertanian. oluwatayo, i. b. poverty and income diversification among household in rural nigeria: a gender analysis of livelihood patern. university of ado-ekiti. pieniadz, et al. (2009). income diversification of farm household : relevance determinant in germany. reardon, t. (1997). using evidence of household income diversification to inform study of the rural nonfarm labor market in africa. world development, 25(5), 735–747. ministry of agriculture. strategic plan of the ministry of agriculture 2015-2019. wooldridge, j. m. (2012). introductory econometrics a modern approach. indonesia’s export-import analisys: granger causality approach 56 7 indonesia’s export-import analisys: granger causality approach syaparuddin1* 1 university of jambi, jambi, indonesia abstract in a global economy context, the role of export-import becomes really important in supporting economic growth. an interesting phenomenon is that, most of indonesian export are import-content and capital goods. this study is aimed at (1) analyzing indonesia’s export-import patterns, (2) analyzing causality relationship between export and import in indonesia. analysis method used in this research is granger causality model. the result of study shows that the patters of the progress and the changes of indonesia’s export and import have similar patters since 1980-2015. those have causality relationship which indicate that export and import are mutual dependence. the conclusion of the research is that when indonesia’s export would be increased so import should also be increased. on the other hand, the increasing of import must also be preceded by the increasing in export. jel classification: f13, f17, f18 keywords: export, important and causality granger 1. introduction in the context of national economy, the role of export and import is really important beside society’s consumption expenditure, private investment and government expenditure. the number of export and import in a country’s economy also describes the economy openness of such state. theoretically the bigger the difference between export and import, so the smaller the difference between export to import value or deficit happened to such trade balance (export net negative), so the smaller the ability of such state to drive its economic growth. phisically, export means as the sending or the selling of domestically produced goods to foreign countries. the sending would create income to private sectors. by such condition, aggregate demand would increase and eventually it would increase national income as well. on the other hand, import is an activity of buying foreignproduced goods and it would, of course, decrease national income. this shows that the effect of export and import towards national income balance greatly depends on the number of exports minus import. export and import is really important in forming and controlling trade balance in a country. import must be funded with the same value from export to maintain trade balance in order to be equilibrium. therefore a country should do the export activity to finance import which is paid with foreign currency. as a country with open economy, the domination of society’s consumption expenditure toward indonesian’s economy is so big. until 2014, the role of society’s * corresponding author. email address: syapruddinjambione@gmail.com, katamso.sa@gmail.com mailto:syapruddinjambione@gmail.com mailto:katamso.sa@gmail.com indonesia’s export-import analisys: granger causality approach 57 consumption expenditure toward indonesian’s economy was 55.05 %, government expenditure was 7,56 %, constant capital forming as the reflection of private investment expenditure was 24,72 %, while the role of export-import was ( 44%33,92%) or the role of export netto was 10,61 % (bps,2015) . although the role of export-import toward s indonesian economy is not so as big as the society’s consumption expenditure but partly the role of export is so huge. if the value of import could be more reduced into the most important part in forming indonesian economy. by looking at indonesia export commodities, beside textile, dominantly indonesian export come from other primary commodities such as agriculture (plantation and fishery) and mining commodity such as oil and gas, coal in which their raw material come from domestic. in other side, when being seen from indonesian import, non oil and gas import dominated indonesian import since 1990-2014 with each avegare composition during such period was 79% (non oil and gas) and 21% (oil and gas). in the same period, indonesian import in term of raw material and assisting goods had dominated with each composition 75%, then capital goods 18% and consumption goods 7%. the experience shows that when economic crisis hit indonesia in 1997-1998, term of trade of rupiah towards foreign currency depreciated sharply and it had bad impact toward the value of indonesian import which went down sharply from us$.42.928.5 billion in 1996 became us$.27.336.9 billion in 1998. the declining import ability in indonesia had also affected indonesia’s ability to drive exports particularly imported-raw material goods and capital goods. those two kinds of goods had direct relation to production process. negative growth of raw material and capital goods imports had implication to production process. for the developing countries including indonesia, import is intended to support industrialization process. therefore the bigger number of import in term of raw materials for industry, machines or other capital goods, is aimed at producing certain goods for domestic needs or for export needs. 2. research method 2.1. kind and data source data used in this research are secondary, consisting data of export, impor and indonesian pdb 2000-2014 which come from indonesian statistic bureau, adb key indicators and ministry of trade republic of indonesia. determinants of corporate value (empirical studies of manufacturing sector 2012-2015 bej) 58 2.2. analysis method to analyze the pattern of indonesian export and import, descriptive analysis by using table and graph was used. in order to analyze the causality relationship between indonesian export and import, causality granger was then used. this causality was firstly introduced by engel and granger. in this research context, the purpose of granger causality is whether export preceded import or import preceded export or causality relationship between export and import. causality relationship could take place between two variables. causality test could also look at the past impact towards present condition or in the contrary. by another word, granger causality test could also be used to have a look at prediction y in more accurate by inserting lag variable x. the model is : (juanda dan junaidi, 2012) where : exp = export imp = import m = number of lag u = error term there are four result possibilities obtained, namely : 1. if σaj ≠ 0 and σbj = 0, sothere is one way causality from x to y. 2. if σaj = 0 and σbj ≠ 0,.sothere is one way causality from yto x. 3. if σaj =0 and σbj = 0, so there is no causality between x and y. 4. if σaj ≠ 0 dan σbj ≠ 0, sothere is two-way causalitybetween x and y. 3. result and discussion 3.1. the pattern of indonesian’s export and import. the role of export and import in driving economic growth or domestic product in a country is greatly important. in some countries their roles are more than the role of investment and government expenditure. when net export (surplus) so it would drive the increasing of pdb. export and import are one of the keys to a country’s economic growth, beside consumption, investment and government expenditure. historically, the economic growth of developed countries were supported by their export growth until such countries dominated world’s export. in 2006, west europe, usa and japan as developed countries owned export market, each of them were 16.40%; 8,02% and 5,38%. other countries such as china with its export share 8.59% (wto,2008 in adrian d lubis). indonesia’s export-import analisys: granger causality approach 59 in macro economy, the role of export and import in a country’s economy can be seen in the following formula : (branson, 1989) gnp = c + i + g + (x-m) in which : gnp = gross national product c = society’s consumption i = private investment g = government expenditure x = export m = import based on the above formula, it could be explained that export and import in economy should be integrated. it means that they could not be parted away one by one. this is caused by when (x-m) negative, so the role of export is meaningles. export would play important role in economy when (x-m) is positive. it means that there is a surplus in trade balance, so it would drive economy. this argument was supported by tan (2004) which stated that the role of export and import towards gdp could be seen from foreign currency receipts and then it drives import, in turn, it would drive invenstment and finally it would drive the increasing of gdp. figure 1 the pattern of indonesian export and import 1980-2015 world trade liberalization causes the openness in indonesian economy, it means that the export opportunity is greatly important (tulus th tambunan, 2012). so the role of export in economy is getting bigger. the interesting phenomena in indonesian economy is that ; based on the data that the raw material must be imported. when economic crisis happened, the ability of buying imported goods would also decline, as the impact, the number of export with imported row materials would eventually decline sharply. there is an interesting phenomena in the relationship between indonesian export and import during 1980-2015 as shown in figure 1 is that indonesian export and import had the same pattern in where the increasing in export was always followed by the decreasing in import. in other side, the decreasing in import was followed by the increasing of export, on the contrary, the increasing in import was frequently followed by the decreasing of export. total export and import ekspor impor determinants of corporate value (empirical studies of manufacturing sector 2012-2015 bej) 60 3.2. causality analysis of indonesian’s export and import. in this part, granger causality was analyzed to prove the hypothesis on relationship between export and import in indonesia during 1980-2015. in order to know such relationship, granger causality test was conducted. this test is a test to have a look at relationship or way of causality between variables. so the partial test for each variable was conducted. before doing granger causality test by using times series data, stationerity test was done in order to know whether the data had roots unit or not. if such variables had roots unit,so the data were not stationery. by using root unit test at level and first difference, so it could be concluded that the level of export data had roots unit or the data were not stationery, while the first difference, export data did not have roots unit or the data were stationery. hypothesis null at adf test stationery data with α=0,05, |adf statistic test| > | critical point at significant level 5%| namely |-7.199256| > |-3.595026|, this also occurred atα=1% andα=10% (|adf statistic test| > |critical point| ) or adf statisticat the rejected area h0.it could be concluded that the data of import were stationery at the first difference. it mean that the dataused in this research did not have roots unit at the first difference level, so the data of export could be used for granger causality test. after the test was done for roots unit at level and the first difference, so it could be concluded that the level of import data had roots unit or the data were not stationery at α=0.05, while at α=0.05, data of import did not have roots unit or the data were stationery. as |adf statistic test| > |critical pointat level of significance 5%|namely |-3.863524| > |-3.595026|,this also happened atα10% (|adf statistic test| > |critical point |) or adf statistic was at rejected area h0. so, it could be concluded that the data of impor were stationery. by looking at the result of the data stationery test, in fact, both data used in this research could be regarded as stationery data as they did not have roots unit, so it was reasonable for granger causality test. based on the result of the research by using lag 1 at α=0.05%, it was obtained that probability was 0.0061 smaller than 0.05 and at the level of failure 5 %, it was also obtained probability 0.0004 smaller than 0.05. bt using f test, where fstatistic= 8.63170 and 15.3756, it was concluded that export and import in indonesia has causality, it means that export affects import and on the other hand import affects export. by lag 1 export would affect import and vise versa. pairwise granger causality tests date: 08/29/16 time: 16:26 sample: 1980 2015 lags: 1 null hypothesis: o bs fstatistic pr ob. impor does not granger cause ekspor 3 5 8.6 3170 0.0 061 ekspor does not granger cause impor 15. 3756 0.0 004 indonesia’s export-import analisys: granger causality approach 61 by using lag 2 at level of confidence 95% 0r α=5%, it was obtained that probability was 0.0083 smaller than 0.05 and at the level of failure 5 %,it was also obtained probability 0.0017 smaller than 0.05. by using f test, df 1;32, so fstatistic> ftable(5.67934 > 3.15) dan (8.04274 > 3.15) means that h0 rejected. it means that export had two-ways relationship or export affects import and vise versa during 2 years. while import also had two-ways relationship with export. pairwise granger causality tests date: 08/29/16 time: 16:36 sample: 1980 2015 lags: 2 null hypothesis: o bs fstatistic pr ob. impor does not granger cause ekspor 3 4 5.6 7934 0.0 083 ekspor does not granger cause impor 8.0 4274 0.0 017 based on the result of this research, in indonesia, there was causality relationship between export and import or there was causality relationship between export and import. this indicated that the increasing of export would have an impact towards the increasing of import and vise versa, the decreasing of export would decrease import. the decreasing of import would have an impact toward the decreasing of export in indonesia. this condition would be really possible to happen by watching the pattern of export and import in indonesia during 1980-2015. determinants of corporate value (empirical studies of manufacturing sector 2012-2015 bej) 62 table 1 export and import in indonesia 1980-2015 year non oil and gas oil and gas total export import export import export import 1980 6168.8 9090.4 17781.6 1744 23950.4 10834.4 1985 5868.9 8983.5 12717.8 1275.6 18586.7 10259.1 1990 14604.2 19916.6 11071.1 1920.4 25675.3 21837 1995 34953.6 37717.9 10464.4 2910.8 45418 40628.7 1996 38093 39333 11721.8 3595.5 49814.8 42928.5 1997 41821.1 37755.7 11622.5 3924.1 53443.6 41679.8 1998 40975.5 24683.2 7872.1 2653.7 48847.6 27336.9 1999 38873.2 20322.2 9792.2 3681.1 48665.4 24003.3 2000 47757.4 27495.3 14366.6 6019.5 62124 33514.8 2005 66428.4 40243.2 19231.6 17457.7 85660 57700.9 2010 129739.5 108250.6 28039.6 27412.7 157779.1 135663.3 2013 149918.8 141363.3 32633.03 45459.9 182551.8 186823.2 2014 145960.8 134718.9 30331.9 43459.9 176292.7 178178.8 2015 136822.7 118126.4 24253.2 24613.2 161075.9 142739.6 source: bps indonesia there was causality relationship between export and import in indonesia during 1980-2015. it would possibly happen as the import content mainly raw materials for exported-goods and capital goods such as assisting row materials and capital goods at which they contributed 60-70% of indonesian import totally. it means that indonesia is textile-exporting country in the world but the raw material is imported ones. the real condition about the relationship between export and import could be proven in the economic crisis in 1997 – 1999. during such period indonesian export underwent a very sharp decline in one side and in other side, import value declined sharply as well. economic crisis with the impact of depreciated rupiah currency had caused the price of imported-goods more expensive, so the ability to buy imported-goods became lessened. as the effect, the ability to drive the increasing of import got lessened as well. this could clearly seen mainly at non-oil and gas export, in where the decreasing in import mainly at lag 1 had caused the decreasing in export. 4. summary and suggestions based on the result of the research, it is concluded that the pattern of indonesian export and import during 1980-2015 are relatively similar. there is causality relationship between export and import both at lag 1 and lag 2. therefore the increasing of export in indonesia should be conducted with the same way to increase import and the increasing of import could be reached if the export value would increase. indonesia’s export-import analisys: granger causality approach 63 references branson, w. h.. (1989). macroeconomic theory and policy, third edition. new york: harper and row. ilham, m., & suparyati, a. (2014). causality analisys of export and import,and economic growth ind indonesia and thailand by var approach 1980-2013. economic development journal. e-journal. trisakti. february 2014. juanda, b., & junaidi. (2012). times series econometrics and aplication.ipb. pt ipb press. lubis, a. d. the analisys of factors affecting indonesia’s export performances. resercher at the foreign trade research and development centre. ministry of trade. salvatore, d. (1997). international economics, the 5th edition translation. jakarta:erlangga. statistic central agency. (2015). indonesia’s export-import statictic. jakarta: statistic central agency. tan, s. (2004). international economics. economic faculty, jambi university. jambi tambunan, t. t. h. (2012). indonesia’s economy : theoritical observation and empirical analisys. jakarta: ghalia indonesia. wiryono, w. w. (2015). econometrics and statistics analisys by eviews, the fourth edition. upp stim ykpn. yogyakarta. http://aplikasi.ipb.pt/ analysis ict effect on indonesian exports with emerging market countries 98 analysis ict effect on indonesian exports with emerging market countries rinanda dwirintha putri1)*, banatul hayati2) faculty of economics and business, diponegoro university, semarang, indonesia abstract the development of information and communication technology (ict) has recently affected international trade besides macroeconomic variables. this study aims to analyze the influence of icts and macroeconomic variables on indonesian export performance with 6 countries emerging markets. this study uses secondary data sourced from un comtrade, itu, world bank, distancefrom.net, and federal reserve economic data. then, this study uses a static panel data analysis with the ordinary least suares (ols) method. the results showed that internet users had a positive and significant effect on export performance, and fixed telephone subscriptions had a negative and insignificant effect. other results showed that the population had a positive and significant effect on export performance, the distance of the economy had a negative and significant effect on export performance, real per capita gdp had a negative and insignificant effect on export performance, and the real exchange rate had a negative and significant effect on export performance. the policy implications are increasing electronic-based trading activities, increasing the quantity of products that are in demand by residents of partner countries, focusing on exporting to emerging markets countries that have closer distances to indonesia, and the need for a policy mix related to exports and exchange rates. keywords: emerging markets, export performance, ict, macroeconomic variables. 1. introduction in the open economy, international trade has an important role in stimulating a country's economic growth. one component of an open economy exports. the role of exports for economic growth has direct and indirect effects. the direct effect is evidenced by the hypothesis of the export-led growth (elg) which states that export expansion can increase the gross domestic product (gdp) (dreger & herzer, 2012). meanwhile, the indirect effect is manifested in productivity. this means that export expansion affects economic growth through domestic and foreign investment, imports of capital goods, improvement of production processes, absorption of skilled labor, and knowledge spillovers (gokmenoglu et al, 2015). the direct and indirect effects of exports on economic growth will ultimately affect trade activities between countries. trade activity between countries has been described in keynesian models of the open economy. the assumption emphasizes that exports do not depend on the level of income. another thing in the consumption theory is that consumption is determined by income. if the national income of a trading partner country increase or the exchange rate against the trading partner's currency is appreciated, there will be an increase in the volume and value of a country's exports (harvey, 2016). *corresponding author. email address: rinandarintha0803@gmail.com mailto:rinandarintha0803@gmail.com afebi economic and finance review (aefr) volume 6, no 2 (2021) 99 the volume and value of exports are thus influenced by factors that are beyond the control of the exporting country. apart from income and exchange rate, exports are also influenced by the population or population in trading partner countries, trade policies implemented by trading partners, and developments in information and communication technology (ict). the current development of information and communication technology has become a benefit in trade between countries, namely (i) integration of markets and industries with transactions, distribution of goods and services that do not recognize the time and geographic boundaries; (ii) trade cost efficiency; (iii) can open and expand market access; and (iv) accelerating business activities in the market (chu & guo, 2019; guan & sheong, 2020; xing, 2018). although the development of ict can provide great benefits in supporting trading activities, in fact, there are still a number of challenges to be faced. according to the readiness for future production report in the 2018 word economic forum, in terms of production structure in readiness to face industry 4.0, indonesia is still behind compared to thailand, so that indonesia is categorized as a nascent country driver and structure of production. in the business world, indonesia is also still lagging behind. according to the global competitiveness index, in 2019, indonesia's business softification was ranked 32, and technology readiness was ranked 80 (kuncoro, 2019). in addition, indonesia is in the 2nd lowest position for fixed broadband speed and 5th lowest for mobile broadband speed in the asean scope, so it has not been able to significantly boost indonesia's export performance (aryani et al, 2020). in the end, the opportunities and challenges that occur in ict become demands that the needs of the community are increasing along with the growth of the population. apart from the population that can determine exports, economic distance, real gdp per capita, and real exchange rate are also important proxies in supporting indonesia's export performance. in order to support indonesia's export performance, a potential trading partner is needed. emerging markets are believed to be opportunities to support indonesia's export performance. it is proven that in 2008 when the global economic situation experienced a slowdown due to the economic crisis, emerging markets countries had less high volatility, high resilience, lower unemployment rate for developed countries, as well as at that time. emerging markets countries managed to hold back a relatively low increase in capital outflows. this illustrates that emerging market countries have increasingly shown that the standard of living they enjoy is getting higher, which is marked by economic growth that exceeds developed countries (haines et al, 2019). the relatively high resilience of emerging markets countries can be an opportunity for indonesia to support export performance, so that the country can be said to be potential. based on data from bloomberg in 2018, there were 6 countries that had real potential, namely china, india, south korea, malaysia, thailand and vietnam. these countries are 6 of the 10 largest countries that can support indonesia's export performance. although these countries are the most potential trading partners for indonesia, there is often a decrease in the volume of indonesian exports. for example, the decline in the volume of indonesian exports to china in 2011-2015 was caused by the impact of the global economic crisis, china's economic slowdown, the decline in prices for indonesia's main export commodities, and at that time a ban on exports of raw minerals was imposed (world bank, 2015) in (jamilah et al, 2017). apart from china, the decline in export volume also occurred between indonesia and south korea which occurred in 2011-2017, one of which occurred analysis ict effect on indonesian exports with emerging market countries 100 because the composition of indonesia's export volume still depended on the prices of basic commodities such as coal (pujayanti, 2019). the development of indonesia's export volume cannot be separated from the population factor of partner countries. among the 6 largest partner countries of indonesia, when related to exports, the difference between people's needs and the stock of production products is a driving factor for partner countries to import commodities from indonesia. therefore, it is important to direct bilateral trade to partner countries that have populations so that it has an impact on the supply side, which can increase the supply of labor and from the demand side, which can encourage an increase in domestic production activities (aryani et al, 2020). changes from the supply and demand side of a country's commodities for export to partner countries need to see developments in exchange rate volatility. in emerging market countries, exchange rate volatility and exports have become a concern because they are characterized by a higher exchange rate volatility compared to developed countries (darrat & hakim, 2014). countries belonging to emerging markets also have high real gdp per capita and are dominated by flexible exchange rate systems. although the exchange rate volatility of emerging markets countries is higher than developed countries, khosa (2015) argues that exchange rate volatility in emerging markets countries tends to be unstable. based on the background that has been described, it appears that it is important to optimize indonesia's current exports. one way that can be done is by continuing to expand indonesia's bilateral trade cooperation with potential emerging markets partner countries. this can be done as a step in improving export performance in line with the times and societies that are increasingly sensitive to technological changes. therefore, this study will explain how the influence of information and communication technology and macroeconomic variables on export performance in a case study of indonesia's bilateral trade with 6 emerging market countries. 2. literature study the theory of partial balance of trade between countries explains that a country (country a) will be able to export a commodity to another country (country b) if the price in country a is lower than country b before the occurrence of international trade. lower domestic prices for commodities in country a occur because the quantity of goods offered is greater than the quantity of goods demanded (excess supply). therefore, country a has the opportunity to sell its excess commodities to country b. meanwhile, in country b there is excess demand because the 101 amount of domestic demand in country b exceeds the amount of its supply (excess demand). as a result, the prices in country b are higher. therefore, country b prefers to buy the commodities needed for country a which are cheaper. after that, the two countries negotiated and agreed to export their commodities to country b, while country b imported from country a (salvatore, 2014). figure 1. supply and demand curve for international trade absolute advantage theory the theory of absolute advantage was put forward by adam smith, which is one of the neoclassical theories. the assumption of the theory of absolute advantage is when one country is more efficient or has absolute advantage in the production of a commodity, but is less efficient or has absolute losses in producing another commodity. such circumstances allow the two countries to obtain their respective advantages by specializing in the production of commodities from the product of their absolute advantage and exchanging a portion of the country's output with other countries for commodities that have an absolute loss. comparative advantage theory the theory of comparative advantage put forward by david richardo. this theory is also called the ricardian theory. this theory emphasizes that if a country is less efficient or has comparative losses with other countries in terms of commodity-related production owned by the two countries, then it can still produce mutually beneficial trade. a country needs to specialize by importing commodities that are less comparative and exporting goods that have a comparative advantage. one of the assumptions in the richardian model is labor as an input variable in producing a good. it is assumed that labor is the only factor of production in producing 2 goods produced in 2 countries. the workforce used in the richardian model tends to be homogeneous within countries and heterogeneous when it occurs between countries (suranovic & steve, 2010). factor proportion model (heckscher-ohlin) the heckscher-ohlin model or factor proportion model is a model that extends the richardian model and is another neoclassical theory. when the richardian model sees labor as the only factor of production in producing the output, the heckscher-ohlin model adds the factor of production panel a panel b panel c a sa pa p* d ed es pb export b sb db import p p p da analysis ict effect on indonesian exports with emerging market countries 102 from the richardian model, namely capital. thus, the heckscher-ohlin model says that the factor of production consists of capital and labor. the assumption of the h-o model makes its 2-2-2 variant. that is, 2 goods, 2 factors, and 2 countries. this variant emphasizes that the interactions that occur in the market are interrelated, namely how the proportion of factors can affect supply and demand, where supply and demand encourage interactions in trade through factor markets that will affect the national market. then, the national market will affect the goods market and factor markets, both at home and abroad. in other words, all markets based on the h-o model are interconnected markets. technology gap model and product cycle model according to the technology gap model put forward in 1961 by posner, most of the trade that industry does in individual countries is based on the introduction of new products and new production processes. this provides an opportunity for companies in a country to innovate and compete in the temporary monopoly competition market in the world market. temporary monopoly competition is often based on patents and copyrights granted to stimulate the flow of the meeting. however, this model has a weakness, namely that it does not explain the size of the technology gap and does not explore the reasons for the emergence of technology gaps (salvatore, 2014). finally, the technology gap model was expanded by vernon in 1966 by the so-called product cycle model. according to this model, when a product is introduced, it usually takes a skilled workforce to produce it. competitive advantage theory the theory of competitive advantage put forward by porter entitled the competitive advantage of nations explains that the increase in welfare standards (standard of living) at the state level is highly dependent on the capacity of a country's companies to achieve the highest level of productivity (huggins & izushi, 2015). specifically, 4 factors affect competitive advantage, including (i) condition factors. porter states that the differences in condition factors consist of human resources, natural resources, knowledge and technology resources, and infrastructure resources; (ii) demand conditions, namely demand for domestic consumers. this situation can have an influence on the differences in resources owned between countries and the relative location of a country in conducting trade; (iii) supporting and related industries which become the most important contribution because they involve a network of special input providers from competition to be a source of competitive advantage. (iv) the structure, competition, and strategy of the company which is very dependent on the domestic environment and the different systems in various countries in determining the strategy in which the company can compete in each country and ultimately produce a competitive advantage. in the end, domestic competition encourages companies to be more innovative and competitive in price, as well as more quality (huggins & izushi, 2015). gravity model empirically, gravity models have been widely used to analyze bilateral trade patterns. this model has based on the law of universal gravitation proposed in 1687 by isaac newton. he argues that between 2 objects, namely i and j: fij=g 𝑀𝑖𝑀𝑗 𝐷𝑖2𝑗 (1) where: analysis ict effect on indonesian exports with emerging market countries 103 f is "force of attraction", m is mass, d is the distance between objects, and g is the gravitational constant determined by the units of measurement for mass and force. the same thing was proposed by jan timbergen (1962) to explain trade flows. fij=g 𝑀𝑖𝛼 𝑀𝑗𝛽 𝐷𝑖𝜃𝑗 (2) where fij trade flows from i to j, mi and mj are measures of "economic masses", dij s the distance from 2 locations, and g is a constant (the same as newton's law, if α=β=1 dan θ=2). previous study research conducted by ismail (2020) regarding digital trade facilitation and bilateral trade in selected asian countries explains the importance of using the digital infrastructure as a support for the availability and accessibility of digital infrastructure in both exporting and importing countries. focus of the digital infrastructure used in his research is fixed telephone subscriptions, cellular subscriptions, and broadband. the results show that research on the digital trade facilitation and bilateral trade in selected asian countries, states that the higher the use of digital infrastructure, namely fixed telephone subscriptions, cellular subscriptions, and broadband, the more trade flows between 10 selected asian countries (china, india, korea) can be increased. south, hong kong, malaysia, indonesia, thailand, singapore, philippines, and vietnam) and 20 selected trading partner countries. his research also explains other factors in supporting trade flows, namely real gdp per capita and geographical distance, where the results show that real gdp per capita has a positive and significant correlation to trade flows. meanwhile, geographical distance has a negative and significant correlation with trade flows. chuo & guo (2019) also explained that the development of information and communication technology (ict) plays an important role in global and regional economic development that facilitates fast cross-border transactions and can help in finding market potential and opportunities in conducting trade. this can lower transaction costs and increase national trade as well as tougher competition in world trade. therefore, technological developments have provided great opportunities for trade between countries, namely to expand trade activities. in contrast to the research conducted by aryani (2020), namely the influence of information technology and e-commerce on indonesian trade to asean countries, although ict (internet users in indonesia and broadband in partner countries) and b2b transactions have a positive and significant effect on trade performance. however, the use of broadband in indonesia has a negative effect on trade performance. other variables, namely gdp and distance, have a positive and significant effect on trade performance. overall, ict has the greatest influence compared to other variables. research conducted by guan & sheong (2020) shows that the relationship between population and export performance, both from china to africa and from african countries to china, has a positive and significant effect. this means that the larger the population of trading partner countries, the greater the volume of exports, which is indicated by the greater supply capacity in the case study of bilateral trade in africa with china using panel data for 17 years from 19992015. the real gdp per capita variable has a negative and significant effect on african exports to china and has a positive and significant effect on african imports from china. the real exchange rate has a positive and significant effect on african exports to china and has a negative and significant effect on african imports to china. analysis ict effect on indonesian exports with emerging market countries 104 in contrast to the research conducted by dlamini (2016), the population has a negative and significant correlation to the sugar exports of the state of swaziland. the negative relationship between trade flows and population in trading partner countries can be attributed to a condition known as the import substitution effect. this implies that the population of trading partners leads to the expansion of the domestic market. such conditions can create greater independence and consequently, there is no urgency to conduct bilateral trade other variables show that the real gdp per capita of an importer has a positive and significant correlation, and the geospatial distance between swaziland and trading partner countries has a negative and significant correlation to exports. the state sugar of swaziland. research conducted by stouffer et al (2016) shows that ict has a positive and significant effect on the volume of indonesian exports to partner countries in the asean scope. in addition, real gdp per capita and population also have a positive and significant effect on indonesia's export volume. then, distance and the real exchange rate show a negative and significant effect on indonesia's export volume. therefore, the policy implication of this research is that indonesia is expected to be able to develop strategic trade partnerships with big economic countries, such as singapore and malaysia. thus, it can increase the volume of exports, especially ict-based products. in contrast to research conducted by kang & dagli (2018) which states that bilateral trade in 72 countries during the 2001-2015 period there is a positive relationship between real exchange rate and export volume, such as the depreciation of exporters' currencies. could result in higher export volumes before the global financial crisis (gfc). however, its influence weakened significantly, especially after the gfc. the impact of currency depreciation on trade was much smaller after the gfc (2012-2015) than before the gfc (2003-2006). this research also looks at the impact of the existence of global and regional value chains (gvcs), namely that the existence of gvcs can reduce the real exchange rate. export volume, and can be a factor that can contribute to the weakening of the relationship between exchange rate and trade between countries. this study will look at the influence of information and communication technology and macroeconomic variables on indonesia's export performance in 6 countries that combine markets. based on previous theory and research, the hypotheses of this study include: a. it is assumed that there is a positive influence from partner countries' ict on indonesia's bilateral trade export performance in 6 emerging market countries in 2000-2018; b. it is assumed that there is a positive relationship between the population of partner countries on the performance of indonesia's bilateral trade exports in 6 emerging market countries in 2000-2018; c. it is assumed that there is a negative relationship from economic distance to the performance of indonesia's bilateral trade exports in 6 emerging market countries in 2000-2018; d. it is assumed that there is a positive relationship of real gdp per capita of partner countries to indonesia's bilateral trade export performance in 6 emerging market countries in 2000-2018; e. it is assumed that there is a negative relationship from the real exchange rate to the performance of indonesia's bilateral trade exports in 6 emerging market countries in 2000-2018. 3. research methodology research variable the variables used in this research are independent variable and dependent variable. the dependent variable is the variable that is influenced by the presence of the independent variable, analysis ict effect on indonesian exports with emerging market countries 105 while the independent variable is the variable that affects and causes the dependent variable to arise or change. the volume of indonesia's exports with partner countries is used as the dependent variable, while the independent variables consist of information and communication technology (internet users, cellular phone subscriptions, and fixed telephone subscriptions), economic distance, population, real gdp per capita, and real exchange rate. this research period is 19 years, from 2000-2018 with a sample of 6 emerging market countries consisting of china, india, south korea, malaysia, thailand, and vietnam. analysis method to see the effect of information and communication technology and macroeconomic variables on indonesia's export performance in 6 emerging market countries, with static panel data regression analysis with a fixed effect model. this study uses eviews 10 as an analysis tool. the type of panel data in this study is balanced panel data, wherein econometric theory, this process is the unification of time series and cross section data (ekananda, 2006 in sitorus & yuliana, 2018). panel data regression analysis the theory of technology gap model and product cycle model by posner and bernon explain the role of technology in trade between countries. changes in trade performance between countries can be made based on changes in the relative abundance of factors (technology) between countries from time to time. in the context of population, growth or increase in population in the importing country creates more markets for the exporting country (dlamini et al, 2016). according to the theory in the gravity model, the volume of bilateral transactions of goods and services will be proportional to the size of the trading partner's economy. however, it is inversely proportional to geographical distance (keum, 2010). according to the theory of demand in the international market, when the importing country as a trading partner country experiences an increase in purchasing power (increase in real gdp per capita), the partner country will increase the demand for certain products or commodities from the exporting country. meanwhile, in the context of the exchange rate, namely the partial balance theory, the occurrence of trade between countries is also caused by the exchange rate between one country and another in the international market (salvatore, 2014). the real exchange rate in the exporting country can affect prices. goods charged to the importing country. the research model was conducted to see the effect of ict and international trade variables on export performance. the specifications of each regression variable include: expit= β0 + β1intjit + β2mobjit + β3telpjit + β4popjit + β5distit + β6pdbit + β7reerit + uit (3) where: int : partner country internet users (percent) mob : mobile cellular subscriptions in partner countries (per 100 people) telp : fixed telephone in partner countries (per 100 people) pop : partner country population (million people) dist : indonesia's economic distance from partner countries (billion usd) pdb : partner country's real gross domestic product per capita (percent) reer : the real exchange rate (rupiah/dollar) i : cross section t : time series β0 : constanta analysis ict effect on indonesian exports with emerging market countries 106 β1-7 : coefisien uit : error term for economic distance and real exchange rate, there are a series of calculations to determine the amount of economic distance and the real exchange rate of indonesia in 6 emerging market countries, including: economic distance referring to the research of inayah et al (2016), the formula is written as follows: jeijt = jgij x ∑ 𝑇𝑜𝑡𝑎𝑙 𝐺𝐷𝑃𝑗 𝐺𝐷𝑃𝑗𝑡 (4) where: jeij : economic distance between country i and country j in year t jgij : geographical distance between country i and country j ∑ total gdpj : total gdp of country j in the observation period gdpit : gdp of country j in year t real exchange rate real exchange rate = nominal exchange rate x 𝐶𝑃𝐼 𝑜𝑓 𝑑𝑒𝑠𝑡𝑖𝑛𝑎𝑡𝑖𝑜𝑛 𝑐𝑝𝑢𝑛𝑡𝑟𝑖𝑒𝑠 𝐶𝑃𝐼 𝑑𝑜𝑚𝑒𝑠𝑡𝑖𝑐 where: cpi : consumption price index 4. result and discussion export performance is one of the most important aspects in improving economic welfare for a country, including indonesia, which is increasingly open in terms of trade. based on data from bloomberg, in 2018 china, south korea, india, malaysia, thailand, and vietnam were indonesia's six largest partner countries in bilateral trade. even though these countries are potential partners for indonesia, in reality the value of indonesia's exports to china is in deficit. this fact also serves the bilateral cooperation between indonesia and malaysia, thailand and vietnam. in indonesia's bilateral trade with china, there has been a deficit for the last 5 years, reaching us$ -11,432.4 billion in 2018. then, the trade balance deficit has also continuously occurred in indonesia's bilateral trade with thailand from 2004-2018 in where, the highest deficit occurred in 2012 amounting to us$ -3,301.05 billion. furthermore, indonesia's trade balance deficit also occurred with malaysia in 2013 amounting to us$ -4443.53 billion as the largest deficit. indonesia and vietnam also experienced a deficit of up to us$ 920.41 billion. meanwhile, the trade balance surplus only occurred in indonesia's bilateral trade with south korea and india. seeing these conditions, export performance is very important in responding to indonesia's trade balance deficit because the cause of the deficit is that the import rate is greater than the rate of exports. indonesia's exports for the last 50 years have been supported by raw material products (natural intensive products). if there is a surplus, it will be caused by an increase in commodity prices, not due to value added (kemendag, 2019). development of information and communication technology the development of information and communication technology in emerging markets occurred around the mid-2000s. since then, the concept of affordability has become clearer. the rapid development of connectivity along with the development of ict in developing countries analysis ict effect on indonesian exports with emerging market countries 107 throughout the 2000s was started by identifying it as an opportunity to bridge the digital divide. seeing this condition, at that time, the benefits of ict development were adopted as one of the development goals of the millennium development goals (mdgs) (mishra, 2010). along with the times, the development of ict is also increasingly being used in various sectors, including the trade sector. in emerging market countries, the development of ict can be seen, one of which is through the development of internet users. figure 2. internet users in 6 emerging market partner countries of indonesia 2000-2018 it can be explained that during 2000-2018, the percentage of internet users in each of the 6 emerging market countries with indonesia's partners was different. the condition of internet users has increased in south korea and vietnam, where the largest level of internet users is south korea. according to the ministry of communication and informatics (menkominfo), south korea is the country with the largest and fastest number of internet users in the world. figure 3. mobile cellular subscriptions in 6 emerging market partner countries of indonesia 2000-2018 the development of the internet that occurs requires supporting infrastructure to improve internet performance. one of them is by looking at the development of mobile cellular subscriptions, where the development can be seen in figure 4. during 2000-2018, the development of mobile cellular subscriptions in 6 emerging market countries with indonesia's partners was different. in china, south korea, and vietnam, it can be seen that there is an increase every year. in contrast to india, malaysia and thailand tend to fluctuate. 0 20 40 60 80 100 120 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 china india south korea malaysia thailand vietnam 0 20 40 60 80 100 120 140 160 180 200 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 china india south korea malaysia thailand vietnam analysis ict effect on indonesian exports with emerging market countries 108 figure 4. fixed telephone subscriptions 6 negara emerging market mitra indonesia tahun 2000-2018 apart from mobile cellular subscriptions, the development of ict infrastructure can also be seen from users of fixed telephone subscriptions. the users of fixed telephone subscriptions in most of indonesia's partner emerging markets countries have experienced a decline in the past 5 years, except for malaysia, which has increased from 2017 to 2018. this has occurred over time, users of fixed telephone subscriptions have become less desirable due to more communication tools. efficient and more in demand by the community. furthermore, it can be seen that the largest users of fixed telephone subscriptions are in south korea, as in internet users, which has even experienced a decline. economic distance development in the 6 emerging market countries, indonesia's largest partner, economic distance tends to experience a downward trend. this happens because globalization is currently hitting every country to be more open in conducting trade cooperation between countries. openness between countries in conducting trade encourages strategies to increase efficiency. the more efficient trade between countries is expected to reduce costs and boost indonesia's competitiveness in bilateral trade with the six emerging market countries. figure 5. economic distance of 6 emerging market partner countries of indonesia 2000-2018 0 10 20 30 40 50 60 70 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 china india south korea malaysia thailand vietnam 0 100000 200000 300000 400000 500000 600000 700000 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 china south korea india malaysia thailand vietnam analysis ict effect on indonesian exports with emerging market countries 109 population development china and india are the largest countries in the world. a population that makes china and india more open to trade cooperation, also makes living standards more diverse. the increase in population is expected to encourage the consumer market to trade flows and is expected to increase the supply of goods and services that offer guan & sheong (2020). real gdp per capita development real gdp per capita shows people's purchasing power. based on data from the world bank, focusing on the countries south korea, malaysia, and thailand each have similarities in the decline in gdp, namely in 2009 where south korea had a gdp decline of 0.79% compared to 2008 of 3.01%. in malaysia, the decline in gdp in 2009 was -1.51% compared to 2008, which was 4.83%. in thailand, the decline in gdp in 2008 was -0.69% compared to the previous year which was 1.72%. this happened because of the global crisis in the united states in 2008-2009 and even the crisis was called by economists as the mother of all crises which ultimately depressed economic growth (oliver, 2013; sugema, 2012). real exchange rate development indonesia's real exchange rate against the 6 largest emerging market partner countries tends to be unstable. focusing on india and vietnam, that after 2010, based on the calculation of indonesia's exchange rate against the two countries, it tends to increase. meanwhile, the other four countries tended to increase until 2013. after that, it tended to be stable. the indonesian exchange rate against india during the 2000-2018 period was the highest and occurred in 2018 (depreciated). meanwhile, the exchange rate between indonesia and vietnam, which occurred in 2003, was the lowest (appreciated) exchange rate. however, the trade balance surplus with india is the largest compared to the other five countries. results of panel data regression analysis model estimation uses panel data analysis where the fixed effect model is the best model in this study which is obtained from the results of the chow test. after estimating the model, the steps taken to perform panel data regression analysis were to carry out a series of classical assumption tests, where in this study there were no errors in the classical assumption tests, both normality detection, heteroscedasticity detection, and multicollinearity detection. the results of the panel data estimation regression regarding the effect of independent variables, namely information and communication technology as measured by internet users, fixed telephone subscriptions, and mobile cellular subscriptions, population, economic distance, real gdp per capita, and real exchange rate on the dependent variable, namely performance. export performance as measured by export volume. the results of the fem regression then produce an equation, each independent variable will be discussed in the partial regression coefficient test (t test). the similarities in the results of the fixed effects model in this study are as follows: expit = -β0 + β1intjit + β2mobjit β3telpjit + β4popjit β5distjit β6pdbit -β7reerit + uit (5) expit = -7311078,427 + 76415,042*int + 2962,926*mob 55158,980*telp + 0,044*pop– 13,59601*dist – 193444,695*pdb – 407,254*reer + uit (6) information and communication technology information and communication technology variables in this study have different results. on the internet user variable, the coefficient is 76,415.04 and the probability is 0.044. the probability of not being able to reject h0 is less than α = 0.05. thus, the internet user variable has a significant effect on export performance. this means that an increase of 1% of internet users can increase the export performance of 76,415.042 billion usd. this positive and significant influence on these analysis ict effect on indonesian exports with emerging market countries 110 variables is in line with research conducted by chuo & ghuo (2019) that an increase in the number of internet users can reduce transaction costs. so, it can increase trade between countries. this is reinforced by research conducted by wardani et al (2019) on a case study of indonesia's bilateral trade with asean countries. variable fixed telephone subscriptions (telp) have a coefficient of -55,158,980 and a probability of 0.428. the probability of not being able to reject h0 is less than α = 0.05 (probability <α = 0.05). meanwhile, the probability of the fixed telephone subscriptions variable is greater than 0.05 (probability> α = 0.05). thus, the fixed telephone subsection variable has no significant effect on export performance. the negative but insignificant effect on the fixed telephone subscriptions variable on export performance is in fact not in line with the research conducted by ismail (2020), which is because globalization and current liberalization have made fixed telephone users less desirable due to more efficient and efficient communication tools more in demand by the community. population coefficient of the population variable is 0.044823 and the probability is 0.000. the probability of not being able to reject h0 is less than α = 0.05 (probability <α = 0.05). thus, the population variable has a significant effect on export performance. this means that an increase in the population of 1 million will increase the export performance by 0.044823 billion usd. the positive and significant influence of population variables on export performance is in line with research conducted by shobande (2019) that the size of a country's population illustrates the significance of the consumer market on trade flows and an abundant workforce. this research is reinforced by wardani (2019) that population variables have a positive and significant effect on exports because the larger the population of trading partner countries, the greater the volume of exports, which is indicated by the greater the ability to supply. the results of the population influence on export performance are not in line with the research conducted by dlamini et al (2016) that the relationship between population and the performance of swazi sugar exports, where an increase in the population of trading partner countries by 1% will decrease the performance of swazi sugar exports by 19.3%. the negative relationship between trade flows and population in trading partner countries can be attributed to a condition known as the import substitution effect. economic distance the economic distance variable shows a coefficient of -13.59601 and a probability of 0.007. the probability of not being able to reject h0 is less than α = 0.05 (probability <α = 0.05). thus, the economic distance variable has a significant effect on export performance. this means that the economic distance variable has a negative and significant relationship to indonesia's export performance, where an increase in economic distance of 1 billion usd will reduce the export performance of 13.59601 billion usd. the negative and significant influence of the economic distance variable on export performance is in line with the opinion of yeo & yeng (2019) which states that countries that carry out trade cooperation generally choose to trade with countries that are closer than countries that are far away. this opinion is in line with the research. conducted by wardani et al (2019) which is in line with the gravity model, namely that distance has a negative and significant effect on indonesia's exports to partner countries in asean. this means that the shorter the distance between indonesia's exports to partner countries, the higher the exports. the results of the effect of the economic distance variable on the export performance variable are not in line with the research conducted by lawes & whelan (2007) that the positive effect on analysis ict effect on indonesian exports with emerging market countries 111 exports in case studies in the united states. this means that if you want to export to bilateral trade partner countries, companies in the united states must increase their fixed costs. real gross domestic product per capita real gdp per capita variable in this study shows a coefficient of -193,444.7 and a probability of 0.114. the probability of not being able to reject h0 is less than α = 0.05 (probability <α = 0.05). meanwhile, the probability of the real gdp per capita variable is greater than α = 0.05 (probability> α = 0.05). thus, the real gdp per capita variable has no significant effect on export performance. this means that the gdp variable has a negative and insignificant correlation to export performance. this indicates that indonesia's export products are inelastic to income. thus, the increase in partner country income has no effect on export performance. this research is in line with research conducted by sidamor (2013) and guan & sheong (2020) that gdp has a negative effect on exports in the case study of china's bilateral trade with africa. the negative effect is because the main export commodities of african countries to china such as oil, ores and minerals have been restricted by africa from exporting these products (eleanor, 2017; karapinar, 2010). meanwhile, china, with its growing economy, is looking for alternative sources of supply to import these products (andersson & khalid, 2014). effect of real gdp per capita on export performance is not in line with research conducted by nurhayati et al (2019) that real gdp per capita has a positive and significant effect on the export performance of indonesia's nutmeg, lawang, and cardamom to china, malaysia, singapore, thailand, the united states. , germany, brazil, philippines, and spain. the real gdp per capita in the research that has been done illustrates the condition of people's purchasing power in line with the theory of demand, which reveals that an increase in income will increase the demand for traded commodities (hill & wong, 2008). real exchange rate real exchange rate variable has a coefficient of -407,254 and a probability of 0,000. the probability of not being able to reject h0 is less than α = 0.05 (probability <α = 0.05). this means that the real exchange rate variable has a negative and significant relationship to export performance. if the real exchange rate of the exporting country (indonesia) increases, the real exchange rate will increase. thus, the goods in the exporting country from a foreign perspective become cheaper. the results of this study are in line with the theory of partial equilibrium in the international market, which states that the real exchange rate in the exporting country can affect the price of goods charged to importing countries. if the real exchange rate of the exporting country decreases, the real exchange rate will also decline. thus, importing countries will pay higher prices to import goods from exporting countries. as a result, an increase in prices will reduce the quantity of goods demanded by partner countries (inayah dkk, 2016). simultaneous regression coefficient test (f test) the f test serves to determine whether the independent variables are simultaneously significant to the dependent variable (gujarati, 2009). this can be seen in the probability regression results (f-statistic). the independent variables can be said to be simultaneously significant against the dependent variable when the probability (f-statistic) is less than α = 0.05. the estimation results show that the probability (f-statistic) is 0.000000. that is, the prob (fstatistic) is less than α = 0.05 or in this study, the independent variables are simultaneously significant on the dependent variable. determination coefficient test (r2) analysis ict effect on indonesian exports with emerging market countries 112 the coefficient of determination indicates the percentage of all dependent variables which can be explained by the resulting independent variance variations. meanwhile, the rest is explained by other variables outside the model (ekananda, 2015). the result of the regression shows that r2 is 0.86. this means that 86% of export performance is influenced by ict, population, economic distance, gdp, and the real exchange rate. meanwhile, 14% is influenced by other variables outside the model. 5. conclution based on the estimation of panel data regression results, internet user variables have a positive effect on export performance because these variables can reduce transaction costs in trade between countries, while fixed telephone subscriptions have a negative effect because along with the times, the use of fixed telephone subscriptions has become less desirable so that has no effect on export performance. this shows that there is a need to increase electronic-based trading activities (ecommerce) considering that indonesia is one of the countries with the largest social media users in the world as well as to better prepare for the 4.0 industrial revolution because from the production structure in readiness to face the 4.0 industrial revolution, indonesia is still lagging behind. the population variable has a positive and significant correlation on export performance. this indicates that the growth or increase in population in the importing country will increase the demand for indonesian export products, thus creating more markets for the exporting country. the results of this study indicate that the increase in population every year in 6 emerging market partner countries makes indonesia an exporting country to increase the quantity of products that are in demand by residents of the largest emerging markets partner countries. the economic distance variable has a negative and significant correlation on export performance, that is, the higher the distance between countries, the lower the export performance is because the farther the trade distance between countries, the greater the transportation costs that must be incurred on trade flows between countries. therefore, indonesia needs to focus on exporting goods or commodities with emerging markets countries that are closer to indonesia to reduce trade costs which result in importing countries paying higher prices to import goods from indonesia and the longer delivery times. the real gdp per capita variable has a negative and insignificant correlation on export performance. this indicates that indonesia's export products are inelastic to income, so that an increase in the income of partner countries has no effect on export performance. the real exchange rate variable has a negative and significant effect on export performance. this means that the increase in the rupiah exchange rate per dollar (the rupiah is appreciated) makes domestic prices more expensive than foreign prices so that the value of exports is smaller than imports. the results of the effect of the real exchange rate on export performance indicate that there is a need for a policy mix related to exports and the exchange rate to ensure a stable exchange rate because a stable exchange rate will provide certainty, reduce operational risk, and further assist investors in making accurate planning. a stable exchange rate will make the goods traded by indonesia remain 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"the trade policy effect in international trade: case of pakistan." journal of economic structures 8 (1): 1-17. https://doi.org/10.1186/s40008-019-0169-8 the influence of brand image, brand personality and brand experience on brand love and their impact on brand loyalty of cellular card users 65 the influence of brand image, brand personality and brand experience on brand love and their impact on brand loyalty of cellular card users gusti noorlitaria achmad1)*, syarifah hudayah2), saida zainurossalamia za3), shibghati mutia hasanah4) 1, 2, 3, 4 faculty of economics and business, mulawarman university, indonesia abstract the purpose of this research is to know: (1) influence of brand image to brand love (2) influence of brand personality to brand love, (3) influence of brand experience to brand love (4) influence of brand image to brand loyalty (5) influence of brandexperience to brand loyalty, (6) the influence of brand love on brand loyalty. this research was conducted using a sample of 131 people and data are taken by giving respondents structural questionaires. in terms of data analysis, this research used partial least square (pls) keywords: brand image, brand experience, brand personality, brand love and brand loyalty. 1. introduction in an increasingly modern era and information that is easily spread due to increasingly sophisticated technology. many companies produce products and services that are increasingly diverse, ranging from electronic products to telecommunications services. however, a company must be able to form a brand if it wants to issue a product or service. brand is the identity of products and services, with a brand as a differentiator between competing products and services. a good company is a company that can form a good brand image in the eyes of consumers and other people. own brand image according to (kotler, 2016). brand image is defined as the perception of the brand that is depicted from a brand association that is stored in the memory of consumers. with this brand image, the company can develop its product line and take advantage of the positive image that has been formed, while with this brand image, consumers can make purchases to repurchase regularly (rita, 2018). a person's personality is often reflected in his own values and preferences. when consumers make purchasing decisions, these consumers are not necessarily looking for functional benefits from the brand but also consume a brand indirectly that can show the identity of the consumer. brand personality is one of the factors that encourage a consumer to buy a product which can be seen from several characteristics of the product such as elegant, simple, unique, luxurious, cute, natural, etc. with the characteristics of these products can be matched with the characteristics of consumers so that this is the brand personality one of the factors of consumer buying interest. brand personality according to (rutter et al., 2017) is part of the brand image held by consumers and refers to the *corresponding author: gusti.noorlitaria.achmad@feb.unmul.ac.id mailto:gusti.noorlitaria.achmad@feb.unmul.ac.id afebi economic and finance review (aefr) volume 5, no 01 (2020) 66 anthropomorphization of brands, where human attributes are attached to necessary brand objects such as people with whom they like to form a relationship. brand experience has attracted a lot of attention in marketing practices. marketing practitioners recognize that how consumers perceive a brand is very important in developing marketing strategies for goods and services. brand experience is the result of conceptualization of sensations, feelings, thoughts, and behavioral responses generated by stimuli associated with the brand and is part of brand identity, packaging, communication and the environment (brakus et al., 2009). brand love is an activity after consumers consume a product and experience a high level of satisfaction so that it can affect consumer love for a brand and can make consumers become loyal to the brand and spread positive things about the brand to various parties (ahuvia & carrol, 2006). brand loyalty is defined as a consumer's commitment to repurchase products or services that become their preferences periodically in the future by making purchases at the same brand even though there are situational influences and marketing efforts that can lead to switching behavior. telkomsel is one of the brands of telecommunications service providers in indonesia that stands under the auspices of pt. telekomunikasi indonesia tbk (telkom) and pt. indosat tbk and was founded in 1995. in indonesia itself, telkomsel is a telecommunications service provider that is widely used by the public. this is supported by records in 2018 which stated that there were 163 million telkomsel users in indonesia which were divided into postpaid and prepaid subscribers. (purparisa, 2020). telkomsel's achievements cannot be separated from the competence of its resources and the strategies used in order to introduce its brand to the public. in 2019 telkomsel received many awards related to brands, namely telkomsel won the asia's best employer brand awards 2019, corporate image award mobile operator, best digital service, most innovative approach to mobile security, etc. 2. literature study brand image since the 1950s, brand image has been considered an important concept in marketing. lau & lee (1999) defines brand image as a collection of associations related to a brand that consumers store in their memory. brand image gives the impression of 'personality' on the consumer itself. while according to. kotler (2016) defines brand image as a perception of a brand that is depicted from a brand association that is stored in the memory of consumers. in other words, brand image describes the way consumers think about a brand and the feelings that brand brings to mind when they think about it. therefore, a good brand image enables a company to achieve a competitive advantage in the market. moreover, a strong brand image can influence the pricing, promotion and distribution strategies of a company's brand (ansary & nik, 2017). brand personality brand personality is a type of brand association that describes the symbolic use and emotional connection that consumers build with a brand. in contrast to product-related features, which tend to serve a utilitarian function for consumers, brand personality tends to serve a symbolic function (bairrada et al., 2019). according to brand personality is a collection of people with characteristics who behave and have a relationship with the brand (davies et al., 2018). the influence of brand image, brand personality and brand experience on brand love and their impact on brand loyalty of cellular card users 67 according to rutter et al., brand personality is part of the brand image held by consumers and refers to the anthropomorphization of brands, where human attributes are attached to necessary brand objects such as people with whom they like to form a relationship (rutter et al., 2017). brand experience brand experience is the result of conceptualization of sensations, feelings, thoughts, and behavioral responses generated by stimuli associated with the brand and is part of the brand identity, packaging, communication and brand environment being marketed. brand experience occurs when consumers search for products, buy, receive services and consume these products. brand experience can be felt directly when consumers buy and consume the product. meanwhile, by viewing an advertisement or when a marketer communicates a product through an online site (brakus et al., 2009). brand experience occurs from the consumer’s interaction with the organization’s products and services and from product/service personnel, which in turn yields to consumer responses to the brand (hussein, 2018) brand love what can be done to understand brand love is to reveal the implicit definition of love that consumers use when consumers say they like a particular brand. brand love has a meaning based on the notion of love according to sandra, langeslag and strien (2016) that "the word 'love' has many different meanings to different people". definition of love according to kochar & sharma (2015) love is a combination of emotions, cognitions and behaviors that have a role in building close romantic relationships. according ahuvia & carrol (2006) brand love is an activity after consumers consume a product and experience a high level of satisfaction so that it can affect consumer love for a brand and can make consumers loyal to the brand and spread positive things about the brand to various parties. brand loyalty brand loyalty is defined as a consumer's commitment to repurchase products or services that become their preferences periodically in the future by making purchases at the same brand even though there are situational influences and marketing efforts that can lead to switching behavior. brand loyalty is considered as an internal commitment to buy and repurchase a particular brand. brand loyalty is defined as the desire and behavior in repurchasing. however, it can also be argued that brand loyalty is the result of cognitive activation and extensive buying decision making. (danaher et al., 2003). product information is considered as an important part in consumer decision making to purchase a product or service (solomon et al., 2013) previous research research conducted by muhammad reza hariedhi dwiputranto (dwiputranto et al., 2017) in a journal entitled "the effect of brand image and product quality on brand love and brand loyalty on honda jazz car users in pekanbaru city". the results of the study stated that brand image had a significant effect on brand love. this shows that the higher the use of brand image, the better the brand love that will be created. afebi economic and finance review (aefr) volume 5, no 01 (2020) 68 research conducted by olivia caroline and ritzky karina m.r brahmana (caroline & karina, 2018) in a journal entilted " pengaruh brand image terhadap brand loyalty melalui brand statisfaction pada merek imaparts" states that there is a gap between brand image on brand loyalty consumer cv. indo makmur who made the purchase imaparts brand ac spare parts. research conducted by elnaz razgardani sharahi and ali asghar eivazi heshmat (sharahi & heshmat, 2020) in the journal entitled "the effect of brand personality on dimensions of consumer behavior mediated by brand love" states that there is a positive effect between brand personality and brand personality. on brand love. in the research conducted by bambang, a. rahman lubis and nurdasila darsono (bambang et al., 2017) in the journal entitled “the influence of brand image, brand personality, brand experience on brand love the impact on brand loyalty gayo aceh coffee pt. oro kopi gayo, central aceh regency”, the results show that: a. brand image affects brand love b. brand experience affects brand love c. brand personality affects brand love d. brand love affects brand loyalty e. brand image affects brand loyalty f. brand experience affects brand loyalty research conducted by detha misgi pratiwi, david pe saerang, and ferdinand tumewu (pratiwi et al., 2015) entitled “the influence of brand image, brand trust and customer satisfaction on brand loyalty (case of samsung smartphone) that the brand image has an effect on brand loyalty. research conducted by i gede putu pranadata, mintarti rahayu, ananda sabil hussein (pranadata et al., 2017) which is contained in the title "analysis of the effect of brand experience on brand perceived value, brand satisfaction, and brand loyalty (case study on industry one stop carcare service in malang city) get the results that brand experience does not significantly affect the brand loyalty variable. this can be interpreted that the increasing brand experience of consumers will not have a significant effect on increasing brand loyalty from consumers research conducted by y.r.k. bandaranayake and a.s. wickramasinghe (bandaranayake & wickramasinghe, 2020) in a journal entitled "influence of brand personality on brand love for personal care brands: with reference to sri lankan context" found that there is an influence between brand personality and brand love. in a study conducted by annisa marliawati, dwi cahyaningdyah (marliawati & cahyaningdyah, 2020) in a journal entitled "impacts the brand of experience and brand image on brand loyalty: mediators brand of trust" states the results that brand experience has a positive and significant influence to brand loyalty. these results prove that brand experience can increase brand loyalty, increase brand experience for consumers both when looking for products, buying products, receiving services, consuming products and feeling directly or indirectly when consumers see advertisements or marketers communicate products through websites or websites. the market will contribute and be followed by an increase in brand loyalty. in a study conducted by aulianda, syarifah hudayah and rahmawati (aulianda et al., 2020) in a journal entitled "the effect of brand experience and brand image on willingness to pay a price premium with brand love as an intervening variable (study on honda hrv brand car owners in samarinda)” states the results that there is a positive and significant influence between brand experience and brand love. the higher the consumer's brand experience, the higher the consumer's brand love. the influence of brand image, brand personality and brand experience on brand love and their impact on brand loyalty of cellular card users 69 in a study conducted by abdullah alhaddad (alhaddad, 2015) in a journal entitled "perceived quality, brand image and brand trust as determinants of brand loyalty" resulted that there is a positive and significant influence between brand image on brand loyalty. in a study conducted by suthasinee niyomsart and anon khamwon (niyomsart, 2015) in a journal entitled "brand love, brand loyalty, and word of mouth: a case of airasia" showed that there was a positive influence between brand love and brand loyalty. conceptual framework hypothesis based on the literature review and conceptual framework, the authors propose the following hypotheses: h1 = brand image has a positive and significant effect on brand love for telkomsel users h2 = brand personality has a positive and significant effect on brand love for telkomsel users h3 = brand experience has a positive and significant effect on brand love for telkomsel users h4 = brand image has a positive and significant effect on brand loyalty to telkomsel users h5 = brand experience has a positive and significant effect on brand loyalty to telkomsel users h6 = brand love has a positive and significant effect on brand loyalty on telkomsel users brand image (x1) brand pesonality (x2) brand experience (x3) brand love (y1) brand loyalty (y2) afebi economic and finance review (aefr) volume 5, no 01 (2020) 70 3. research methodology this research uses explanatory research. an explanatory study that explains the relationship between a variable through hypothesis testing (ghozali, 2005:2). in this study, the model used is a causality model, namely research that seeks cause-effect between several variables that have been developed. causality research is directed to describe if there is a causal effect between several situations in the variables and conclusions are drawn . consumers who use the telkomsel provider. this study only contains the influence of brand image, brand personality, and brand experience on brand love and their impact on brand loyalty on telkomsel consumers. with 131 respondents and data analysis using pls (partial least square), the data analysis used is the structural equation model (sem). brand image (x1) brand image is a consumer's perspective on brand-related association memories that are stored by consumers in their memories. indicators that can be used in this variable are as follows: 1. recognition 2. reputation 3. attraction (affinity) 4. loyalty brand personality (x2) brand personality is part of the brand image held by consumers and refers to the anthropomorphization of brands, where human attributes are attached to the necessary brand objects such as people with whom they like to form a relationship. indicators used to measure brand personality: 1. sincerity 2. excitement 3. competence 4. sophistication 5. ruggedness brand experience (x3) brand experience is the result of conceptualization of sensations, feelings, thoughts, and behavioral responses generated by stimuli associated with the brand and is part of the brand identity, packaging, communication and brand environment being marketed.. the indicators used to measure brand experience are as follows: 1. sensory 2. affection 3. behavior 4. intellectual brand love (y1) brand love is an activity after consumers consume a product and experience a high level of satisfaction so that it can affect consumer love for a brand and can make consumers loyal to the brand and spread positive things about the brand to various parties. the influence of brand image, brand personality and brand experience on brand love and their impact on brand loyalty of cellular card users 71 indicators that can be used to measure brand love are: 1. the need for dependence on a brand (affiliation and need for dependence) 2. tendency to help the brand (predisposition to help) 3. exclusivity and preoccupation with relationships (exclusivity and absorption) brand loyalty (y2) brand loyalty is defined as a consumer's commitment to repurchase products or services that become their preferences periodically in the future by making purchases at the same brand even though there are situational influences and marketing efforts that can lead to switching behavior. indicators that can be used to measure brand loyalty: 1. main choice (main choice) 2. word of mouth 3. join the program 4. result and discussion research model output source: smartpls 3 afebi economic and finance review (aefr) volume 5, no 01 (2020) 72 cronbach’s alpha the reliability test was strengthened by the value of cronbach's alpha. cronbach's alpha reliability test limits between 0.60 0.70. sufficient and a value between 0.70 0.90 is called satisfactory, then the construct is declared reliable. the results of the complete cronbach's alpha value are explained in the table as follows variabel cronbach’s alpha keterangan x1 0,579 tidak reliabel x2 0,379 tidak reliabel x3 0,717 reliabel y1 0,750 reliabel y2 0,727 reliabel : source: smartpls 3 shows the value of cronbach's alpha for variables x3, y1, and y2 has met the requirements because it has met the requirements that are worth > 0.70. this states a reliable construct with a satisfactory category goodness test – fit model goodness-fit model can be seen from the r-square value. the value of r square is used to determine the effect of certain exogenous latent variables on endogenous latent variables. the value of r square can be explained in the table as follows variabel r square brand love (y1) 0,609 brand loyalty (y2) 0,722 source: smartpls 3 shows that the value of r square obtained by the brand love variable is 0.609 or 60.9%. this value explains that brand love can be explained by variables of brand image, brand personality and brand experience, while 39.1% is explained by variations of other variables outside of the research model. the value of r square brand loyalty is 72.22%. this value explains that the purchase intention variable can be explained by brand image, brand personality and brand experience, while 27.78% of other variables are outside the research model. hypothesis test the results of the model evaluation to show the relationship between variables can be seen in the path coefficient value or . the complete results are described in table as follows: effect between variables original sample estimate p values information brand image (x1) → brand love (y1) 0,355 0,000 significantly positive brand personality (x2) →brand love (y1) 0,287 0,000 significantly positive the influence of brand image, brand personality and brand experience on brand love and their impact on brand loyalty of cellular card users 73 brand experience (x3) → brand love (y1) 0,338 0,000 significantly positive brand image (x1) → brand loyalty (y2) 0,044 0,528 positive no significant brand experience (x3) → brand loyalty (y2) 0,093 0,230 positive no significant brand love (y1) → brand loyalty (y2) 0,761 0,000 significantly positive result hypothesis 1, brand image has a positive and significant effect on brand love for telkomsel users the value of the path coefficient of brand image to brand love is 0.355, which means that between brand image variables and brand love has a positive effect. the t-statistic of brand image on brand love is 4.497, t-statistic <1.96, which means that brand image has a significant effect on brand love. hypothesis 2, brand personality has a significant positive effect on brand love for telkomsel users the value of the path coefficient of brand personality on brand love is 0.287, which means that between variables brand personality and brand love has a positive effect. the t-statistic of brand personality on brand love is 3.665, t-statistic <1.96, which means that brand personality has a significant effect on brand love. hypothesis 3, brand experience has a significant positive effect on brand love for telkomsel users the value of the path coefficient of brand experience on brand love is 0.338, which means that between brand experience variables on brand love, it has a positive effect. the t-statistic of brand experience on brand love is 5.699, t-statistic <1.96, which means that brand experience has a significant effect on brand love. hypothesis 4, brand image has a positive and insignificant effect on brand loyalty of telkomsel users pengguna the value of the path coefficient of brand image on brand loyalty is 0.044, which means that between variables brand image on brand loyalty has a positive effect. tstatistic brand image to brand loyalty is 0.634. t-statistic < 1.96 which means that brand image has no significant effect on brand loyalty. hypothesis 5, brand experience has a positive and insignificant effect on brand loyalty of telkomsel users the path coefficient value of brand experience on brand loyalty is 0.230, which means that between brand experience variables on brand loyalty has a positive afebi economic and finance review (aefr) volume 5, no 01 (2020) 74 effect. the t-statistic of brand experience on brand loyalty is 1,209 t-statistic <1.96, which means that brand experience has no significant effect on brand loyalty. hypothesis 6, brand love has a significant positive effect on brand loyalty of telkomsel users the path coefficient value of brand love on brand loyalty is 0.287, which means that between variables brand love and brand loyalty has a positive effect. the tstatistic of brand love on brand loyalty is 10,657, t-statistic <1.96, which means that brand love has a significant effect on brand loyalty. discussion brand image to brand love discussion related to research results obtained from data processing, there is a significant positive influence between brand image and brand love for telkomsel users. the results of this study are supported by (dwiputranto et al., 2017) which says that there is a significant influence on the brand image variable on brand love. the results of research conducted by (bambang et al., 2017) there is an influence between brand image on brand love at gayo coffee pt. oro gayo. brand personality to brand love discussion related to research results obtained from data processing, there is a significant positive influence between brand personality and brand love for telkomsel users. the results of this study are supported by (sharahi & heshmat, 2020) which says that there is a significant influence on the brand personality variable on brand love. the results of research conducted by (bandaranayake & wickramasinghe, 2020) there is an influence between brand personality on brand.love. brand experience terhadap brand love discussion related to research results obtained from data processing there is a significant positive influence between brand experience and brand love for telkomsel users. the results of this study are supported by research conducted by (marliawati & cahyaningdyah, 2020) which states that there is a positive and significant influence between brand personality and brand love. brand image tehadap brand loyalty discussion related to research results obtained from data processing, there is a positive and insignificant effect between brand experience and brand love for telkomsel users. brand experience terhadap brand loyalty discussion related to research results obtained from data processing, there is a positive and insignificant effect between brand experience and brand loyalty on telkomsel users. brand love terhadap brand loyalty discussion related to research results obtained from data processing there is a significant positive influence between brand love and brand loyalty on telkomsel users. the results of this study are supported by research conducted by (niyomsart, 2015) which the influence of brand image, brand personality and brand experience on brand love and their impact on brand loyalty of cellular card users 75 states that there is a positive and significant influence between brand love and brand loyalty. 5. conclusion based on the results of the analysis and discussion, it can be concluded as follows:: 1. based on the results of the study, it can be seen that brand image has a positive and significant effect on brand love for telkomsel users. this means that a good image attached to a brand can attract the attention of consumers so that it can make consumers' love for a brand increase so that a brand love is formed. 2. based on the results of the study, it can be seen that brand personality has a positive and significant effect on brand love for telkomsel users. this means that the personality of a brand can be good for its consumers, so there will be a sense of love for consumers so that brand personality can affect brand love. 3. based on the results of the study, it can be seen that brand experience has a positive and significant effect on brand love for telkomsel users. this means that the good experience that consumers get from a brand can trigger a sense of love between consumers and it so as to create brand love. 4. based on the results of the study, it can be seen that brand image has a positive and insignificant effect on brand loyalty to telkomsel users. this means that brand image does not trigger a sense of brand loyalty. 5. based on the results of the study, it can be seen that brand experience has a positive and insignificant effect on brand loyalty to telkomsel users. this means that the brand experience does not trigger a sense of brand loyalty. 6. based on the results of the study, it can be seen that brand experience has a positive and insignificant effect on brand loyalty to telkomsel users. this means that the brand experience does 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(2013). consumer behaviour: a european perspective-pearson education limited. in pearson education (vol. 5). the influence of internal and external factors on npf and npl 37 the influence of internal and external factors on npf and npl wahyu prastowo1)*, hardius usman2) 1,2politeknik statistika stis, indonesia abstract indonesia has two types of bank, islamic banking and conventional banking. in their activities, banks are often facing any risks, named financing risk (npf) in the islamic banking and credit risk (npl) in the conventional banking. based on data by ojk, the value of npf is always higher than npl. however, in january-august 2020 the npf tended to decrease while the npl tended to increase, even indicating a movement that would excited the npf value. therefore, it's necessary to the research of the factors that influence both npf and npl, including the internal and external conditions of the bank. the data that used as reference is the secondary data from ojk of 10 both islamic and conventional commercial banks from the first quarter of 2019 to the third quarter of 2020. furthermore, the data is analyzed with panel model fixed effect data analysis with the robust standard error estimation method and panels corrected standard error (pcse cross-sectional sur). by using 5% of significance level, this research results that npf is only significantly and positively influenced by fdr. however, npl is significantly and negatively affected by the inflation and roa, also significantly and positively influenced by car, ldr, and bopo. keywords: npf, npl, panel data, islamic banking, conventional banking 1. introduction bank is an important financial institution that influences both of the micro and macro economy of the country. served as a financial auxiliary between the parties who have the excess of funds and parties that need funds or are experiencing a deficit. in the process of its business, the role of the bank as a financial institution that offers services and trusts, each bank always tries to attract as many new customers as possible, increase their income, and increase the provision of loans and services (simorangkir 2004). indonesia is one of the countries that applies a dual financial system, it is conventional financial system and the islamic financial system. according to the indonesian law no. 21 of 2008 concerning in islamic banking, islamic bank is a type of bank that carry out their business activities based on sharia principles and not opposite to the islamic values. according to its type, islamic bank consists of sharia commercial banks (bus), sharia business units (uus) and sharia rural banks (bprs). meanwhile, conventional bank is a kind of bank that carry out their business activities conventionally and according to its type, it consists of conventional commercial banks (buk) and rural banks (bpr). one of the differences between islamic banking and conventional banking lies in the financing and provision of remuneration, both received by the bank and investors (nasution 2003). according to firmansyah (2014) remuneration received by or given to conventional banking is in the form of interest in a definite percentage. so it doesn't matter whether the borrower's condition is still able to pay off the debt or not. this of *coressponding author. email address: 211710049@stis.ac.id mailto:211710049@stis.ac.id afebi economic and finance review (aefr) volume 6, no. 1 (2021) 38 course will burden the borrower. whereas in bank that apply sharia principles, the term of credit is not used but is replaced by the term of financing because they have the different principles. financing in islamic banking prioritize the elements of agreement and transparency so that islamic values are maintained in it. the conventional banking, just like other financial institutions, has a motive to obtain returns (business results) which will always be faced by risk, which is known as credit risk. the risks that maybe occurred can cause a huge loss to conventional banking, if it cannot be detected and managed properly. so, conventional banks are required to be more sensitive in detecting matters that could trigger an increase in the level of their non-performing loans. according to syaifuddin (2009) credit risk is the danger of negligence from the customers who have been given credit facilities or bank losses as a result of non-repayment of loans given by banks to debtors. the islamic banking financial system which is built on the basis of islam is also not free from the problems just like conventional banking and other financial institutions. as an institution that connects between surplus units (which have funds) and deficit units (which require financing), the composition of the bank funds comes from the public, so that they must channel back to the public morally in the form of financing. in practice, from the total of financing that distributed to the community, not all financing is categorized as a health financing, one of them is the financing that has a lack of quality or has problems (firmansyah 2014). this problematic financing in the world of islamic banking is called non performing financing (npf), while non-performing loans in conventional commercial banks are called non performing loans (npl). npf is an incident that often occurs in the world of islamic banking because one of the main activities of islamic banking comes from the distribution of financing. if problematic financing (npf) exceeds the limit, it will be a serious problem that will disrupt the profitability of islamic banking which will lead to the cessation of the operations of islamic banking. according to nurfalah et al. (2018), islamic banking is relatively more stable when it’s compared to conventional banking in case of facing shocks from both internal (domestic) and external (global). this is reflected in facing covid-19, the financing that distributed by bus also tended to increase. based on figure 1, non-performing financing (npf) also tended to experience a decline during the covid-19 period, in the period of march 2020 to august 2020. meanwhile, non-performing loans (npl) tended to increase in march 2020 to august 2020. this shows that islamic banking has managed its financing in a good way and islamic banking is relatively more stable in facing external shocks compared to conventional banking, so it’s resulting a smaller npf. figure 1. percentage of the nfp bus and npl buk in march 2020 – august 2020 source: financial service authority (ojk), processed by writers the influence of internal and external factors on npf and npl 39 financing / credit is the main activity of banking, both islamic banking and conventional banking, so it is necessary to have such a good credit / financing management. non-performing loans / financing can disrupt the stability of the islamic and conventional banking financial systems. according to indrajaya (2019) the impact of the increase in npf / npl is it can result in a decrease in bank income and result in the decrease in the profit sharing rate for customers who own funds. if the accumulated amount of financing / bad credit is relatively large, it can reduce the bank capital quickly and increase the potential to th failure of the banks to operate. so that the npf / npl needs to be kept to a minimum, so it won’t cause losses to the bank, therefore it needs to be detected and managed appropriately. the previous studies discussed more about the npf because it continued to increase or the npf of islamic banking was higher than the npl of conventional banking. this research, entitled "the influence of internal and external factors on npf and npl" is becoming important because it wants to discuss about npf which shows a decreasing trend, while npl shows an increasing trend every month in the first quarter of 2020 to the second quarter of 2020. so, the purpose of this research is to know an overview of the development of npf / npl and the factors that influence it, to know the factors that affect npl and npf, and to know the comparison of the response between the npf of sharia commercial banks and npl of conventional commercial banks based on the factors that influence it in the first quarter of 2019 the third quarter of 2020. the cause of npf / npl itself can be caused from the internal side or the external side. from the external side it can be caused by the factors such as changes in government policy in the real sector, increased in prices for production factors, increased competition in the business sector, increased the loan interest rates, recession, inflation, and other monetary policies (kuncoro 2002). the external influence itself can have a direct or indirect impact on npf / npl. from the internal side, it generally comes from corporate governance mechanisms, such as capital adequacy ratio (car), operational cost ratio to operating income (bopo), and financing to deposit ratio (fdr) (indrajaya 2019). meanwhile, according to solihatun (2014), internal factors that affect npf are financing to deposit ratio (fdr) and return on assets (roa). 2. literature study the credits that extended by banks have several risks, one of which is the risk of default which can harm the bank. this risk is caused because the debtor is unable to pay back the principal of the loan. the debtor's inability to repay the loan is a risk that will be faced by the bank where this risk cannot be avoided considering that the function of the bank is to distribute funds to people in need. this risk is also known as bad credit or npl at conventional commercial banks, while in islamic commercial banks it is known as non-performing loans or npf. according to salas and saurina (2002) npl is caused by macroeconomic factors (external banks) and microeconomic factors (internal banks). the research that conducted by radivojević et al. (2019) entitled econometric model of non-performing loans determinants using the generalized method of moments (gmm) estimation method. this study states that npl (-1) and gdp have a positive and significant effect on npl. household finale consumption expenditure (hfc) has a negative and significant effect on npl. meanwhile unemployment rate (unr), inflation rate (inf), capital to assets (cap), and lending interest rate (lir) have a negative and insignificant effect on npl. kamaludin, darmansyah, and usman (2015) with his research entitled determinants of non-performing loans (npl) in the banking industry (empirical afebi economic and finance review (aefr) volume 6, no. 1 (2021) 40 evidence for go public companies on the indonesia stock exchange). this research aims to identify the determinants of npl in the indonesian banking sector. the analytical method that used is panel data analysis with the pooled fgls (cross-section random effects) method. the results of this study are ldr and exchange rates show a positive and significant effect on npl. car and nim have a negative and significant effect on npl. meanwhile, inflation has a positive but insignificant effect on npl. firmansyah (2014) in his research entitled determinant of non performing loans: the case of islamic bank indonesia using the ols analysis method and the sobel test with bootstrapping. this research shows that liquidity have a negative and significant effect on npf, negative and significant inflation and gdp on npf. however, bopo and bank size has no effect on npf. in addition, based on the result of the sobel test analysis with bootstrapping data proves that bprs liquidity as measured by fdr does not mediate the effect of bank size, bopo, gdp and inflation on problematic financing. auliani (2016) conducted a research entitled analisis faktor internal dan faktor eksternal terhadap tingkat pembiayaan bermasalah pada bank umum syariah di indonesia periode tahun 2010-2014. this study aims to analyze the influence of internal and external factors on the npf of islamic banks in indonesia. bopo, car, fdr, sbis, inflation and exchange rates as independent variables and the npf ratio as the dependent variable. by using multiple linear regression analysis method, this study results that bopo and sbis show a positive and significant effect on npf. car and inflation sensitivity show a negative and significant effect on npf. meanwhile, fdr and exchange rate sensitivity have a positive but insignificant effect on npf. the possibility that causes fdr does not have a significant effect is that each bank has different criteria and requirements in providing financing. meanwhile, exchange rate sensitivity does not have a significant effect due to the value of financing in foreign currency in islamic banking on average in the range of 5 percent of the total disbursed financing, so that changes in exchange rates do not have enough impact and even have almost no impact on the npf of islamic banking. research conducted by imaduddin (2008) entitled determinants of banking credit defaults in indonesia: a comparative analysis. this research aims to compare the factors that influence npl in conventional banking with npf in islamic banking. the results of this study by using the ordinary least square (ols) analysis method is a two-month lag of npf, total assets and gdp have a positive and significant effect on npf. meanwhile, total third party funds and total financing have a negative and significant effect on npf. in conventional banking, a 3-month lag from npl, total assets, proxies as bank money market in each period, and a 3-month lag of total credit have a positive and significant effect on npl. meanwhile, gdp and a two-month lag of total credit have a negative and significant effect on npl. this shows that there are differences in factors that influence the npf and npl. research conducted by poetry and sanrego (2011) entitled pengaruh variabel makro dan mikro terhadap npl perbankan konvensional dan npf perbankan syariah. by using the var (vector auto regression) or vecm (vector error correction model) analysis method, this study tries to identify the effects of macro and micro variables on npl and npf. the macro and micro variables used in this research are ipi (industrial production index), inflation, exchange rate, swbi / sbis (bank indonesia syariah bank indonesia wadiah certificate), sbi (bank indonesia certificate), ldr (loans to deposit ratio), fdr (financing to deposit ratio), and car (capital adequacy ratio). the results of the study found that in the short term there were no significant variables affecting npl and npf. in the long term, the the influence of internal and external factors on npf and npl 41 variables that have a significant effect on npl are the exchange rate, ipi, inflation, sbi, ldr, car and the significant variables that affect npf are lner, lnipi, inflation, sbis, fdr_bs, and car. according to the results of the irf, this study found that the npf in islamic banking is more stable than the npl in conventional banking to deal with macro and micro variable fluctuations. according to the fevd variable that affects npl in conventional banking is inflation and sbi, while the only variable that affects npf in islamic banking is fdr. 3. research methodology this research is using panel data in the period of the first quarter 2019-third quarter 2020 due to the limited number of observations that used as many as 10 islamic commercial banks and 10 conventional commercial banks. the islamic banks that used are bca syariah, bni syariah, bri syariah, btpn syariah, bank mandiri syariah, bank mega syariah, bank panin syariah, bank bukopin syariah, bank victoria syariah, and bjb syariah. meanwhile, the conventional banks that used are bca, bni, bri, btpn, bank mandiri, bank mega, bank panin, bank bukopin, bank victoria, and bjb. on the descriptive analysis and inferential analysis use the secondary data from the quarterly publications of the financial services authority (ojk), as well as inflation and gdp from the official website of the central statistics agency (bps) (www.bps.go.id). the data used in the analysis are non-performing finance (npf) data from 10 islamic commercial banks, non-performing loans (npl) from 10 conventional commercial banks, return on assets (roa) from 10 islamic commercial banks and 10 conventional commercial banks, operating costs and operating income (bopo) from 10 sharia commercial banks and 10 conventional commercial banks, financing to deposit ratio (fdr) from 10 sharia commercial banks, loans to deposit ratio (ldr) from 10 conventional commercial banks, capital adequacy ratio (car) from 10 sharia commercial banks and 10 conventional commercial banks, indonesia's monthly inflation and indonesia's gross domestic product on the constant price basis 2010. the analysis used is descriptive and inferential analysis. descriptive analysis is used to explain the general description of non-performing finance / non-performing loans and the factors that influence it in islamic commercial banks and conventional commercial banks in indonesia for the period of the first quarter of 2019the third quarter of 2020. the inferential analysis used is panel regression analysis to analyze the factors affecting non-performing finance for islamic commercial banks (sharia model) and nonperforming loans for conventional commercial banks (conventional model) in indonesia. the sharia model used is as follows: 𝑵𝑷𝑭𝒊𝒕 = 𝜶 + 𝜷𝟏𝑰𝑵𝑭𝒊𝒕 + 𝜷𝟐𝑹𝑶𝑨𝒊𝒕 + 𝜷𝟑𝑪𝑨𝑹𝒊𝒕 + 𝜷𝟒𝑭𝑫𝑹𝒊𝒕 + 𝜷𝟓𝑩𝑶𝑷𝑶𝒊𝒕 + 𝜷𝟔𝑳𝑵_𝑷𝑫𝑩𝒊𝒕 + (𝒖𝒊𝒕 + 𝒗𝒊𝒕)) with npfit : the i-th islamic commercial bank non-performing finance at the t-th (time) infit : inflation in indonesia of the i at time t roait : return on assets of the i sharia commercial bank at time t carit : the capital adequacy ratio of the i sharia commercial bank at the t time fdrit : loans to deposit ratio of the i sharia commercial bank at time t bopoit : operating costs to the operating income of the i sharia commercial bank at time t ln_pdbit : indonesia's gross domestic product at time t afebi economic and finance review (aefr) volume 6, no. 1 (2021) 42 i : individual; i = 1, 2,…, 10 t : study period; t = quarter 1 of 2019,…, quarter 3 of 2020 β1… β6 : slope of the regression of each variable ui : each individual error vit : model error the conventional model used is as follows: 𝑵𝑷𝑳𝒊𝒕 = 𝜶 + 𝜷𝟏𝑰𝑵𝑭𝒊𝒕 + 𝜷𝟐𝑹𝑶𝑨𝒊𝒕 + 𝜷𝟑𝑪𝑨𝑹𝒊𝒕 + 𝜷𝟒𝑳𝑫𝑹𝒊𝒕 + 𝜷𝟓𝑩𝑶𝑷𝑶𝒊𝒕 + 𝜷𝟔𝑳𝑵_𝑷𝑫𝑩𝒊𝒕 + (𝒖𝒊𝒕 + 𝒗𝒊𝒕)) with nplit : the i-th conventional commercial bank non-performing loans at the t-th (time) infit : inflation in indonesia of the i at time t roait : return on assets of conventional commercial bank i at time t carit : capital adequacy ratio for conventional commercial bank i at time t ldrit : loans to deposit ratio of conventional commercial bank i at time t bopoit : operating costs against operating income of conventional commercial bank i at time t ln_pdbit : indonesia's gross domestic product at time t i : individual; i = 1, 2,…, 10 t : study period; t = quarter 1 of 2019,…, quarter 3 of 2020 β1… β6 : slope of the regression of each variable ui : each individual error vit : model error 4. result and discussion the overview of the nfp of sharia commercial bank and the npl of the conventional commercial bank financing is the main activity carried out by sharia commercial banks. unlike credit, financing prioritizes elements of agreement and transparency so the islamic values are maintained in it. however, in fact, from the amount of financing that distributed to the community, not all of the financing was in the healthy category, but some of it was financing that has a bad quality and problematic (firmansyah 2014). the indicator of non-performing financing in islamic banking can be seen from the nonperforming finance (npf) ratio, while in conventional banking, the indicator for nonperforming loans can be seen from the ratio of non-performing loans (npl). npf reflects the risk of financing from financing distributed by sharia commercial banks, while npl reflects the credit risk of credit extended by conventional commercial banks. the influence of internal and external factors on npf and npl 43 figure 2. npf’s average movement of 10 bus and npl’s average of 10 buk for the period of the first quarter of 2019-the third quarter of 2020 source: financial service authority (ojk), processed by writers figure 2 shows that the average movement of the npl at 10 buk and the average npf at 10 bus. from this figure, can be seen that the movement of the two values does not fluctuate too much. the average of npl formed an increasing trend, while the average of npf tend to form a flat trend. the highest increase in average of npl occurred in the third quarter of 2020, which increased by 0.527 percent from the previous quarter. meanwhile, the average of npf just increased by 0.1 percent from the previous quarter. this shows that in terms of credit / financing risk, bus is more stable than buk. the overview of the roa’s of sharia commercial bank and conventional commercial bank figure 3. the average of roa of bus, average of npf, average of roa of buk, and average of npl of 10 bus and buk in indonesia from the first quarter of 2019 to the third quarter of 2020 source: financial service authority (ojk), processed by writers figure 3 shows that the movement of the average of roa and average of npf of 10 bus, from this figure it can be seen that the movement of the two values shows the opposite pattern. in the first quarter to the fourth quarter of 2019, the average of roa of buk continued to increase. however, starting from the first quarter of 2020, it has decreased continuously until the third quarter of 2020. meanwhile, the average of npf in the first quarter to the fourth quarter of 2019 shows a decreasing trend, but in the first afebi economic and finance review (aefr) volume 6, no. 1 (2021) 44 quarter to the third quarter of 2020 it has increased. this indicates that roa bus has a negative relationship to npf. likewise, it can be seen that the average movement of roa of buk has a pattern that is opposite to the average movement of npl. in the first quarter of 2019 to the second quarter of 2020 the average roa of buk was tended to decrease, while the average of npl always increased. however, in the third quarter of 2020 an increase in the average roa of buk was followed by an increase in the average of npl. however, it can still be indicated that roa buk has a negative relationship with npl at 10 buk. the overview of bopo of sharia commercial bank and conventional commercial bank figure 4. the average of bopo of bus, average of npf, average of bopo of buk, and average of npl of 10 bus and buk in indonesia from the first quarter of 2019 to the third quarter of 2020. source: financial service authority (ojk), processed by writers figure 4 shows the development of the average of bopo and the average of npf of 10 bus, where we can see that the movement of the two values shows a pattern that tends to be the same. in the first quarter to the third quarter of 2019, the increase in the average of bopo bus was followed by an increase in the average of npf. however, in the fourth quarter of 2019 to the first quarter of 2020, the average movement of bopo of bus was in the opposite direction to the average movement of npf . in the fourth quarter of 2019, the average of bopo increased by 0.59 percent, while the average of npf decreased by 0.058 percent. the opposite happened in the first quarter of 2020, the average of bopo of buk decreased, while the average of npf increased. in the second quarter to the third quarter of 2020, the average bopo and the average npf showed that the movement back in the same direction. thus, it can be indicated that bopo of bus has a positive relationship to npf at 10 bus. likewise, it can be seen that the average movement of bopo of bu tends to be in the same pattern of direction as the average movement of npl. in the first quarter to the third quarter of 2019, the average of bopo of buk and the average of npl increased. however, in the fourth quarter of 2019 to the second quarter of 2020 the two values move in the opposite direction. in the third quarter of 2020, the two values moved again in the same direction, namely the average bopo increased by 3.64 percent and the average npf increased by 0.53 percent. thus, it is still indicated that bopo buk has a positive relationship with npl at 10 buk. the influence of internal and external factors on npf and npl 45 the overview of the car of sharia commercial bank and conventional commercial bank figure 5 shows the development of the average car and npf of 10 bus, where we can see that the movement of the two values tends to show a pattern in the opposite direction. in the first quarter to the third quarter of 2019 and the first quarter to the second quarter of 2020, an increase in the average car bus was followed by a decrease in the average npf or vice versa. however, in the fourth quarter of 2019 the average car bus decrease was followed by a decrease in the average npf and in the third quarter of 2020 an increase in the average of car of bus that followed by an increase in the average of npf. however, it still indicates that the average car bus has a negative relationship with the average npf of 10 bus. in contrast to the average of car of bus, the average movement of buk of car shows a direction that tends to be the same as the average movement of npl. in the third quarter of 2019, an increase in the average of car of buk was 0.63 percent followed by an increase in the average of npl of 0.239 percent. in the first quarter to the third quarter of 2020, an increase in the average of car for buk was also followed by an increase in the average of npl. however, in the second and fourth quarters of 2019, the average of car for buk decreased, followed by an increase in the average of npl. nonetheless, it still indicates that car of buk has a positive effect on npl of 10 buk because it has an upward trend. figure 5. the average of car of bus, average of npf, average of buk of car, and average of npl of 10 bus and 10 buk in indonesia from the first quarter of 2019 to the third quarter of 2020 source: financial service authority (ojk), processed by writers afebi economic and finance review (aefr) volume 6, no. 1 (2021) 46 the overview of the fdr of sharia commercial bank and the ldr of the conventional commercial bank figure 6. the average of fdr of bus, average of npf, average of ldr, and average of npl of 10 bus and 10 buk in indonesia from the first quarter of 2019 to the third quarter of 2020 source: financial service authority (ojk), processed by writers figure 6 shows the development of the average of fdr and average of npf of 10 bus, where the movement of the two values has the same direction. in the second quarter of 2019 and in the fourth quarter of 2019 to the first quarter of 2020 an increase in the average of fdr was followed by an increase in the average of npf. however, in the third quarter of 2019 and the second quarter of 2020 an increase in the average of fdr was followed by a decrease in the average of npf. likewise, in the third quarter of 2020 the decline in the average of fdr was followed by an increase in the average of npf. even so, it still indicates that the average of fdr has a positive relationship with the average of npf of 10 bus because it shows an increasing trend. likewise, it can be seen that the average of ldr shows a movement with a pattern which tends to be the same as the average of npl. in the first quarter of 2019 to the second quarter of 2020 an increase in the average of ldr was followed by an increase in the average of npl. however, in the third quarter of 2020 the decrease in the average of ldr was followed by a decrease in the average of npl. even so, it still indicates that the ldr has a positive effect on npl at 10 buk. the overview of inflation figure 7. the inflation, average of npf of 10 bus, and average of npl of 10 buk in indonesia in the first quarter of 2019 to the third quarter of 2020 source: financial service authority (ojk) and central bureau of statistics (bps), processed by writers the influence of internal and external factors on npf and npl 47 in figure 7, the movement of inflation tends to show a trend in the same direction as the average movement of npl, but tends to show a trend in a different direction from the average movement of the npf. in the fourth quarter of 2020 to the third quarter of 2020, the increase / decrease in inflation was followed by an increase / decrease in the average of npl, while the increase / decrease in inflation was not followed by an increase / decrease in the average of npf. however, in the third quarter of 2020 the decline in inflation was followed by an increase in the average of npl and also an increase in the average of npf. nevertheless, this still indicates that inflation has a positive relationship with npl and has a negative relationship with npf. the overview of pdb of adhk figure 8. the gdp, average of npf of 10 bus, and average of npl of 10 buk in indonesia for the first quarter of 2019 to the third quarter of 2020 source: financial service authority (ojk) in figure 8, the average movement of npf and npl tends to show the same direction as gdp. in the second quarter of 2019 and the third quarter of 2020 the decline in gdp was followed by a decrease in the average of npl and average of npf. likewise, in the second quarter of 2020 an increase in gdp was followed by an increase in the average of npl and average of npf. this indicates that gdp has a positive relationship to npl a nd npf. thus, npf and npl are stable and resilient when facing gdp shocks. sharia model based on the model selection through the chow test and hausman test as well as the residual covariance variant structure test, the model chosen to estimate the sharia model is the fixed effect model (fem) with the robust standard error estimation method with the panel corrected standard error (pcse cross-sectional sur). for this reason, testing the classical assumptions that need to be done is only the normality test and the non-multicollinearity test. the results that obtained are that the model has met the two assumptions (table 1), so the model formed can be written as follows, 𝑵𝑷�̂�𝒊𝒕 = (32,06989 + μi) – 0,021999 infit – 0,046030 roait + 0,030287 carit + 0,006412 fdrit – 0,009397 bopoit – 1,959338 ln(pdb)it * significant at α = 5 percent afebi economic and finance review (aefr) volume 6, no. 1 (2021) 48 table 1. the estimation results of the sharia model variable coefficient std. error t-statistic prob. vif (1) (2) (3) (4) (5) (6) c 32.06989 25.00019 1.282786 0.2050 inf -0.021999 0.091074 -0.241551 0.8100 1.054712 roa -0.046030 0.060685 -0.758504 0.4514 5.395903 car 0.030287 0.018324 1.652822 0.1042 1.942716 fdr 0.006412 0.002848 2.251848 0.0284 1.131164 bopo -0.009397 0.024866 -0.377895 0.7070 4.531046 ln_pdb -1.959338 1.695250 -1.155781 0.2529 1.023450 adjusted r-squared 0.898688 f-statistic 41.80430 prob(f-statistic) 0.000000 prob(lilliefors) 0.0748 source: output eviews 10 the coefficient of determination (r2 adjusted) of the sharia model based on the output of the sharia model in table 1, it can be seen that the value of r2adjusted is 0.898688. this value means that the independent variables, namely roa, fdr, bopo, car, inflation, and gdp, are able to explain the npf of bus by 89.8688 percent. meanwhile, the remaining 10.1312 percent is explained by other independent variables outside the sharia model. simultaneous test (f-test) of the sharia model simultaneous test is used to determine whether there is at least one independent variable that affects the dependent variable. based on the output of the sharia model in table 1, it can be seen that the probability value of the f test statistic is 0.0000, which is smaller than the significance value (α) which is 0.05. thus, it can be concluded that h0 is rejected. so it can be said that with a significance level of five percent, there is enough evidence to say that at least one independent variable between roa, bopo, fdr, car, inflation, and gdp, affects the npf of bus. partial test (t-test) of sharia model for the partial test, the t-test statistical value of each variable in the model was obtained. based on the table 1, it can be seen that the statistical probability of the t-test for the fdr variable is smaller than alpha 0.05, so it can be said that at the five percent significance level the fdr variable has a significant effect to non-performing bus financing. then we can also see that the probability of the t test statistics for the inflation variable, roa, car, bopo, and gdp is greater than alpha 0.05 so that it can be said that at the five percent significance level the inflation variable, roa, car, bopo, and gdp has no significant effect on the npf of bus. conventional model based on the model selection through the chow test and hausman test also the residual covariance variant structure test, the model chosen to estimate the model is the fixed effect model (fem) with the robust standard error estimation method with the panel corrected standard error (pcse cross-sectional sur). for this reason, testing the classical assumptions that need to be done is only the normality test and the nonthe influence of internal and external factors on npf and npl 49 multicollinearity test. the results obtained are that the model has fulfilled the two assumptions (table 2), so the model that formed can be written as follows, 𝐍𝐏�̂�𝐢𝐭 = (-35.26826 + μi) 0.227796 infit* 0.396467 roait* + 0.128861 carit* + 0.024051 ldrit* + 0.054491 bopoit* + 2.010622 ln(pdb)it * significant at α = 5 percent table 2. the estimation results of conventional model variable coefficient std. error t-statistic prob. vif (1) (2) (3) (4) (5) (6) c -35.26826 29.43844 -1.198034 0.2361 inf -0.227796 0.100884 -2.257991 0.0280 1.086301 roa -0.396467 0.164224 -2.414184 0.0192 2.922809 car 0.128861 0.048457 2.659305 0.0103 2.036842 ldr 0.024051 0.008340 2.884036 0.0056 1.355463 bopo 0.054491 0.011237 4.849085 0.0000 3.641226 ln_pdb 2.010622 2.010015 1.000302 0.3216 1.019751 adjusted r-squared 0.899876 f-statistic 42.34292 prob(f-statistic) 0.000000 prob(lilliefors) > 0.1 source: output eviews 10 coefficient of determination (r2 adjusted) of conventional model based on the conventional model output in table 2, it can be seen that the value of r2adjusted is 0.899876. this value means that the independent variables roa, ldr, bopo, car, inflation, and gdp are able to explain the npl of buk of 89.9876 percent. meanwhile, the remaining 10.0124 percent is explained by other independent variables outside the conventional model. simultaneous test (f-test) of conventional model based on the conventional model output in table 2, it can be seen that the probability value of the f test statistic is 0.0000, which is smaller than the significance value (α) which is 0.05. thus, it can be concluded that h0 is rejected. so it can be said that with a significance level of five percent, there is enough evidence to say that at least one of the independent variables roa, bopo, ldr, car, inflation, and gdp, affects the npl of buk. partial test (t-test) conventional model for the partial test, the t-test statistical value of each variables in the model was obtained. based on table 2, it can be seen that the statistical probability of the t-test for the inflation variable, roa, car, ldr, and bopo is each smaller than alpha 0.05, so it can be said that at the five percent significance level the inflation variable, roa, car, ldr, and bopo, respectively, have a significant effect on buk non performing loans. then we can see that the statistical probability of the t test for the variable is greater than alpha 0.05, so it can be said that at the five percent significance level the gdp variable does not have a significant effect on the npl of buk. afebi economic and finance review (aefr) volume 6, no. 1 (2021) 50 comparison of the response between npf and npl to inflation based on table 1, it can be seen that inflation has a negative effect on npf with a coefficient value of -0.021999, it means that for each one percent increase in inflation will reduce the npf by 0.021999 percent, with the assumption other variables are constant. similar to npf, based on table 2, it can be seen that inflation has a negative effect on npl with an inflation coefficient of -0.227796, meaning that each one percent increase in inflation will reduce npl by 0.021999 percent, with the assumption other variables are constant. however, the npf response to inflation did not show a significant effect. according to mutamimah and chasanah (2012) this happened because islamic banking has one of the advantages compared to conventional banking, which is resistant to the effects of inflation. islamic banking activities are categorized as investment banking and merchant / commercial banking and in carrying out their operational activities, islamic banking has replaced the interest system with a profit sharing system. so inflation does not really affect the quality of bank financing. in islamic banking financing, there are several types of contracts that aim to reduce the risk of financing, such as financing with a sale and purchase agreement consisting of murahabah and istishna. financing with a profit sharing agreement consisting of mudharabah and musyarakah, also financing with a lease or ijarah agreement. the most dominating financing to be used is financing with a sale and purchase agreement. in the murabahah application the installments are fixed from the beginning to ending, so when there is an increase in inflation in the long term, it does not affect the amount of installments paid by the customers. this is because customers can plan cash flow arrangements that needed to pay off murabahah financing. according to wijoyo (2016), both in the short term and in the long term, inflation has an insignificant effect on npf. this is because bank indonesia has published an inflation target for the next three years. this publication of course can be seen as a signal of anticipation by the public, including customers. so that the public can estimate the amount of inflation in the upcoming years, even though this estimate is not necessarily in accordance with the reality that occurred. in 2019 to 2020, when inflation is close to the target range, this condition will not have a major effect on income distribution, allocation of production factors, and national income. when inflation does not have a large effect on income, the real income of the public, including customers, will not experience major changes. customers can still make payment of their financing installments to islamic banking, so the demand and supply of financing in islamic banking will not experience disruption. however, this statement contradicts research conducted by agustiningsih, syapsan, and iyan (2017) which states that inflation has a positive and significant effect on the npf of islamic banking. comparison of responses between npf and npl to roa based on table 1, it can be seen that roa has a negative effect on npf with a coefficient value of -0.046030, it means that each one percent increase in roa will reduce the npf by 0.046030 percent, with the assumption other variables are constant. similar to npf, based on table 2, it can be seen that roa has a negative effect on npl with an roa coefficient value of -0.396467, it means that each one percent increase in roa will reduce npl by 0.396467 percent with the assumption other variables are constant. however, the npf response to roa did not show a significant effect. this is because when the performance of islamic banking improves, which is indicated by an the influence of internal and external factors on npf and npl 51 increase in roa, there is no direct response by reducing the distribution of financing. it’s different to the islamic banking, in conventional banking, an increase in roa is responded by reducing lending, where according to messai and jouini (2013) a bank with high profitability (roa) has little incentive to generate income and is therefore limited to engaging in risky activities just like giving risky loans. this is also in line with research conducted by waemustafa and sukri (2015), kismawadi, hamid, and nurhaliza (2018), and yolanda and ariusni (2019). comparison of responses between npf and npl to car based on table 1, it can be seen that car has a positive effect on npf with a coefficient value of 0.030287, it means that each one percent increase in car will increase the npf by 0.030287 percent with the assumption other variables are constant. similar to npf, based on table 2, it can be seen that car has a positive effect on npl with a car coefficient value of 0.128861, it means that each one percent increase in car will increase npl by 0.128861 percent with the assumption other variables are constant. however, the npf response to car did not show a significant effect. this indicates that islamic banking is carefully responding to an increase in car so that an increase in car does not directly affect the increase in the distribution of financing to islamic banking. it’s different to islamic banking, in conventional banking the increase in car is responded by an increase of credit distribution, which is in accordance with the statement of erni ambarawati (2015) in anwar and sunaenah (2016) that increasing credit distribution will increase the risk of problem loans in conventional banking. comparison of the responses of npf to fdr and npl to ldr fdr has a positive and significant effect on npf with the fdr coefficient in table 1 by 0.006412, it means that each one percent increase in fdr will increase the npf by 0.006412 percent with the assumption other variables are constant. similar to npf, based on table 2, it can be seen that ldr has a positive and significant effect on npl with an ldr coefficient value by 0.024051, it means that every one percent increase in ldr will increase npl by 0.024051 percent with the assumption other variables are constant. this indicates that the credit distributed to conventional banking and the financing distributed by islamic banking to each customer has a poor quality, so credit expansion by conventional banking and financing expansion by islamic banking can reduce the returns for both types of banking and increase the level of npl or npf. this is in accordance with what sipahutar (2007: 56) stated in poetry and sanrego (2011) that with poor quality ldr, credit expansion can make a bad contribution to increasing bank profits, so that npl will also increase. this is also in line with research conducted by haifa and wibowo (2015), antonio (2001: 179) in ahmad and widodo (2018), barus and erick (2016). comparison of responses between npf and npl to bopo based on table 1, bopo has a negative and insignificant effect on npf with a bopo coefficient -0.009397, it means that each one percent increase in bopo will reduce npf by 0.009397 percent with the assumption other variables are constant. meanwhile, based on table 2, bopo has a positive and significant effect on npl with a bopo coefficient value 0.054491, it means that each one percent increase in bopo will increase npl by 0.054491 with the assumption other variables are constant. this indicates that the bank efficiency factor, bopo, does not automatically reduce the ratio afebi economic and finance review (aefr) volume 6, no. 1 (2021) 52 of non-performing payments in islamic banking. according to dendawijaya (2003) in destiana (2018), the negative effect of bopo on npf is caused by the smaller bopo ratio, which means that the bank concerned is more efficient in managing operational costs. with this cost efficiency, the bank will get optimal profits, so the bank is able to increase the amount of financing distribution. according to poetry and sanrego (2011), an increase in the distribution of financing will result in an increase in the npf of islamic banking. comparison of the response between npf and npl to gdp based on table 1, gdp has a negative and insignificant effect on npf with a gdp coefficient value of -1,959338, it means that each one percent increase in gdp will reduce the npf by 1.959338 percent with the assumption other variables are constant. meanwhile, based on table 2, gdp has a positive and significant effect on npl with a gdp coefficient value of 2.010622, it means that each one percent increase in gdp will increase the npl by 2.010622 with the assumption other variables are constant. this insignificant effect shows that islamic banking and conventional banking can adjust their response to economic conditions so they will be stable against shocks. meanwhile, the positive effect of gdp on npl indicates that when the economic condition is booming, conventional banks are more optimistic about the economic conditions of the community, so conventional banks will increase their lending in the hope that they will get a large return. on the other hand, islamic banking respons to the booming economic conditions carefully in the distribution of its financing to the debtors. the response of the npl to economic conditions is in accordance to djaman's (2005: 23) statement in poetry and sanrego (2011) which states that a booming economic condition can trigger a massive expansion of credit provision by banks and if it is not carried out under the close supervision it will increase the ratio of npl. an increase in the ratio of npl in this condition is indicated to be caused by the factor of bank negligence, as stated by siamat (2005: 360) in poetry and sanrego (2011) that one of the causes of the increase in npl is irregularities in the implementation of credit procedures. thus, it can be seen that in islamic banking, the shock to the gdp variable has more impact on the behavior of its customers, while in conventional banking, the shock to the gdp variable has more impact on banking behavior. this is understandable considering that conventional banking has been around longer than islamic banking, so that islamic banking is still very careful because it does not have much experience. on the other hand, more experienced conventional banks feel more confident, which in the end are fooled by the booming economic conditions. 5. conclusion in 10 islamic commercial banks, the average of npf, bopo, and car show a trend that tended to be stable. the average movement of roa shows a downward trend. the movement in the average fdr shows an increasing trend, but the increase is not too sharp. on the other hand, in 10 conventional commercial banks, the average movement of npl and bopo show an increasing trend. the average movement of roa shows a downward trend. the average movement cara and average of ldr tend to be stable. meanwhile, in average, the movement of inflation and gdp is very fluctuating, but inflation follows a downward trend. the influence of internal and external factors on npf and npl 53 the variables of inflation, roa, bopo, and gdp have a negative and insignificant effect on npf. therefore, islamic banking should increase bopo and roa because there is a tendency to decrease npf. on the other hand, even though islamic banking is not affected by external factors, islamic banking must continue to adapt to economic conditions so that problem financing continues to decline. the car variable has a positive and insignificant effect on npf, so that islamic banking is expected to pay more attention to asset management by reducing the distribution of assets to financing which will result in a decrease of npf. meanwhile, the fdr variable has a positive and significant effect on npf, which indicates that the financing distributed by sharia banks has a poor quality, so sharia banking is expected to improve the quality of financing provision carefully and be more selective in distributing financing in order to have debtors who are committed to repaying the financing so as to avoid financing problems. inflation and roa variables have a negative and significant effect on npl. car, ldr, and bopo variables have a positive and significant effect on npl. meanwhile, the gdp variable has a positive and insignificant effect. therefore, conventional banking is expected to pay attention to the management of costs and operating income as well as to pay more attention to the management of assets and profits in order to protect and even reduce the risk of non-performing loans. conventional banking is also expected to maintain prudence and be more selective in distributing credit in order to avoid non-performing loans. in addition, because inflation has a significant effect on the level of npl, company management should formulate a strategy to keep the npl level in a healthy position by taking an attention the inflation rate when distributing credit to the public. this study also found that there is a difference in response between npf and npl to external and internal bank factors, npf is only influenced by internal factors of islamic banks, named fdr, while npl is influenced by external factors, named inflation and internal factors of conventional banks, named roa, bopo, car, and ldr. thus, npf is more stable than npl in responding to both internal and external bank conditions. reference agustiningsih, syapsan, and rita yani iyan. 2017. “pengaruh inflasi, financing to deposit ratio (fdr), ratio financing (rf) dan ratio return (rr) terhadap non performing financing (npf) pada pt. bank bri syariah periode tahun 2009 sampai 2015.” jom fekon 4(1):325–37. ahmad, veni melinda, and saniman widodo. 2018. “analisis pengaruh gross domestic product (gdp), inflasi, financing to deposit ratio 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perbankan konvensional dan npf perbankan syariah.” tazkia islamic finance and business review 6(2):79–104. radivojević, nikola, drago cvijanović, dejan sekulic, dejana pavlovic, srdjan jovic, and goran maksimović. 2019. “econometric model of non-performing loans determinants.” physica a: statistical mechanics and its applications 520:481–88. doi: 10.1016/j.physa.2019.01.015. salas, vicente, and jesús saurina. 2002. “credit risk in two institutional regimes: spanish commercial and savings banks.” journal of financial services research 22(3):203–24. doi: 10.1023/a:1019781109676. simorangkir, o. p. 2004. pengantar lembaga keuangan bank dan non bank. solihatun. 2014. “analisis non performing financing (npf) bank umum syariah di indonesia tahun 2007 – 2012.” jurnal ekonomi pembangunan 12(1):57–68. doi: 10.22219/jep.v12i1.3655. the influence of internal and external factors on npf and npl 55 syaifuddin, d. t. 2009. efisiensi dan kinerja bank: aplikasi teori hubungan struktural. anduonohu 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(2008). nomor 21 tahun 2008 tentang perbankan syariah. jakarta waemustafa, waeibrorheem, and suriani sukri. 2015. “bank specific and macroeconomics dynamic determinants of credit risk in islamic banks and conventional banks.” international journal of economics and financial issues 5(2):476–81. doi: 10.6084/m9.figshare.4042992. wijoyo, satrio. 2016. “analisis faktor makroekonomi dan kondisi spesifik bank syariah terhadap non-performing finance.” jurnal pendidikan dan ekonomi 5(6):513–25. yolanda, sherly, and ariusni. 2019. “pengaruh faktor internal dan eksternal terhadap pembiayaan bermasalah pada bank umum syariah (bus).” jurnal kajian ekonomi dan pembangunan 1(3):833–44. spillover effect of global financial cycle to asset markets in asean-5 countries: a structural var approach 1 1 spillover effect of global financial cycle to asset markets in asean-5 countries: a structural var approach sri andaiyani1* and telisa aulia falianty2 1,2 university of indonesia, depok, indonesia abstract an upsurge and volatility of capital flows to emerging asian economies indicated that there is the potential effect of global financial cycle to emerging market. it provides an overview of investor risk aversion in short term investment after financial crisis 2008. global financial cycle could have a significant impact to asset prices, including equity prices and property prices. rey (2015) has triggered an interesting discussion about global financial cycle. she found that there was a global financial cycle in capital flows, asset prices and credit growth. this cycle was co‐moves with the vix, a measure of uncertainty and risk aversion of the markets. therefore, this study attempts to analyze empirically global financial cycle shocks, measured by the vix, on equity prices and property prices in asean5, namely indonesia, malaysia, singapore, thailand and philippines. we estimate quarterly frequency data from q1 1990 to q2 2016 with structural vector autoregressive (svar) approach. the result of this study showed that global financial cycle has a negative significant impact on the asean-5 asset markets, in spite of the response of shock differs by country and size. this result is consistent with asean-5 as small open economies that remain vulnerable to the global factor. this study contributes to the literature in several ways. first, we identify not only cyclical expansions or contraction in asset markets but also the impact of global financial cycle to asset markets in asean-5 countries. second, we investigate whether there are heterogeneous responses of asean-5 countries to global financial cycle shocks. third, we also identify the pattern of cycle in asean-5 countries. jel classification: f30, f37, f42 keywords: asean, asset markets, global financial cycle, svar 1. introduction recent empirical study on global financial cycles devotes more attention to academicians and policy makers. an upsurge and volatility of capital flows to emerging asian economies indicated that there is the potential effect of global financial cycle to emerging market. however, in the last three years there have been concerns about a decrease in capital flows to developing countries or massive capital reversals with the issue of "tapering off". global financial crisis 2007/2008 can be one of the empirical evidence that domestic financial markets was * corresponding author. email address: telisa97fe@gmail.com mailto:telisa97fe@gmail.com afebi economic and finance review (aefr) vol.02 no.02 december 2017 2 influenced by global financial conditions. bruno and shin (2015) stated that the global factor is one of the drivers of the fluctuating condition of financial markets in the world. foreign investors are likely to reduce portfolio investment in emerging market due to global risks and uncertainty of monetary policy in developed countries (adler g, djigbenou, and sosa, 2015). along with the liberalization of the financial system, there is an increasing trend of international capital flows to asean especially indonesia, singapore, malaysia, philippines and thailand. figure 1 showed that capital inflows to asean-5 sharply increased after global financial crisis. the greater capital inflows are triggered by lax global financial conditions (bruno and shin, 2015, rey, 2015). in addition to the rapid growth of global liquidity, the global financial cycle also concerns of domestic regulator, particularly in emerging economies countries that periodically received international capital flows on a large scale. figure 1 capital inflows in asean-5 (million us$) source: imf the movement of the global financial cycle is very volatile. it indicates how changes of sentiment in the markets affect emes financial conditions. rey (2015) has triggered an interesting discussion about global financial cycle. she found that there was a global financial cycle in capital flows, asset prices and credit growth. this cycle was co‐moves with the vix, a measure of uncertainty and risk aversion of the markets. the sharp increase in global risks creates a fluctuation in the asset market so that it triggers portfolio outflows from emes (mishra et al, 2014; sahay et al, 2014). in tapering out period, equity and property prices decreased incisively. during this period of turmoil, asian emerging market economies was affected much more attention especially for asean-5, namely indonesia, malaysia, singapore, thailand and philippines. in addition, the movement of fed's policy as a driver of the global financial cycle have influenced international capital flows to asean-5. the uncertainty of this implementation can stimulate uncertainty in financial market. asset prices are not spared from global conditions such as the global financial cycle and us -1e+10 0 1e+10 2e+10 3e+10 4e+10 5e+10 6e+10 7e+10 8e+10 indonesia malaysia philippines singapore thailand spillover effect of global financial cycle to asset markets in asean-5 countries: a structural var approach 3 monetary policy. they can disrupt domestic financial stability by increasing vulnerability to the global financial cycle. nevertheless, empirical studies on the impact of the global financial cycle to emes financial markets are still rare. the research on the impact of the global financial cycle on the emes asset market did not give detail information in analyzing the implications for each country (rey, 2015; miranda-agrippino and rey, 2015; ebeke and kyobe, 2015; banerjee et al., 2012). as ebeke and kyobe (2015) focus on the impact of global financial risk on the government bond markets of emes countries. in addition, ciarlone et al (2009) focuses on the impact of global financial risk on the volatility of the emes exchange rate. furthermore, ananchotikul and zhang (2014) also focus on the impact of global financial cycle on government bond markets in eme countries. this study contributes to the literature in several ways. first, we examine the transmission of global financial cycle shocks to asean-5 countries by using structural vector autoregressive (svar) approach. we identify not only cyclical expansions or contraction in asset markets but also the impact of global financial cycle to asset markets in asean-5 countries. second, we investigate whether there are heterogeneous responses of asean-5 countries to global financial cycle shocks. third, we also identify the pattern of cycle in asean-5 countries. the rest of this study is organized as follows. section 2 describes theoretical framework and literature review. section 3 introduces the methodological framework and data. section 4 discusses empirical results. finally, section 5 presents the conclusions and recommendations. 2. literature study/hypotheses development 2.1 financial cycle recent studies that related to the financial cycle began to be a discussion among academicians and policy maker. the definition of financial cycle is still varied based on that focused research. various studies that explain the definition of the financial cycle cannot be a commonly used reference. generally, some studies refer to the definition and methodology of the business cycle from national bureau of economic research (nber). the definition proposed by borio (2012) generally represents the definition of the financial cycle that the financial cycle is the interaction between the perceptions of value and risk, behavior on risk, and financial constraints, which are translated as booms followed by bust. this definition is also in line with that of ng (2011), which states that the financial cycle is a change in perceptions and attitudes toward financial risks over time. this definition is closely related to the recent procyclicality which is a popular issue in macroprudential policy. 2.2 international channel of global financial cycle in a report released by the imf (2016), components that close to vix in the long run are bond yields, retail interest rates and bank loans, whereas stock market and exchange rate are closely related to vix in short term. vix represents the expectation of global financial market volatility which in the short run is expected to have a negative sign for this variable. an increase in the vix index raises the expectation of global financial market volatility that could reduce bank lending, asset price, and credit growth. higher international integration of financial markets also means that global financial factors have higher influenced for domestic financial markets in emerging market economies. afebi economic and finance review (aefr) vol.02 no.02 december 2017 4 the global financial cycle gives an impact to financial conditions in emes through both quantity and price channels (filardo et al, 2014). the most prominent quantity spillover channel operates through capital flows. before and after the crisis, capital flow dynamics have been shaped in particular by portfolio flows. cross-border financial flows, or concerns about them, also give rise to price spillover effects in particular through induced changes in interest rates, shaping financial conditions in the economy more broadly. specifically, em economy central banks may wish to avoid large and volatile interest rate differentials so that short-term rates become implicitly tied to those of advanced economies. at the same time, due to the greater integration into the global financial systems, longterm interest rates in em economies have also become more closely tied to those in advanced economies (turner, 2014). the literature has identified a number of channels through which monetary policy might have contributed to the build-up in financial imbalances. most of these are thought to have worked through policy rates that were kept low for too long. loose monetary policy (a low short-term rate) may have reduced the cost of wholesale funding for intermediaries, leading those intermediaries to build-up leverage (adrian and shin, 2008). domestic financial market conditions are influenced by perceptions of global investors, where investors will consider the perceptions of return on investment in the us relative to investment returns in developing countries. thus, capital inflows are also influenced by the conditions of global financial cycle. if global risk aversion increases, it can lead to declining cross-border credit, declining asset prices, declining equity returns and weakening the exchange rate of a country. some financial instruments such as stocks, bonds and loans have different responses to global financial risks. on the other hand, with the prospect of strong economic growth and higher interest rates can be an attraction for foreign investors to channel capital into the country (kenç, erdem, and ünalmı, 2016). 3. research methodology 3.1 estimation technique previous studies have constructed the method to identify financial cycle using short-medium term cycle. the methodologies used are adapted from business cycle studies. recent financial cycle studies portrays two analytical approaches (e.g. aikman et al. (2010, 2013), claessens et al.(2011), drehmann et al. (2012)). the turning point analysis determines cyclical peaks and troughs within the time series using an algorithm, whereas the frequency based filter analysis is a statistical filter technique to isolate fluctuations with different frequencies. our goal is to analyze the cyclical pattern of financial cycle series the frequency based filter is a technique to study the behavior of cyclical movements by isolating the cyclical pattern of the underlying time series (stremmel, 2015). in recent literature two common types of frequency based filters are used to visualize cyclical behaviours: the hodrick prescott (hp) filter and the band pass filter (bp). the hp filter, developed by hodrick and prescott (1981, 1997), basically splits the data series into trend and cycle components by applying a criterion function to penalize deviations from the trend by using prespecified weights (comin and gertler, 2006). the two-sided hp filter incorporates both historic and future information on the time series, whereas the one-sided hp filter only employs historical data. one sided hp filters are often used in the spillover effect of global financial cycle to asset markets in asean-5 countries: a structural var approach 5 macroprudential literature due to using only past information (e.g. dekten et al, 2014). the second frequency based filter technique is the bp filter developed by christiano and fitzgerald (2003). this is basically a two-sided moving average filter isolating certain frequencies in the time series. in order to analyzes pattern of financial cycle in asean-5 countries, this study employs frequency-based filter method, specifically christiano and fitzgerald band pass filter, which is used by drehmann et al (2012) to identify financial cycle. this method allowed to capture duration and amplitude. the advantages of band pass filter could generate common cycle graph so that we can identify pattern of financial cycle. we observe asean-5, namely indonesia, malaysia, thailand, singapore and philippines. to analyze the response of asset markets to global financial cycle shocks, this study employs quarterly data from q1 1990 to q2 2016 except philippines 21. residential property prices are from the data base of the bank for international settlements (bis). for equity prices, the data was taken from bloomberg32. all variables are measured in logarithms. 3.2 empirical model in order to analyze the impact of global financial cycle on asset markets in asean-5 countries, we employ a structural var (svar) model with block exogeneity, which is first used by cushman and zha (1997) to identify monetary policy shocks and to examine the response of the canadian economy to external shocks. since this pioneering study, a growing number of studies (gossé and guillaumin, 2013; mackowiak, 2007; osborn and vehbi, 2015; sousa, 2014) have adopted a similar model. this estimation techniques preceded by several standard measures such as stationary test or stationary stochastic process (ajija et.al, 2011) and determination of the optimal lag with lag order selection criteria. sims (1980) states that if there is a simultaneous relationship between variables observed, the variables should be treated equally, no more endogenous and exogenous variables. the development in the svar model is done through the establishment of restrictions among variables in the system equation. the restriction or limitation is intended to separate the movement of the endogenous variables into several components based on the underlying shock. matsumoto (2011) used svar method that can capture heterogeneity of inter-state responses to global liquidity shocks, in contrast to panel methods commonly used in the study of global liquidity spillover effects on emerging countries (psalida and sun 2011; brana , djigbenou, and prat 2012). this is important, given several other studies (sousa and zaghini 2007; darius and radde 2010; chudik and fratzscher 2011) found that the effects of global liquidity spillovers in various countries may vary, where these differences may be related to differences in economic structure or policy posture in the country -the state. the svar model that used in this study consists of four variables with four equations. they are vix index as a proxy of global financial cycle and the fed fund rate as a proxy of the us monetary policy. for asset markets, we employ residential property prices and equity prices. the specification of the var model in reduced form is, 1 for philippines, data on residential property price is available after global financial crisis. thus, we use residential property price index from 2008 to 2016. 2 average of asset prices as benchmark of asset markets each country. afebi economic and finance review (aefr) vol.02 no.02 december 2017 6 𝐴0𝑋𝑡 = 𝐴(𝐿)𝑋𝑡−1 + 𝐵𝜀𝑡 (1) where 𝑋𝑡 is a vector with four variables used; 𝐴0 is a contemporaneous relation among variables; a (l) is a finite-order matrix polynomial with the lag operator l; 𝜀𝑡 is a vector of structural disturbance; and b is a non-zero diagonal matrix. basically, there are several ways to place restrictions on the svar model, such as long run restriction, impact, and sign restriction. this restriction helps to identify the models and to insert the basic theory into the model. the us monetary policy variable is regarded as independent variable, so that the variables that can influence ffr shock is a shock in the ffr itself. hence, global financial cycle (vix) is driven by us monetary policy. as small open economies, domestic asset markets are considered unable to influence the global conditions. thus, the first equation in the var system is as follows: 𝑒𝐹𝐹𝑅 = 𝑏11𝜀𝐹𝐹𝑅 (2) 𝑒𝑉𝐼𝑋 = 𝑏21𝜀𝐹𝐹𝑅 + 𝜀𝑉𝐼𝑋 (3) 𝑒𝑃𝑆 = 𝑏31𝜀𝐹𝐹𝑅 + 𝑏32𝜀𝑉𝐼𝑋 + 𝜀𝑃𝑆 (4) 𝑒𝑃𝑃 = 𝑏41𝜀𝐹𝐹𝑅 + 𝑏42𝜀𝑉𝐼𝑋 + 𝑏43𝜀𝑃𝑆 + 𝜀𝑃𝑃 (5) thus, the var system specifications used are as follows with a total of 10 restrictions: [ 𝑒𝐹𝐹𝑅 𝑒𝑉𝐼𝑋 𝑒𝑃𝑆 𝑒𝑃𝑃 ] = [ 𝑒𝐹𝐹𝑅 𝑒𝑉𝐼𝑋 𝑒𝑃𝑆 𝑒𝑃𝑃 ] [ 1 0 0 0 𝑏21 1 0 0 𝑏31 𝑏32 1 0 𝑏41 𝑏42 𝑏43 1 ] (6) to ensure the validity of the final model used, stability testing of model is needed with condition all the root lies inside the unit circle (absolute unit root less than one). if the condition is stable, it can be done with the next step which is impulse response function (irf). 4. result and analysis 4.1 cycle analysis of asset markets figure 2 shows the resulting equity price series. asean-5 countries showed clearly episode of contraction in 2008/2009. it indicates the following of global financial crisis in us markets. interestingly, indonesian’s equity markets appear different amplitude between before and after the global financial crisis. the amplitude of equity prices in episode of asian economies crisis is lower than in episode of global financial crisis. it associated with foreign equities recorded in bei which is still dominated by foreign investors. therefore, the indonesian stock market is more vulnerable to the negative sentiment in global markets considerably affects domestic stock markets. relatively, malaysia and singapore have similar equity market capitalization that foreign share ownership increased after asian financial crisis. spillover effect of global financial cycle to asset markets in asean-5 countries: a structural var approach 7 figure 2 trend and cycle of equity prices; lhs: trend and cycle; rhs: property prices the residential property price cycles in indonesia, malaysia and thailand show different patterns and amplitudes over time. these countries did not show a clear and sharp pattern of repatriation like singapore. during the observation period, singapore had two throughs during the asian economic crisis of 97/98 and the global financial crisis 07/08. figure 3 shows that singapore has a repetitious pattern such as deep amplitude occurred during the asian economic crisis of 97/98 and the global financial crisis of 07/08. singapore's residential property prices experienced peak phase in 2008 until then corrected in 2009. the low interest rates are the main drivers of property price boom (imf, 2013). in addition, singapore government give the permission of foreign investor to have an own property in singapore. although the regulation of foreign ownership in singapore are very strict, capital inflow remains enormous because singapore have excellent prospects. based on research conducted by savills singapore, foreign property ownership is a 20% of total property transactions in 2009. it indicates that foreign investors have a substantial contribution to property developments in singapore. indonesia malaysia singapore -1,200 -800 -400 0 400 800 0 1,000 2,000 3,000 4,000 5,000 6,000 90 92 94 96 98 00 02 04 06 08 10 12 14 16 psaham trend cycle hodrick-prescott filter (lambda=1600) -600 -400 -200 0 200 400 600 0 400 800 1,200 1,600 2,000 90 92 94 96 98 00 02 04 06 08 10 12 14 16 psaham trend cycle hodrick-prescott filter (lambda=1600) -1,500 -1,000 -500 0 500 1,000 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 90 92 94 96 98 00 02 04 06 08 10 12 14 16 psaham trend cycle hodrick-prescott filter (lambda=1600) thailand philippines -400 -200 0 200 400 0 400 800 1,200 1,600 90 92 94 96 98 00 02 04 06 08 10 12 14 16 psaham trend cycle hodrick-prescott filter (lambda=1600) -1,200 -800 -400 0 400 800 1,200 0 2,000 4,000 6,000 8,000 90 92 94 96 98 00 02 04 06 08 10 12 14 16 psaham trend cycle hodrick-prescott filter (lambda=1600) afebi economic and finance review (aefr) vol.02 no.02 december 2017 8 figure 3 residential property prices cycle; lhs: trend and cycle; rhs: property prices interestingly, asean-5 experienced a sharp rise in residential property prices in the second half of the 1999s, in many cases associated with liberalization and deregulation of the housing finance sector. residential property prices were subsequently weak or fell in 1998, following the asian crisis in 1997-1998. indonesia and singapore suggest higher amplitude in the 1990s that following the bubble property in japan around 1990-1993, residential property prices in both countries fell in thailand residential property prices started falling in 1997, vividly indicating the depth of the “asian financial crisis.” the financial cycle in asean-5 countries shows longer duration of expansion compared to the duration of contraction. the amplitude of residential property prices is greater in the asian economic crisis than the global financial crisis. while the amplitude of equity cycles is deeper in global financial crisis than the asian economic crisis. asean-4 financial cycles represented by stock prices and property prices show longer duration of expansion compared to duration of contraction. the amplitude of the expansion phase is higher than the contraction phase amplitude. the deepest period of decline in asean-4 during the asian crisis of 97/98 and the global financial crisis. the sharp decreasing period in the malaysian stock price cycle occurred during the asian economic crisis, but in indonesia it occurred during the global financial crisis. this can be seen from the composition of indonesia's stock ownership which is still dominated by foreign investors so it is still very vulnerable to negative sentiment emerging from external. during the observation period in property prices, singapore and thailand had two through during the asian economic crisis of 97/98 and the global financial crisis 07/08. the indonesian and malaysian property price cycles have the highest amplitude in q2: 1994 q1: 1999. indonesia malaysia singapore -8 -4 0 4 8 12 40 80 120 160 200 90 92 94 96 98 00 02 04 06 08 10 12 14 16 properti trend cycle hodrick-prescott filter (lambda=1600) -40 -20 0 20 40 60 0 40 80 120 160 90 92 94 96 98 00 02 04 06 08 10 12 14 16 pproperti trend cycle hodrick-prescott filter (lambda=1600) -30 -20 -10 0 10 20 40 60 80 100 120 140 90 92 94 96 98 00 02 04 06 08 10 12 14 16 pproperti trend cycle hodrick-prescott filter (lambda=1600) thailand philippines -20 -10 0 10 40 80 120 160 200 90 92 94 96 98 00 02 04 06 08 10 12 14 16 pproperti trend cycle hodrick-prescott filter (lambda=1600) -.06 -.04 -.02 .00 .02 .04 .06 4.55 4.60 4.65 4.70 4.75 4.80 4.85 4.90 2008 2009 2010 2011 2012 2013 2014 2015 2016 pproperti trend cycle hodrick-prescott filter (lambda=1600) spillover effect of global financial cycle to asset markets in asean-5 countries: a structural var approach 9 in contrast to malaysia and indonesia, singapore and thailand did not show a sharp and clear period of expansion in that period. 5. discussion in this section, we discuss the empirical results. we reveal the effect of global financial cycle shock on asean-5 asset prices. based on criteria of model selection by andrews and lu (2001) and the overall determination coefficient, lag criteria in this model is two. fig. 4 presents the response of asset price variables to a 1-standard deviation increase in global financial cycle (i.e., a 1-standard deviation increase in the vix). in short run, global financial cycle has a significant effect on equity price in asean-5 countries. the shock of global financial cycle has an immediate and significant negative impact on equity prices. it indicates that global financial cycle shock reduces equity prices in asean-5 countries. while global financial cycle is not significantly effect on residential property price in all asean-5 countries. afebi economic and finance review (aefr) vol.02 no.02 december 2017 10 fig 4 response asset markets to global financial cycle shock in asean-5 countries the global financial cycle is closely related to us monetary policy. the us monetary policy can be a trigger for global financial cycle. loose monetary policy lowers risk aversion and high vix is followed by loose monetary policy. these results suggest that the increasing global financial cycle follows the tight us’s monetary policy, while loose monetary policy occurs after vix increases. equity prices instantaneously give a negative response to the shock of global financial cycle. equity price index is very sensitive to changes in the global financial cycle (see fig. 4). equity prices are more quickly respond to changes in the global ind -.20 -.15 -.10 -.05 .00 .05 .10 2 4 6 8 10 12 14 16 18 20 response of psaham to ffr -.20 -.15 -.10 -.05 .00 .05 .10 2 4 6 8 10 12 14 16 18 20 response of psaham to vix -.04 -.03 -.02 -.01 .00 .01 .02 2 4 6 8 10 12 14 16 18 20 response of pproperti to ffr -.04 -.03 -.02 -.01 .00 .01 .02 2 4 6 8 10 12 14 16 18 20 response of pproperti to vix response to cholesky one s.d. innovations ± 2 s.e. -.20 -.15 -.10 -.05 .00 .05 .10 2 4 6 8 10 12 14 16 18 20 response of psaham to ffr -.20 -.15 -.10 -.05 .00 .05 .10 2 4 6 8 10 12 14 16 18 20 response of psaham to vix -.04 -.03 -.02 -.01 .00 .01 .02 2 4 6 8 10 12 14 16 18 20 response of pproperti to ffr -.04 -.03 -.02 -.01 .00 .01 .02 2 4 6 8 10 12 14 16 18 20 response of pproperti to vix response to cholesky one s.d. innovations ± 2 s.e. mly -.12 -.08 -.04 .00 .04 .08 2 4 6 8 10 12 14 16 18 20 response of psaham to ffr -.12 -.08 -.04 .00 .04 .08 2 4 6 8 10 12 14 16 18 20 response of psaham to vix -.06 -.04 -.02 .00 .02 .04 2 4 6 8 10 12 14 16 18 20 response of pproperti to ffr -.06 -.04 -.02 .00 .02 .04 2 4 6 8 10 12 14 16 18 20 response of pproperti to vix response to cholesky one s.d. innovations ± 2 s.e. -.12 -.08 -.04 .00 .04 .08 2 4 6 8 10 12 14 16 18 20 response of psaham to ffr -.12 -.08 -.04 .00 .04 .08 2 4 6 8 10 12 14 16 18 20 response of psaham to vix -.06 -.04 -.02 .00 .02 .04 2 4 6 8 10 12 14 16 18 20 response of pproperti to ffr -.06 -.04 -.02 .00 .02 .04 2 4 6 8 10 12 14 16 18 20 response of pproperti to vix response to cholesky one s.d. innovations ± 2 s.e. sg -.08 -.04 .00 .04 2 4 6 8 10 12 14 16 18 20 response of psaham to ffr -.08 -.04 .00 .04 2 4 6 8 10 12 14 16 18 20 response of psaham to vix -.06 -.04 -.02 .00 .02 .04 2 4 6 8 10 12 14 16 18 20 response of pproperti to ffr -.06 -.04 -.02 .00 .02 .04 2 4 6 8 10 12 14 16 18 20 response of pproperti to vix response to cholesky one s.d. innovations ± 2 s.e. -.08 -.04 .00 .04 2 4 6 8 10 12 14 16 18 20 response of psaham to ffr -.08 -.04 .00 .04 2 4 6 8 10 12 14 16 18 20 response of psaham to vix -.06 -.04 -.02 .00 .02 .04 2 4 6 8 10 12 14 16 18 20 response of pproperti to ffr -.06 -.04 -.02 .00 .02 .04 2 4 6 8 10 12 14 16 18 20 response of pproperti to vix response to cholesky one s.d. innovations ± 2 s.e. thai -.15 -.10 -.05 .00 .05 .10 2 4 6 8 10 12 14 16 18 20 response of psaham to ffr -.15 -.10 -.05 .00 .05 .10 2 4 6 8 10 12 14 16 18 20 response of psaham to vix -.06 -.04 -.02 .00 .02 .04 2 4 6 8 10 12 14 16 18 20 response of pproperti to ffr -.06 -.04 -.02 .00 .02 .04 2 4 6 8 10 12 14 16 18 20 response of pproperti to vix response to cholesky one s.d. innovations ± 2 s.e. -.15 -.10 -.05 .00 .05 .10 2 4 6 8 10 12 14 16 18 20 response of psaham to ffr -.15 -.10 -.05 .00 .05 .10 2 4 6 8 10 12 14 16 18 20 response of psaham to vix -.06 -.04 -.02 .00 .02 .04 2 4 6 8 10 12 14 16 18 20 response of pproperti to ffr -.06 -.04 -.02 .00 .02 .04 2 4 6 8 10 12 14 16 18 20 response of pproperti to vix response to cholesky one s.d. innovations ± 2 s.e. phi -.08 -.04 .00 .04 .08 2 4 6 8 10 12 14 16 18 20 response of psaham to ffr -.08 -.04 .00 .04 .08 2 4 6 8 10 12 14 16 18 20 res pons e of psaham to vix -.015 -.010 -.005 .000 .005 .010 .015 2 4 6 8 10 12 14 16 18 20 res pons e of pproperti to ffr -.015 -.010 -.005 .000 .005 .010 .015 2 4 6 8 10 12 14 16 18 20 res pons e of pproperti to vix response to cholesky one s.d. innovations ± 2 s.e. -.08 -.04 .00 .04 .08 2 4 6 8 10 12 14 16 18 20 response of psaham to ffr -.08 -.04 .00 .04 .08 2 4 6 8 10 12 14 16 18 20 res pons e of psaham to vix -.015 -.010 -.005 .000 .005 .010 .015 2 4 6 8 10 12 14 16 18 20 res pons e of pproperti to ffr -.015 -.010 -.005 .000 .005 .010 .015 2 4 6 8 10 12 14 16 18 20 res pons e of pproperti to vix response to cholesky one s.d. innovations ± 2 s.e. spillover effect of global financial cycle to asset markets in asean-5 countries: a structural var approach 11 financial cycle. it suggests that equity markets are an investment that considers forward looking measure. thus, equity market movements are faster than residential property price. the size of the response of equity prices to global financial cycle shocks is relatively same within asean-5 countries. 6. conclusion the impact of global financial cycle shocks on advanced financial conditions is well documented in the literature. however, there is little empirical evidence regarding the impact of global financial cycle on asset markets in asian countries. this study aims to fill this gap in the literature by documenting evidence on the impact of global financial cycle shock on asset markets for asean-5 countries. the financial cycle in asean-5 countries shows longer duration of expansion compared to the duration of contraction. our findings reveal strong evidence that global financial cycle shocks have significant effects on equity prices in asean-5 countries which is consistent as forward-looking investment. furthermore, our results show that the size of the response of equity prices to global financial cycle shocks is relatively same within asean-5 countries. while global financial cycle gives different response on residential property price in asean-5 countries. these differentiations are associated with the share of foreign holdings in property markets. references abrigo, m. r. m., & love, i. 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(2016). global financial conditions and asset markets: evidence from fragile emerging economies. economic modelling, 57, 208–220. analysis of uneven regional development in north-east, middle–southeast, and west-south regions of aceh province 64 8 analysis of uneven regional development in north-east, middle–southeast, and west-south regions of aceh province yayuk eko wahyuningsih1*, irfan syah putra2, and eni meliana3 1, 2, 3 teuku umar university, meulaboh, indonesia abstract aceh is a province of indonesia that currently consists of 23 districts/municipalities that are generally divided into three (3) regions, namely, the northeast (11 districts/municipalities), the middle-southeast (4 districts) and the southwest (8 districts/municipalities) regions. these regions have different natural, human, social, political, and cultural resources. these differences have caused uneven economic development, which has further caused developmental disparity among the regions. this study aims to assess the extent of developmental disparity among regions and to analyze the impact of gross regional domestic product per capita on regional developmental disparity in the three (3) regions of aceh province in the period of 2000-2014. the data used in this research are secondary data that were obtained from the central statistics agency (bps), and the regional development planning board (badan perencanaan daerah/bappeda) of aceh province. to identify the level of inequality, the researcher utilizes williamson index;whereas to determine theimpact of regional gdp per capita on the inequality of regional development, the researcher utilizes a semi logarithmic linear regression model that includes a discussion on the correlationcoefficient (r), determination coefficient (r square), and t test using spss. based on estimation results, the researcher discovers that, for the northeast region,the value of correlation coefficient (r) is 0.8032, the value of determination coefficient is 64.52%, and the equation for y isy = -1.8942 + 0,1263x;for the middle-southeast region, the value ofcorrelation coefficientis0.6760, the value of determination coefficient is 45.70%, and the equation for y is y = 0.6441 + 0,0400x, and;for the southwest region,the value ofcorrelation coefficientis 0.4045, the value of determination coefficient is 16.36%, and the equation for y is y = -0.4703 + 0,0318x. as for the t test, the researcher discovers that for north-east region the per capita regional gdp wastcount> ttable(4.671> 1.7823);for the middle-southeast regional tcount<ttable(3.178<1.7823), and; for the southwest region tcount<ttable (1.532 <1.7823). these per capita regional gdp values mean that only in the northeast region does the variable of per capita regional gdp have a real impact on the variables of regional developmental disparity. this is consistent with the fact that the northeast region is much more advanced and developed than the other two regions. jel classification: o10, o11, o15 keywords: gdp, index of williamson and discrepancy, per capita gdp, total of population * corresponding author. email address: yayukew@utu.ac.id mailto:yayukew@utu.ac.id analysis of uneven regional development in north-east, middle–southeast, and west-south regions of aceh province 65 1. introduction background economic development is a process of income increase, total income or per capita income, which is followed by an increase in the number of people as well as income equalization for the people of a country. the goal of economic development of a country is to increase the welfare of the people. the welfare can be realized through an increase in the economic growth of the country occurring due to the income equalization of the people of the aforementioned country, obtained through the gross regional domestic product (grdp) of a region or the gross domestic product (gdp) of a country. the grdp values differ from one region to another because of comparative advantages that are affected by environmental conditions, the mastery of the people in advanced technologies, the mastery of the people in certain skills, central regions of activities, low wages for and plentiful availability of labor, and other factors. such is the case for indonesia, composed of 33 provinces, where the regional development condition among provinces is unequal or very different. further, the province of aceh, a region of indonesia which at this time (2016) is composed of 23 regencies and cities, possesses differences in natural, human, social, political, and cultural resources among its regencies and cities, and these differences are what have caused economic development to be uneven, creating gaps in development among the regions. based on regional classification, this province can be divided into three regions, which are north-east, middle-southeast, and west-south. in the 1980s up until the 2000 millennial year, the north-east region represented the region of which its development condition was the best compared to the other regions of the province of aceh, because this region is an industrial zone with the establishment of several giant factories in the fields of oil and gas, fertilizer, paper, and other industries. one of them is the asean aceh fertilizer (aaf) factory, which is owned by several asean countries. in addition, the region is strategically placed, where the cities and regency capitals are situated along the national road, which allows good access to its neighboring province, north sumatera. the middle-southeast region represented the region for which the development of physical and non-physical infrastructure lags far behind, compared to north-east region, because this region is composed of forests and plantations, most of which were not very productive. the same is true of the west-south region, which is an agricultural zone, but still at a small scale. one of the indicators that show the gap in economic development of a region in a certain time period is the constant-price gdp. the grdp of aceh from 2009 to 2013 experienced an increase, though this was not significant. in 2009,the constant-price grdp was rp. 32,219.09 billion and the constant-price grdp growth was -5.51%;up to 2013 the constant-price grdp was rp. 38,012.97 billion and its growth was 4.18%.the grdp data of every regency or city can be seen in appendix 1. the increasing number of people will cause the number of laborers to increase. the increasing number of laborers, balanced by a greater number of work openings, will result in more people being able to work. the populations of the regencies and cities can be seen in appendix 2. one of the ways to increase the welfare of the people is by increasing economic growth. meanwhile, the increase afebi economic and finance review (aefr) vol.1 no.1, june 2017 66 in economic growth is shown by the increase of per capita grdp and per capita income of the region. formulation of the problem the following is the formulation of the problem for this research: a. how great is the gap of regional development among the north-east, middlesoutheast, and west-south regions of the province of aceh? b. what is the influence of the per capita grdp toward the gaps of the northeast, middle-southeast, and west-south regions of the province of aceh? objectives of the research the objectives of this research are, among others: a. to analyze how great the gap of regional development is among the northeast, middle-southeast, and west-south regions of the province of aceh. b. to analyze the influence of the per capita grdp toward the gaps of the northeast, middle-southeast, and west-south regions of the province of aceh. 2. literature review 2.1 economic development according to sukirno (2006:3), economic development is a series of economic efforts to develop economic activities to increase available infrastructure, create and develop more factories, elevate the level of education, and make more technologies available, and thus the implication of this development are expected to be greater work opportunities, increased income levels, and greater welfare for the people. next, economic development is taken to be a process that causes the per capita income of a certain group of people to increase, where the increased income is a reflection of the improvement in economic welfare of the people, yet is also accompanied by the eradication of poverty and management of income gaps (amalia, 2007:1). 2.1.1 regional economic development regional economic development is the increase of income of the people as a whole that occurs in a certain region, which is the occurrence of the increase of all added values. the calculation of regional income is initially in the form of applicable prices, but in order to see the development from one time period to the next, the real prices must be stated, which means stating constant prices (tarigan, 2005: 46). 2.2 regional development gap according to adisasmita (2005:116),disparities among regions show the existence of a gap or difference in the level of progress or welfare or a difference in the level of progress or welfare of one region with another due to the effects of mobility and accessibility (ease of transport). mobility represents the level of movement of people and goods from one place (region) to another. a high rate of mobility is shown by the availability of facilities and infrastructure of transportation in a sufficient capacity, which provides transportation services in a smooth (quick) manner. gaps have positive and negative effects. the positive effect of gaps is to encourage other underdeveloped regions to be able to compete and boost development to increase prosperity. meanwhile, the extreme negative effects of gaps are among others economic inefficiency, lowered stability and solidarity, and unfairness based on the size of the gap (tadaro, 2006: 249). analysis of uneven regional development in north-east, middle–southeast, and west-south regions of aceh province 67 2.2.1 factors that affect regional development gaps the primary factors that cause or trigger the existence of regional gaps are among others: (sjafrizal, 2008:117-120) a. differences in natural resource content b. differences in demographic conditions c. lack of smooth mobility of goods and services d. concentrated regional economic activities e. allocation of interregional development funds 2.2.2 management of regional development gaps the efforts to overcome the issue of regional development gaps can be performed through the distribution of transportation infrastructure development to make smooth the mobility of goods and interregional production factors, encouragement of spontaneous transmigration and migration to resolve the issues of shortages and excesses of laborers, development growth centers to reduce interregional gaps, and execution of regional autonomy so that regional development activities, including in lagging regions, will and can be encouraged due to authority of the government and people; as such the initiative and aspirations of the people to uncover regional potential can be encouraged, enabling the elevation of the process of regional development (sjafrizal, 2008. h. 121-124). 2.3 williamson index and agglomeration sjafrizal (2008:108) stated that the williamson index is one of the tools for measuring the size of regional gaps, which was first used by jeffrey g. williamson. the calculation of the williamson index is based on the grdp data of each region. the measurement results of the williamson index is shown by a value from 0 to 1, or 0 < vw < 1; as the williamson index approaches 0, the regional development gap becomes smaller, and as the williamson index approaches 1,the regional development gap becomes larger. 2.4. formulation of the hypothesis the hypothesis is that: a. it is suspected that the highest gap occurs with the middle-southeast region, followed by the west-south and north-east region. b. it is suspected that the per capita grdp has a real influence toward regional development gaps. 3. research method 3.1 research scope the scope of this research covered the constant-price gross regional domestic product (grdp) of the year 2000, the size of the population, and the per capita grdp of three regions in the province of aceh in the years of 2000-2014 with secondary data from bps. 3.2 data analysis model the data analysis model used in this research was quantitative analysis using the williamson index and semi-logarithm regression processed using the spss software. 3.3.1 williamson index according to safrizal (2008:1), in order to provide a better picture of the development of each region based on the equalization of the development, the afebi economic and finance review (aefr) vol.1 no.1, june 2017 68 index of interregional gaps as initially used by jeffrey g. williamson can be used, as formulated below: vw = √∑ (𝑌𝑖− 𝑌)² 𝑛 𝑘=0 (𝑓𝑖 / 𝑛) 𝑌 0 < vw < 1 (1) where: yi = per capita grdp of region i (regional) y = average per capita grdp of all regions (aceh) fi = population size of region i (regional) n = population size of all regions (aceh) 3.3.3 semi-logarithm analysis according to sarwoko (2005: 93), to obtain more significant results and ease the calculation process, the linear regression equation is formulated in the semi-logarithm form as below: y = b0 + b1lnx + e (2) where: y = gap (dependent variable) measured on a scale of 0-1 x = per capita grdp (independent variable) measured in rupiahs b0 =intercept (constant) b1 =regression coefficient of factor x e = error term 3.4 hypothesis testing based on the testing of the hypothesis: a. if the williamson index approaches 0 then the regional development gap is small and if the williamson index approaches 1 then the regional development gap is large. b. a greater agglomeration on value of a certain region indicates a higher concentration of economic activities in that region. c. if h0 : β1 = β2 = 0, it is suspected that the per capita gross regional domestic product being researched does not have a significant influence on the regional development gaps among regions in the province of aceh. if h1 : β1 = β2 ≠ 0, it is suspected that the per capita gross regional domestic product being researched does have a significant influence on the regional development gaps among regions in the province of aceh. the t-test criteria for the hypothesis established in the research are: a. if tcount > ttable, then h0is rejected and h1 is accepted, which means that there is partially a significant influence between the per capita gross regional domestic product and the interregional development gaps among the regions in the province of aceh. b. if tcount < ttable, then h0is accepted and h1 is rejected, which means that there is partially not a significant influence between the per capita gross regional domestic product and the interregional development gaps among the regions in the province of aceh. analysis of uneven regional development in north-east, middle–southeast, and west-south regions of aceh province 69 4. research and results 4.1 grdp of the province of aceh the gross regional domestic product is a picture of the economic development of a region that is resulted from the production values of goods and resources produced by a certain region in a certain year. the following is the constant-price gross regional domestic product of the province of aceh in the years 2000-2013. table 1 constant-price grdp of the province of aceh, 2000-2013 no year constant-price gross regional domestic product in 2000 (million rupiah) 1. 2000 17.397.989,02 2. 2001 17.766.923,24 3. 2002 18.221.417,04 4. 2003 18.843.073,79 5. 2004 19.803.550,26 6. 2005 19.991.350,51 7. 2006 22.760.622,49 8. 2007 24.542.943,10 9. 2008 25.682.967,11 10. 2009 26.847.009,10 11. 2010 28.118.582,51 12. 2011 29.459.224,26 13. 2012 30.904.408,44 14. 2013 32.349.707,68 source: the central agency for statistics of the province of aceh (data processed in november 2014) table1 shows the development of the constant-price grdp of the province of aceh, where in the period of years of 2000-2013, the grdp continued to increase. the highest grdp occurred in 2013 and the lowest grdp occurred in 2000; this condition has a positive impact on the economy of the province of aceh. afebi economic and finance review (aefr) vol.1 no.1, june 2017 70 figure 1 constant-price grdp of the province of aceh of years 2000-2013 source: the central agency for statistics of the province of aceh figure 1 shows the development of the constant-price grdp of the province of aceh in the period of years of 2000-2013, with the highest grdp having occurred in 2013 and the lowest grdp having occurred in 2000. 4.2 grdp per capita of the province of aceh the per capita gross regional domestic product is the rough size of the level of welfare of a certain region at a certain time. the per capita gross regional domestic product is obtained by dividing the grdp by the population size of a certain region. 4.3analysisof the regional development gap the gap for this region is due to the comparative differences between regions, which cause one or several areas to be more advanced than others. the following are the williams on indices of three regions. table 2 regional development gap of the province of aceh, 2000-2013 no year north-east region middle– southeast region west-south regions 1. 2000 0,00 0,03 0,01 2. 2001 0,06 0,04 0,01 3. 2002 0,05 0,03 0,01 4. 2003 0,05 0,03 0,02 5. 2004 0,04 0,06 0,05 6. 2005 0,05 0,04 0,02 7. 2006 0,08 0,02 0,02 8. 2007 0,09 0,02 0,02 9. 2008 0,10 0,03 0,02 10. 2009 0,11 0,03 0,03 11. 2010 0,09 0,02 0,02 12. 2011 0,08 0,02 0,02 13. 2012 0,08 0,02 0,02 14. 2013 0,08 0,02 0,02 source: research results 0.00 5,000,000.00 10,000,000.00 15,000,000.00 20,000,000.00 25,000,000.00 30,000,000.00 35,000,000.00 analysis of uneven regional development in north-east, middle–southeast, and west-south regions of aceh province 71 table1 shows the condition of the regional development gap in three areas of the province of aceh, all of which were varied. the largest gap occurred for the north-east region with a value of 0.11 in 2009, and this occurred due to the difference between the total average per capita grdp of all regions and the per capita grdp of the north-east region, which was too great; the smallest gap occurred in 2000 with 0,and this was caused by the per capita grdp of the northeast region being balanced by the population. the second-largest gap was experienced by the middle-southeast region with a high of 0.09 in 2004, while the smallest gap was experienced by the west-south region with a high of 0.05 in 2004. figure 2 regional development gap of the province of aceh, years 2000-2013 source: research results figure 2 shows the condition of the regional development gap in three areas of the province of aceh also seen in table2, for which the largest gap was for the north-east region, followed by the middle-southeast region, and finally the westsouth region as having the smallest gap. 4.4 discussion 4.4.1 semi-logarithm regression table 3 semi-logarithm regression variable co efficiency of estimation sandard error t-ratio sig per capita constant-price grdp of northeast region -1,8942 0,1263 0,4202 0,0270 -4,508 4,671 0,001 0,001 r = 0,8032 r square = 0,6452 0 0.02 0.04 0.06 0.08 0.1 0.12 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 north-east middle-southeast west-south afebi economic and finance review (aefr) vol.1 no.1, june 2017 72 per capita constant-price grdp of middle– southeast region 0,6441 0,0400 0,1935 0,0126 3,329 -3,178 0,008 0,006 r = 0,6760 r square = 0,4570 per capita constant-price grdp of westsouth regions -0,4703 0,0318 0,3205 0,0208 -1,468 1,532 0,168 0,151 r = 0,4045 r square = 0,1636 source: research results based on table3, it can be seen that in the north-east, middle-southeast, and west-south regions, the per capita grdp had a positive influence on the regional development gap of the province of aceh. the constant estimation coefficient for the north-east region had a value of -1.8942; this showed that if the per capita grdp for the north-east region was equal to zero (0) or unchanged, then the regional development gap for the province of aceh would decrease by 1.8942. the constant estimation coefficient for the middle-southwest region had a value of 0.6441;this showed that if the per capita grdp for the middle-southeast region was equal to zero (0) or unchanged, then the regional development gap for the province of aceh would increase by 0.6441. the constant estimation coefficient for the west-south region had a value of -0.4703; this showed that if the per capita grdp for the west-south region was equal to zero (0) or unchanged, then the regional development gap for the province of aceh would decrease by 0.4703. the regression coefficient for the per capita grdp for the north-east region had a value of 0.1263; this showed that if the per capita grdp increased by 1 percent, then the regional development gap for the province of aceh would increase by 0.1263 percent with the assumption that other factors did not change. the middle-southeast region had a regression coefficient for the per capita grdp of 0.0400; this showed that if the per capita grdp increased by 1 percent, then the regional development gap for the province of aceh would increase by 0.0400 percent with the assumption that other factors did not change. the west-south region, based on the research results, had a regression coefficient for the per capita grdp of 0.0318; with this, if the per capita grdp increased by 1 percent, then the regional development gap for the province of aceh would increase by 0.0318 percent, with the assumption that other factors did not change. 4.4.2 correlation analysis and determination based on the research that was conducted, it can be explained that the coefficient for the independent variable (per capita grdp) for the north-east region was r = 0.8032,which positively explained that there was a relationship between the per capita grdp and the regional development gap of the province of aceh by a factor of 0.8032. the middle-southeast region had a value of r = 0.6760, which positively explained that there was a relationship between the per capita grdp and the regional development gap of the province of aceh by a factor of analysis of uneven regional development in north-east, middle–southeast, and west-south regions of aceh province 73 0.6760. the west-south region had a value of r = 0.4045,which positively explained that there was a relationship between the per capita grdp and the regional development gap of the province of aceh by a factor of 0.4045. the coefficient of determination value (r squared) for the north-east region was r2 = 0.6452, which meant that the regional development gap for the province of aceh was affected by 64.52 percent by the per capita grdp, while the remaining 35.48 percent was the effect of other variables outside of this research. the middle-southeast region had a coefficient of determination value of r2= 0.4570, which meant that the regional development gap for the province of aceh was affected by 45.70 percent by the per capita grdp, while the remaining 54.30 percent was the effect of other variables outside of this research. meanwhile, the coefficient of determination value for the west-south region was r2 = 0.1636,which meant that the regional development gap for the province of aceh was affected by 16.36 percent by the per capita grdp, while the remaining 83.64 percent was the effect of other variables outside of this research. 4.4.3 t-test based on the research results for the per capita grdp variable for the north-east region, it was found that tcount> ttable, as 4.671 > 1.7823; with α = 0.05,the degree of significance was less than 0.05 as 0.001 < 0.05 and thus h0was rejected and h1was accepted, meaning that the per capita grdp variable individually had a significant effect on the regional development gap of the province of aceh. for the middle-southeast region, the per capita grdp variable was found to have tcount<ttableas -3.178 < 1.7823;with α = 0.05,h0was accepted and h1was rejected, meaning that the per capita grdp variable individually had no significant effect on the regional development gap of the province of aceh. for the west-south region, the per capita grdp variable was found to have tcount<ttableas 1.532 < 1.7823; with α = 0.05,h0was accepted and h1was rejected, meaning that the per capita grdp variable individually had no significant effect on the regional development gap of the province of aceh. further, the results of regression in this research resulted in regression coefficients that stated that for the north-east, middle-southeast, and west-south regions, there was a positive relationship between the per capita grdp variable and the regional development gap variable. 5. conclusion 5.1 conclusion a. the regional development gap of three regions in the province of aceh measured by the williamson indices for the research time period of years 2000-2013 showed that the largest gap was experienced by the north-east region, followed by the middle-southeast and west-south regions. b. based on the results of the regression coefficients for the north-east, middlesoutheast, and west-south regions, there was a positive relationship between the per capita grdp variable and the regional development gap variable. 5.2 suggestions a. the province of aceh should conduct efforts to reduce the regional development gap caused by the uneven per capita income, in particular efforts to even out the per capita income and employment. afebi economic and finance review (aefr) vol.1 no.1, june 2017 74 b. there should be a hands-on people empowerment program from the government so that the people can independently pursue opportunities. references amalia, l. (2007) economic development, first edition. yokyakarta: graha science. adisasmita, r. (2005). fundamentals of regional economics. yogyakarta: graha science. bps. aceh in figures. (2015). central bureau of statistics province. banda aceh. bps. aceh in figures. central bureau of statistics province. banda aceh. 20002014 hasan, i. (2001). principles of materials research methodology and applications. pt ghalia indonesia. bogor. husaini, u. et.all. (2006). introduction to statistics. earth asara. jakarta. jhingan m.l. (2007). economic development and planning. jakarta: pt. king grafindo. tadaro. (2006). economic development, ninth edition. jakarta: erlangga. sarwoko. (2005). basics of econometrics. yogyakarta: andi. sukirno, s. (2004). macro economic theory and introductions, third edition. jakarta: pt raja grafindo. suprato, j. (2004). statistics, sixth edition. jakarta: erlangga. jakarta. sjafrizal. (2008). regional economic. padang: badouse media. tarigan, r. (2005). regional economic: theory and applications, revised edition. jakarta: pt bumi script. tadaro, m. p., & smith, s. c. (2006). economic development, ninth edition. jakarta: erlangga. afebi economic and finance review-final.6.6 the influence of the interest rate (bi rate) and non performing loan (npl) to the distribution of banking credit in bengkulu province in the years 2013-2015 64 11 the influence of the interest rate (bi rate) and non performing loan (npl) to the distribution of banking credit in bengkulu province in the years 2013-2015 eska prima monique damarsiwi 1* 1 dehasen university, bengkulu, indonesia abstract banks collect funds from the public in the form of deposits and are distributed back in the form of credit to companies and individuals. this study is aimed to determine the effect of the bi rate and non-performing loans (npl) to the capital loan in bengkulu province in the years 2013-2015. before doing the multiple regression analysis, the data should be free from the classical assumption.the empiricalresults of this partial analysis show that the variable bi rate istcount(2.402) >ttable (2,228),this meansthat the bi rate has a positive effect on bank lending in the province of bengkulu. variable non perfoming loans (npl) aretcount (2.531)>ttable (2,228) and sig. (0,037) < alpha (0.05), the variable non-performing loan (npl) revealed a positive and significant effect on bank lending in the province of bengkulu. simultaneously the variable bi rate and non-performing loans (npl) have the values of f (11.336)> f table (4.96) with sig (0.003) <α (0.05), it means that the variable bi rate and non-performing loan (npl) simultaneously / concurrently affect the dependent variable. the result also shows the ability of a model prediction of65.3% while the remaining34.7% are influenced by other factors outside the model that has not been incluioded in the study. meanwhile the most dominant variable in the study is the variable bi rate which has a value of the partial coefficient of 62.5%. jel classification: e43, e52, e58 keywords: bi rate, capital loan, non-performing loans 1. introduction the banking industry is an important part in the economy considering its role as a financial intermediary that unite the party which need funds with the party that has an excess of funds. other than that it also has a role in accelerating payment traffic. banks gather funds from the people in the form of deposit and distributed in the form of credit to companies and individuals. banks in their function as an intermediary institution has an important role in supporting the economic growth of a country through national income. the accumulation of funds from the people and the distribution of the funds in the economic sector will be able to encourage the movement of the business world to be able to influence national income. through the credit policy, banks have an important role in the equalization of the people’s income. the people that have limited resources are able to use the banking credit facility to finance production * corresponding author. email address: ds.monique@gmail.com mailto:ds.monique@gmail.com afebi economic and finance review (aefr) vol.1 no.1, june 2017 65 factors so they are able to accelerate their economic activities and produce income. therefore, through the banking system mechanism and the right credit policy, banks are able to perform their functions to help the government in equalizing the chance of business and the income of the people. the position of banking as an intermediary institution makes it possible to be able to divide financial allocation that it owns in corresponding with the parties that need it. because of that it is expected that banking is able to distribute credit to groups that are considered worthy and able to use the funds in the productive business sector. (fahmi and lavianti, 2010: 38) the banking sector always follows the economic development in a country. the largest influence in change is primarily from external factors which is the presence of a real sector in economic growth, the development of society, politics and democracy and influence from the international world. in the banking sector present in indonesia there is an internal factor that is able to change the banking condition directly, but the change will be greater if there is pressure from external change (arthesa, 2004:42). for a country, banks are able to be said as the economic blood of a country. because of that the role of banking has a large influence on the economic activities of a country. in other words, the development of a bank in a country is also able to become a measure of development in the country. in developed countries the banking sector has a large enough role which means the people and the government needs this banking sector more and more (kasmir, 2012:7). the indonesian government begins to establish several regulations in the monetary field that has a purpose to suppress the rate of rupiah depreciation. one of the policies which is applied by the government as of today is to increase the interest rate (bi rate). the increase in the interest rate is very much expected to be able to add national income funds which will also affect the increase of rupiah demands so the rupiah experiences a strengthening to foreign currency from other countries. from the side of banking, the interest rate (bi rate) increase also impacts from the side of the fund management and fund allocation (credit). the increase of the interest rate (bi rate) is able to cause the increase of depositor customers which save their money in the bank. yet, from another side, the interest rate increase will automatically increase the bank credit interest rate. this is able to cause customers to be uninterested to implement credit transactions to the banking side. a decrease in the number of customers and credit transactions is able to decrease the bank’s profit. the bank is aware that some of the credit funds that they have are from the saving funds of customers that are trusted to be managed, so those funds have to be distributed back so the bank obtains profit. because of that, the bank management has to apply a principle of being careful in every activity which one of them is distributing credit. because being slightly negligent in implementing its role will decrease profit and even able to ruin the survival of the bank itself. this risk is reflected with the non performing loan (npl) ratio. banks that experience the influence of the interest rate (bi rate) and non performing loan (npl) to the distribution of banking credit in bengkulu province in the years 2013-2015 66 conditions of credit problems causes the healthy operational image of the bank to decrease in the eyes of the people, the banking world, and the central bank (sutojo, 2008:185). the effort which is implemented by most large public banks for decreasing the above credit risk is by allocating a certain percentage from their productive deposit assets to become a reserve for eliminating credit. (sutojo, 2008: 213) the better banks play roles as intermediary institutions, the economic development of a country will grow more rapidly. if this credit distribution activity succeeds well the interest income and credit provision are the bank’s largest operational income which will increase profit (kuncoro and suhardjono, 2011:206). observing the condition above, the writer feels interested to analyze whatever factors that influence bank credit distribution in corresponding with its role as an intermediary institution between the government and the people. so the writer created the research title of “the influence of the interest rate (bi rate) and nonperforming loan (npl) to the distribution of banking credit in bengkulu province in the years 2013-2015” 2. literature review credit distribution credit is a right to accept payment or the obligation to implement payment in a future time as a cause of the handover of a good now (suyatno and co: 1990). while according to susilo and co. (2000). credit is the provision of money or invoice based on the loaning agreement or detal between banks with other parties which obligate the loaning party to pay off their obligation after a certain time period. according to hasibuan (2008), so that the operational activities of banks are able to operate smoothly hence credit, as one of the banking products, has to be programmed well. the activity of distributing credit is based on several aspects, among others: 1. juridical, which is the providing of credit to customers has to correspond with banking acts and bank indonesia regulations. 2. economic, which is determining the profitability that is desired to be reached and the expected level of credit interest. 3. prudence, which is the amount of credit limit (legal lending limit) that is provided to customers. 4. wisdom, is the guide which is comprehensive neither orally nor written which gives a general limit from the place where the management action will be implemented in implementing the appraisal of credit, credit officials generally use the principles of credit appraisal called the 5c. according to kasmir (2008: 108-111) the analysis with the 5c are as the following: afebi economic and finance review (aefr) vol.1 no.1, june 2017 67 a. character banks have to feel confident that customers which are given credit have a trusting character or nature, this is reflected from the customer’s background neither which are the work background nor the personal background. b. capacity for observing customers in their ability in the business field which is connected with their education, the business ability is also measured with their ability in understanding about government provisions. c. capital for observing if the capital use is effective, financial reports are observed by implementing measurements such as from the terms of liquidation, solvability, profitability, and other measures. d. collateral a guarantee which is given by the future customer neither physical nor nonphysical. e. condition in appraising credit there should also be an appraisal of the economic and political condition today and in the future in corresponding with each sector, and the business prospect of the implemented sector. interest rate (bi rate) according to siamat (2005:135) mentioned that : the bi rate is an interest rate with a tenor of one month that is announced by bank indonesia periodically for a certain time period which functions as a signal (stance) of monetary policy. interest is able to be defined as the price that banks and customers have to pay as remuneration for their transactions (ismail, 2010: 131). interest rate is able to be defined as income which banks receive from the credit which is distributed to customers that have the obligation to pay loans provided by the bank side. non performing loan (npl) the occurrence level of troubled credit is usually sided with the non performing loan (npl) ratio. non performing loan/ troubled credit is a situation where customers are not able to pay credit installments anymore which is already published by the bank side. according to bank indonesia the providing of troubled credit is categorized to become less fluent collectability, doubted, and jammed. (kuncoro and suhardjono, 2011 : 420). non performing loans (npl) reflect credit risk, the higher the non performing loan (npl) level the higher the credit risk taken by the banking party (ali 2004:231). the high level of troubled credit (npl) makes a need for the banking party to provide larger reserve funds, so in the end the bank’s capital is also streaked. the amount of troubled credit (npl) becomes a cause of the difficulty of banking in distributing credit. if the troubled credit (npl) is low, it is able to be ascertained that the financial condition of banks as credit providers are in a good condition. banks in providing credit have to implement an analysis to the customer’s ability to pay back the installments of the provided credit. after credit is provided, the influence of the interest rate (bi rate) and non performing loan (npl) to the distribution of banking credit in bengkulu province in the years 2013-2015 68 banks are obligated to implement supervision and building the steps in the credit providing that it implements. (kuncoro and suhardjono, 2011:243). the limit of troubled credit (npl) that is allowed is maximized at 5%, if it is over 5% it will influence the appraisal of the relevant bank’s healthy level. the troubled credit (npl) ratio that is larger more and more shows that the bank party is not able to manage troubled credit (riyadi, 2006:161). research hypothesis from the discussion above, the writer summarizes the hypothesis: h1 : interest rate (bi rate) has a negative influence to credit distribution. h2 : non performing loan (npl)has a negative influence to credit distribution. h3 : interest rate (bi rate) and non performing loan (npl) simultaneously influence to credit distribution. analysis frame h1 figure 1 analysis frame 3. research method the population of this research are all banking institutions in bengkulu province in the 2013-2015 period. data that is used for this research is secondary data which consists of bi rate, npl and credit distribution data in the banking in bengkulu province in the years 2013-2015 which is published by bank indonesia through the www.bi.go.id website. data that are used in this research are data of a three month period which is published by bank indonesia in bengkulu province in 2013-2015. the analysis technique which is used is the quantitative analysis technique which is the double regression linear that is used to count the influence and make linear equations which are able to be a reference to project the y variable (credit interest rate (bi rate) x1 non performing loan (npl) x2 credit distribution y h3 h2 http://www.bi.go.id/ afebi economic and finance review (aefr) vol.1 no.1, june 2017 69 distribution) based on the x1 variable, interest rate (bi rate) and the x2 variable, non performing loan (npl), which the data is a time series with a cross section. the hypothesis in this research uses a simultaneous test (f-test) and a partial test (t-test) to know the influence between the independent variable (x) with the dependent variable (y). the classic assumption tests in this research are the normality test, heteroscedasticity test, multicolinearity test and the autocorrelation test. the double regression linear model for this test is stated by the equation as of below (utama, 2009: 77): 𝑌t = 𝛼 + 𝛽1𝑋1 + 𝛽2𝑋2+ 𝛽n𝑋n + 𝜇i (1) remarks: 𝑌 = credit distribution 𝛼 = constant 𝛽1 ,2 = regression coefficient 𝑋1 = interest rate (bi rate) 𝑋2 = non performing loan(npl) 𝜇 = error term 4. research results and discussion classic assumption before implementing the double regression test, the present data has to be independent from the classic assumption which are: 1. normality test figure 2 normality test results based on the normal p-plot residual it is seen that data is distributed normally. this is seen from the data that spreads close to the diagonal line or following the direction of the diagonal line. so it is able to be summarized that the regression model fulfills the data normality assumption. the influence of the interest rate (bi rate) and non performing loan (npl) to the distribution of banking credit in bengkulu province in the years 2013-2015 70 2. multicolinearity test table 1 multicolinearity test results the results above show that the vif value of each independent variable is far below 10, which are x1 = 1.461 and x2 = 1.461. so it is able to be summarized that there is no multicolinearity between the independent variables of interest rate (bi rate) and non performing loan (npl) in the regression model. 3. autocorrelation test table 2 autocorrelation test results model summaryb model r r square adjusted r square std. error of the estimate durbinwatson 1 .846a .716 .653 .06877 .813 a. predictors: (constant), ln_npl, ln_birate b. dependent variable: ln_penyaluran for α = 0.05, k = 2 and n = 12, a value of dl=0,812 and du = 1,519 is obtained. because the durbin watson value of 0.813 is located between the dl and du, it is summarized that the model experiences uncertainty, because of that to be able to obtain a certain result the run test is implemented with the results: table 3 run test results runs test unstandardized residual test valuea .00112 cases < test value 6 cases >= test value 6 total cases 12 number of runs 6 z -.303 asymp. sig. (2-tailed) .762 a. median afebi economic and finance review (aefr) vol.1 no.1, june 2017 71 results of the run test show that asymp.sig (2-tailed) 0,762 > 0,05 which means the data that is used are random enough so there are no autocorrelation problems. 4. heteroscedasticity test table 4 heteroscedasticity test results coefficientsa model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) .121 .258 .469 .650 ln_birate -.056 .148 -.149 -.376 .716 ln_npl .045 .093 .193 .485 .640 a. dependent variable: abresid the heteroscedascity test with the method of the glesjer method obtained a sig bi rate value of 0.716 and a sig npl of 0.640 where the values are > than α 0.05 so it is able to be summarized that data does not have heteroscedascity. double regression analysis 1. t test table 5 t test results coefficientsa model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) 7.997 .425 18.836 .000 ln_birate .585 .244 .516 2.402 .040 ln_npl .315 .153 .441 2.531 .037 a. dependent variable: ln_penyaluran from the table results above the regression equation is able to be seen and the relations of each independent variable to the dependent variable: ŷ = 7,997 + 0,585 x1 + 0,315 x2 tcount = (18,836) (2,402) (2,531) sig = (0,000) (0,040) (0,037) a. the first hypothesis test (h1) :interest rate (bi rate) has a negative influence to credit distribution. from the test results a tcount value for x1 as large as 2.402 and a ttablevalue of 2.228 is obtained. as a cause of tcount>ttable h0 is rejected, which means the interest rate (bi rate) has a positive influence to credit distribution in bengkulu province. which means that in every increase in the interest rate (bi rate) as large as 1%, the influence of the interest rate (bi rate) and non performing loan (npl) to the distribution of banking credit in bengkulu province in the years 2013-2015 72 the credit distribution will increase as large as 0.585%, ceteris paribus. the result of this research is corresponding with the research implemented by greydi normala sari (2013) where it is obtained that interest rate (bi rate) has a positive and significant influence to credit distribution. the result of this research is not corresponding with the theory that interest rate (bi rate) is assumed to have a negative influence to the credit distribution of banking because interest rate (bi rate) is the interest rate level that becomes a reference for public banks to make decisions in determining the level of credit interest rate that will be distributed to the loaner or debtor party. this is possible as a cause of many other factors that cause consumers to not be concerned about the present interest rate amount, so they still decide to take credit loans in banks for the needs of funding. b. the second hypothesis test (h2) : non performing loan (npl) has a negative influence to credit distribution from the test results the value is obtained as tcount(2.531) >ttable(2.228) and the sig value (0.037) < alpha (0.05) so the non performing loan (npl) variable is said to have a positive and significant influence to credit distribution in bengkulu province. the result of this research is not corresponding with the theory that states that the increase of non performing loans (npl) will cause the increase in credit risk that the bank is responsible for. (ali, 2004:160). the non performing loan (npl) that occurs in bengkulu province has still not yet passed the maximum limit and is still able to be tolerated by bank indonesia which is with the maximum of 7.2%. so, although non performing loans (npl) occur in bengkulu province, when the npl is still tolerant and able to be controlled, credit distribution will not be decreased but the number will still be increased. this research is supported by the research implemented by indira (2008) which states that non performing loan (npl) has a positive and significant influence to credit distribution. the amount of npl levels are still able to be solved with the third party fund levels that are able to be accumulated by the banking institution party. although non performing loans (npl) increase credit is still able to be distributed with reserve funds that the banking party has. 2. f test table 6 f test results the f statistic test shows if all independent variables are entered are they influencing together to dependent variables (ghozali; 2006). such as seen in table anovab model sum of squares df mean square f sig. 1 regression .107 2 .054 11.336 .003a residual .043 9 .005 total .150 11 a. predictors: (constant), ln_npl, ln_birate b. dependent variabel: ln_penyaluran afebi economic and finance review (aefr) vol.1 no.1, june 2017 73 6, the value of fcount (11.336) >ftable is obtained with a sig value of (0.003) < α (0.05), so the decision that the independent variables of interest rate (bi rate) and non performing loan (npl) simultaneously/together influence to the dependent variable of credit distribution. this is corresponding with the third hypothesis (h3) : interest rate (bi rate) and non performing loan (npl) simultaneously influence to credit distribution. the value of adjusted r2 = 0.653 shows the value of 65.30%. this shows that interest rate (bi rate) and non performing loan (npl) are able to explain the credit distribution as large as 65.30% and the rest is influenced by other independent variables that are not used in this research. the most dominant variable that has an influence is able to be seen from its partial coefficient. from test results the following data is obtained: table 7 partial coefficient values independent variable partial coefficient value bi rate 0,625 npl 0,565 from the result of the table above it is able to be seen that the interest rate (bi rate) value is as large as 0.625 (62.5%) and the npl value is as large as 0.565 (56.5%). so the interest rate (bi rate) variable has the most dominant influence to banking credit distribution in bengkulu province. this is because there are still many consumers/people which first see the credit interest rate amount as the base of consideration in applying for banking credit in bengkulu province. generally if the credit interest rate is too large people will postpone for a banking credit loan, yet if it is the contrary, the credit interest rate is low, people take this chance for loaning banking credit to fulfill funding needs. 5. summary and suggestions from the results of the research, the summary is able to be withdrawn as the following: 1. partially the interest rate (bi rate) variable has a significantly positive influence to banking credit distribution in bengkulu province. this is possible because there are many other factors which cause consumers to not be concerned anymore about the present interest rate (bi rate), so they still decide to implement credit loans to banks for the needs of funding. 2. partially the non performing loan (npl) variable also has a significantly positive influence to banking credit distribution in bengkulu province. this is because the amount of non performing loan (npl) in bengkulu province is still able to be controlled, so banking institutions will still distribute credit. 3. simultaneously/together the variables of interest rate (bi rate) and non performing loan (npl) have positive and significant influences to the distribution of banking credit in bengkulu province. from the partial coefficient table it is able to be seen that interest rate (bi rate) has the most dominant influence to credit distribution in bengkulu province. this is because there are still many consumers/people which first see the credit interest rate amount as the base of consideration in applying for banking credit in bengkulu province. generally if the credit interest rate is too large people the influence of the interest rate (bi rate) and non performing loan (npl) to the distribution of banking credit in bengkulu province in the years 2013-2015 74 will postpone for a banking credit loan, yet if it is the contrary, the credit interest rate is low, people take this chance for loaning banking credit to fulfill funding needs. from the summary that is obtained, the writer provides the following suggestions: 1. it is expected to be able to add other independent variables to enrich this study which is adapted with the economic situation of today. 2. bank indonesia should be careful in determining interest rate (bi rate), because interest rate (bi rate) influences the amount of banking credit distribution in bengkulu province. 3. other researchers are expected to use other methods that are more complete an accurate so a more valid summary is able to be obtained. references arthesa, a., & hendiman. (2004). bank dan lembaga keuangan bukan bank. jakarta : pt indeks kelompok gramedia ali, m. (2004). asset liability management, menyiasati risiko pasar dan risiko operasional dalam perbankan.jakarta: pt. elex media kompetindo kelompok gramedia. fahmi, i., & hadi, y. l.(2010). pengantar manajemen perkreditan. bandung: alfabeta. hasibuan, m. s. p. (2008). manajemen sumber daya manusia. jakarta: pt. bumiaksara. indria, a. (2008). pengaruh dana pihak ketiga, non performing loan,dan suku bunga sertifikat bank indonesia (sbi) terhadap jumlah kredit bank umum di provinsi bali. [skripsi]. universitas udayana. ismail. (2010). manajemenperbankan: dari teori menuju aplikasi. jakarta: kencana. greydi, n. s. (2013). faktor-faktor yang mempengaruhi penyaluran kredit bank umum di indonesia (periode 2008.1 – 2012.2). journal of the faculty of economics and business. department of development economics, sam ratulangi university manado, issn2303-1174 vol.1. ghozali, i. (2006). aplikasi analisis multivariate dengan program spss. cetakan keempat. semarang: badan penerbit universitas diponegoro. kasmir. (2008). bank dan lembaga keuangan lainnya(edisirevisi 2008). jakarta: pt.raja grafindo persada. kasmir. (2012). manajemen perbankan (edisirevisi). jakarta: pt raja grafindo persada. afebi economic and finance review (aefr) vol.1 no.1, june 2017 75 kuncoro, m., & suhardjono. (2011). manajemen perbankan teori dan aplikasi. yogyakarta:bpfe. riyadi, s. (2006). banking assets and liability management. jakarta: lp-feui. siamat, d. (2005). manajemen lembaga keuangan; kebijakan moneter dan perbankan (edisikelima). jakarta: lembaga penerbit fakultas ekonomi universitas indonesia. sutojo, s. (2008). strategi manajemen kredit bank umum. jakarta: pt. damarmuliapustaka. susilo, s. y, dkk. (2000). bank dan lembaga keuangan lain. jakarta: salembaempat. suyatno, t. (1990). dasar-dasar perkreditan (cetakanketiga). jakarta: gramedia. utama, m. s. 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(accessed on march 20 2017). http://www.bi.go.id/id/publikasi/kajian-ekonomiregional/bengkulu/pages/kekr-provinsi-bengkulu-tw.-iv-2015.aspx afebi economic and finance review-final.2.2 day-of-the-week anomaly on different stock capitalization: evidence from indonesian stock market 7 7 day-of-the-week anomaly on different stock capitalization: evidence from indonesian stock market dadang wahyu juniarwoko1*, tony irawan2, lukytawati anggraeni3 1 bogor agricultural university, bogor, indonesia 2,3 bogor agricultural university, bogor, indonesia abstract the aim of this study is to determine whether the “day-of-the-week anomaly” (dowa) exists on different stock capitalization in indonesian stock market. a total of 58 stocks listed in both lq45 index and pefindo25 index used to represent large cap stocks and small and medium cap stocks respectively. the ordinary least squares (ols) method and arch/garch model were employed to capture the dowa and the daily volatility behavior for the period between january 2010 and december 2015. the result reveals that dowa exist for a significant proportion of individual stocks in both lq45 and pefindo25. monday was found to have the lowest mean returns while wednesday has the highest mean return. the differences between monday’s return and return of the other days ranged from 0.15 to 0.41 percent. lq45 stocks also found to have slightly higher wednesday’s volatility than of pefindo25 stocks. it indicates that the higher return of the lq45 is naturally accompanied by a higher risk. jel classification: g02, g10, g17 keywords: day-of-the-week anomaly, indonesia, lq45, pefindo25, stock market 1. introduction calendar anomaly defined as the presence of recurring patterns that occur at certain calendar points, e.g. certain month or day, which provides opportunities for investors to earn abnormal returns (deyshappriya, 2014). calendar anomaly has been found to exist in the various stock markets in many countries, not least in the developed countries like usa, japan, uk, france, austria, belgium, canada, denmark, germany, ireland, italy, the netherlands, norway, singapore, and spain (dicle and levendis, 2012; das and rao, 2011; bouman and jacobsen, 2002). however, anomalies were found in most of these countries have been weakened (dicle and levendis, 2012). therefore recent studies of calendar anomalies tend to be done in developing countries (cifuentes and cordoba, 2013). studies on developing countries are more likely to produce findings about the calendar anomaly (singh, 2014; mouselli and al-samman, 2016; deyshappriya, 2014; alrabadi and al-qudah, 2012; brahmana, hooy, and ahmad, 2011; angelovska, 2014). indonesia, which is also a developing country, has also become the object of study of calendar anomalies in the previous literature. indonesian capital market referred to as a semi-strong efficient market (husnan, 1998), * corresponding author. email address: dadangwahyujuniarwoko@yahoo.co.id mailto:dadangwahyujuniarwoko@yahoo.co.id afebi economic and finance review (aefr) vol.02 no.01, june 2017 8 meaning that investors cannot predict stock prices based on patterns of historical prices and public information, however this finding were contradicted by other studies that found some seasonal anomalies in indonesia, such as the month of the year anomaly (moya) and the day of the weak anomaly (dowa) (anwar and mulyadi, 2012; iramani and mahdi, 2006; werastuti, 2012; naughton and veeraghavan, 2005). these studies indicate that indonesian stock market is still inefficient, meaning that investors can predict stock prices based on stock price movement patterns of the past. indication of calendar anomaly in indonesian stock market can be seen from daily return of lq45 and pefindo25 indices. both on the lq45 and pefindo25 indices, the highest average return are seems to be on wednesday. wednesday of lq45 index has an average return of 0.01 to 0.32 percent higher than the other day, while in the pefindo25 index the differences range from 0.16 to 0.38 percent (figure 1 and figure 2). lq45 used in this study to represent the "behavior" of large capitalization stocks. whereas pefindo25 index is an index comprised of small and medium enterprises (sme) listed companies with at least five trillion rupiah assets, it used to represent the "behavior" of small and medium cap stocks. anomaly indications need to be seen in different stock capitalization as market, especially risk lover investors, usually prefers to trade on second line stocks because these stocks often offer higher returns than large-cap stocks, but of course with a greater risk (switzer, 2012). the second line stocks are often reported in the media as an first alternative when the movements of lq45 stocks are stagnant (prasetyo, 2016). if a different pattern of anomaly is found in different stocks capitalization then an anomaly based trading strategy can be applied for each type of capitalization. figure 1 daily mean return of lq45 2010-2015 source: yahoo finance (processed) -0.600% -0.400% -0.200% 0.000% 0.200% 0.400% 0.600% 0.800% 2010 2011 2012 2013 2014 2015 day-of-the-week anomaly on different stock capitalization: evidence from indonesian stock market 9 figure 2 daily mean return of pefindo25 2010-2015 source: yahoo finance (processed) while calendar anomaly is quite often researched before, but previous studies on calendar anomaly only examine the index, however, the anomaly that occurs at the index level does not necessarily occur in each of its constituent stocks, or vice versa. this point of view has been proven by dicle and levendis (2012), according to what we learn so far they are the first to prove the idea, in their research about calendar anomaly in several developed markets. they found that even tough there was no anomaly found on some indices, but the the anomaly was still exist on at least 7 percent of its constituent stocks. this study, in the same manner, aims to determine how many constituent stocks of an index that also have the same anomaly as their index. the other main idea of this study is that there is a theory regarding calendar anomaly which states that the anomaly occurs mostly in small cap stocks (mangala and lohia, 2013). analysis at the group of stocks with different market capitalization is usually carried out to clarify the theory. this is also reason for this study to use two indices with different capitalization. this study intends to accommodate these two ideas and answer them in one paper, not as separate as the previous research. 2. literature review there are many types of calendar anomalies that have been found since long, day-of-the-week anomaly (dowa) which also known as monday effect, such as halloween effect or sell in may indicator, turn-of-the-month effect and rogalski effect. dowa or monday effect is a low return pattern that is usually found only on monday. monday effects are suspected to occur because of the behavior of individual investors who usually collect and process information outside of trading times, such as weekends. the lack of analytical reports that support investors to take long positions makes returns on monday tend to be lower than other days. in addition, certain corporate habits to release bad news on weekends make investors more pessimistic in trading on monday (dicle and levendis, 2012). -0.400% -0.200% 0.000% 0.200% 0.400% 0.600% 0.800% 2010 2011 2012 2013 2014 2015 afebi economic and finance review (aefr) vol.02 no.01, june 2017 10 studies of calendar anomaly in developed countries produce diverse conclusions, but most researches lead to the conclusion of the disappearance of the anomaly or at least the effects of the anomaly is further weakened. according to dicle and levendis (2012), in the united states, japan and the united kingdom stock markets, dowa are no longer exist at the market level, but it still exist at the individual stocks level. they found that at least seven percent of the total number of stocks in each market still has dowa. unlike the case in developed countries, researches of calendar anomaly in developing countries tend produced more findings. alrabadi and al-qudah (2012) found on the ase index of amman, monday has the lowest significant negative return compared to other days. dowa is also found in indonesia, singapore, malaysia (deyshappriya, 2014; iramani and mahdi, 2006). according to bodie, kane, and marcus (2008) calendar anomalies are more likely to occur in small cap stocks than big cap stocks. this phenomena is related to another anomaly called the size effect, the size effect happens when small cap stocks have a higher rate of return than of the big cap stocks (battman, ng, dan sault 2010). bodie, kane, and marcus (2014) stated the size effect usually occurs on january and known by small-firms-in-january-effect. small firms in january effect occurs in some developed countries, as found by bettman, ng, and sault (2011) in australia, and brockman and michayluk (1997) in the united states. however, using the small-cap special indices for the us market, dhatt, kim, and mukherji (1999), instead found that small cap effects actually occurred in months other than in january size effects are also found in dowa, brahmana, hooy, and ahmad (2011, found monday effect occurs only in low cap and mid cap stock. hypothesis the hypotheses of this research are stated as follows: 1. there is a significant difference in daily return between different days of the week. 2. there is a significant difference in monthly returns between different months of the year. 3. data and methodology the data used in this study are daily closing prices of stocks and indices. the observation period of this study is from the date of the end of december 2009 until the end of december 2015. data was obtained from yahoo finance and google finance. stocks that observed are the ones that remain listed or at least frequently listed on pefindo25 and lq45 during 2010-2015. a total of 58 stocks met the criteria. the return is calculated using this following equation: 𝑅𝑇𝑡 = 𝐿𝑛 ( 𝑃𝑟𝑡 𝑃𝑟𝑡−1 ) (1) where: 𝑅𝑇𝑡 : return in period t, 𝐿𝑛 : natural logarithm, 𝑃𝑟𝑡 : close price of stocks or index in period t, day-of-the-week anomaly on different stock capitalization: evidence from indonesian stock market 11 𝑃𝑟𝑡−1 : close price of stocks or index in period t-1. based on shiller and radikoko (2014), natural logarithm is utilized so that the return values are more likely to be distributed normally and to dismiss parts of linear dependency between the current and the past return. to examine the existence of dowa in stock returns, the following equation is used: 𝑅𝑡 = 𝛽0 + 𝛽1𝐷1𝑡 + 𝛽2𝐷2𝑡 + ⋯ + 𝛽4𝐷4𝑡 + ∑ 𝑅𝑡−𝑖 𝑞 𝑖=1 + µt + ∑ µ𝑡−𝑖 𝑞 𝑖=1 (2) where rt stands for the daily return, d1 through d4 are daily dummy variables. if it is monday, then d1= 1 and 0 for all other days, and so forth. the error terms may not be white noise due to autocorrelation and lagged values of the return variable are included. the value of the past error(s) of time t is also included in the model. such model had been used by angelovska (2014) in terms of the use of lagged return. while the use of past error variable has been recommended by firdaus (2011) as one of the stages in the estimation model of arch / garch. coefficients β0, β1...β4 represent the wednesday effect, monday effect...friday effect on stock returns, respectively. if β coefficient of the respective day is positive and high it implies that the particular day exhibits abnormally high positive returns and if a β coefficient is negative and high for a particular day it implies that high negative returns are generated in that day. this model also use wednesday as the benchmark category, because wednesday is indicated to have the highest return both for lq45 and pefindo25. the indication is shown in figure 1 and figure 2. this study used two alternatives of estimator for the model which are ordinary least square (ols) method and arch/garch model. estimator used depends on the condition of the data, if the data used are heteroscedastic then the estimator that will be used is arch / garch, whereas if the data is homoscedastic then ols will be used. in order to check the heteroscedasticity condition of serial data, the arch effect test is applied. before using the ols and arch/garch model, it is a precondition that the time series must be stationary (mangala and lohia 2013). to ensure the stationarity in the return series, unit root tests have been applied. this study use augmented dickey-fuller (adf) test and phillip-perron (pp) test for the unit root tests. the arch/garch model have other benefits besides being able to overcome the problem of heteroskedasticity, the equation of variance of this model can be used to see the effect of the dowa on the volatility. the variance equation of the arch/garch model is stated as follows: ℎ𝑡 = 𝛼0 + ∑ 𝛼𝑖 𝐷𝑖 𝑁 𝑖=1 + ∑ 𝛼𝑖 𝑒𝑡−𝑖 2𝑞 𝑖=1 + ∑ 𝛽𝑖 ℎ𝑡−𝑖 𝑝 𝑖=1 (3) ht is the conditional variance and α0 to α4 represent the size of the day of the week effect on volatility. the stationary condition for garch is αi + βi < 1. 4. empirical result and discussion it can be inferred from table 1 and table 2 that return data of all stocks examined are stationary, but only a few of them are normally distributed. the normality test results are shown by jarque berra value. it’s also seen from table 1 afebi economic and finance review (aefr) vol.02 no.01, june 2017 12 and table 2 the data of serial return are mostly not normally distributed and heteroscedastic. only a few of them are homoscedastic. table 1 results of jarque berra test, adf test, pp test, and arch effect test of lq45 stock members return stocks std. dev. skewness kurtosis jarque berra jb prob. adf prob. pp prob. arch effect prob. aali 2.389 0.352 0.352 606.917 0.000 0.000 0.000 0.000 adro 2.758 0.326 6.745 884.026 0.000 0.000 0.000 0.001 antm 2.464 0.786 13.032 6306.647 0.000 0.000 0.000 0.014 asii 2.157 0.091 5.192 295.887 0.000 0.000 0.000 0.000 bbca 1.856 -0.034 5.777 472.089 0.000 0.000 0.000 0.000 bbni 2.172 -0.088 7.191 1075.469 0.000 0.000 0.000 0.000 bbri 2.236 0.041 6.177 617.930 0.000 0.000 0.000 0.000 bdmn 2.545 1.426 24.640 29121.900 0.000 0.000 0.000 0.213 bmri 2.197 -0.073 6.561 776.741 0.000 0.000 0.000 0.000 ggrm 2.140 0.300 5.598 458.525 0.000 0.000 0.000 0.000 inco 2.870 0.383 5.875 541.552 0.000 0.000 0.000 0.000 indf 2.072 -0.178 7.012 992.266 0.000 0.000 0.000 0.000 intp 2.396 -0.069 6.907 934.627 0.000 0.000 0.000 0.000 itmg 2.467 -0.085 5.116 275.697 0.000 0.000 0.000 0.037 jsmr 1.869 0.038 7.215 1087.218 0.000 0.000 0.000 0.000 klbf 2.207 -0.156 8.772 2044.084 0.000 0.000 0.000 0.000 lpkr 2.499 -0.300 8.137 1636.340 0.000 0.000 0.000 0.247 lsip 2.562 0.339 6.876 946.998 0.000 0.000 0.000 0.605 pgas 2.241 -0.311 7.139 1071.350 0.000 0.000 0.000 0.000 ptba 2.453 0.172 6.200 633.453 0.000 0.000 0.000 0.000 smcb 2.295 -0.387 6.766 904.077 0.000 0.000 0.000 0.000 smgr 2.245 0.181 7.232 1103.790 0.000 0.000 0.000 0.000 tins 2.584 0.472 6.219 688.331 0.000 0.000 0.000 0.000 tlkm 1.789 -0.122 4.550 150.528 0.000 0.000 0.000 0.000 untr 2.407 -0.004 5.065 260.747 0.000 0.000 0.000 0.000 unvr 2.123 0.243 7.363 1178.537 0.000 0.000 0.000 0.000 asri 3.056 0.222 6.555 785.109 0.000 0.000 0.000 0.000 bbtn 2.514 0.079 8.297 1717.428 0.000 0.000 0.000 0.000 bmtr 3.171 1.312 11.151 4484.865 0.000 0.000 0.000 0.000 bsde 2.889 -0.310 9.044 2258.033 0.000 0.000 0.000 0.021 cpin 3.083 0.003 7.393 1180.550 0.000 0.000 0.000 0.000 excl 2.912 0.149 10.227 3200.139 0.000 0.000 0.000 0.000 icbp 2.045 0.235 5.125 304.896 0.000 0.000 0.000 0.000 akra 2.386 -0.046 4.790 196.563 0.000 0.000 0.000 0.000 mncn 3.176 0.980 8.317 1964.187 0.000 0.000 0.000 0.000 table 2 results of jarque berra test, adf test, pp test, and arch effect test of pefindo25 stock members return stocks std. dev. skewness kurtosis jarque berra jb prob. adf prob. pp prob. arch effect prob. aces 2.835 0.445 5.951 580.833 0.000 0.000 0.000 0.000 arna 3.402 0.003 10.958 387.393 0.000 0.000 0.000 0.000 aisa 2.947 0.801 7.732 1,525.362 0.000 0.000 0.000 0.000 amag 2.956 0.459 11.826 4,815.887 0.000 0.000 0.000 0.000 asgr 2.596 1.027 10.908 4,083.112 0.000 0.000 0.000 0.000 bisi 3.180 1.119 10.461 3,710.821 0.000 0.000 0.000 0.000 cmnp 2.864 1.747 16.846 12,473.880 0.000 0.000 0.000 0.000 elsa 2.714 1.094 9.236 2,671.341 0.000 0.000 0.000 0.000 gzco 2.647 1.003 11.136 4,294.615 0.000 0.000 0.000 0.002 inta 2.422 1.601 16.076 11,085.240 0.000 0.000 0.000 0.008 lpck 3.718 0.812 9.948 3,099.291 0.000 0.000 0.000 0.000 main 3.716 0.235 14.523 7,864.070 0.000 0.000 0.000 0.000 day-of-the-week anomaly on different stock capitalization: evidence from indonesian stock market 13 stocks std. dev. skewness kurtosis jarque berra jb prob. adf prob. pp prob. arch effect prob. nikl 2.564 0.720 10.637 3,694.173 0.000 0.000 0.000 0.000 pbrx 3.561 1.483 18.062 14,374.880 0.000 0.000 0.000 0.000 rals 2.743 0.346 5.808 511.719 0.000 0.000 0.000 0.000 sgro 0.203 0.090 6.120 597.415 0.000 0.000 0.000 0.002 smsm 2.421 0.523 10.288 3,315.891 0.000 0.000 0.000 0.000 ssia 3.847 0.526 7.683 1,409.406 0.000 0.000 0.000 0.000 tbla 2.215 0.334 7.072 1,041.486 0.000 0.000 0.000 0.000 totl 3.233 0.825 9.854 3,040.374 0.000 0.000 0.000 0.000 bwpt 3.250 -0.436 16.815 11,672.300 0.000 0.000 0.000 0.000 kren 2.246 1.307 14.310 7,966.375 0.000 0.000 0.000 0.000 mapi 2.889 0.578 6.322 756.306 0.000 0.000 0.000 0.000 the results of several tests shown in table 1 and table 2 are used to determine which method used to estimate the mean equation that stated earlier. for those stocks which their return have heteroscedasticity problem, arch/garch model will be utilized to estimates their mean equations. otherwise, for the stocks that do not have heteroscedasticity problem ols method will be used to estimates their mean equations. empirical results and discussion before discussing about the existence of dowa on individual stocks, we first need to see if dowa exist at market level. in lq45, dowa occurs with patterns that monday has the significantly lowest return and wednesday has the significantly highest return. the detailed result can be seen in the following regression outcomes: rt: 0.278c -0.410monday -0.145tuesday -0.311thursday -0.179friday r 2=0.031 (0.059) (0.094) (0.088) (0.083) (0.097) +1.084yt-1 -0.444yt-2 +µt -1.059µt-1 +0.324µt-2 (0.182) (0.155) (0.193) (0.175) σ2t: 0.083c +0.119monday -0.291tuesday -0.139thursday +0.329friday (0.081) (0.135) (0.140) (0.129) (0.129) +0.152 ε2t-1 +0.809h t-1 (0.152) (0.809) the difference between wednesday’s mean return and any other days’ return is about 0.15 to 0.41 percent. the same pattern was found in the index pefindo25, where monday and wednesday are the days with anomalies. the regression outcomes of pefindo25 are as follows: rt: 0.240c -0.320monday -0.146tuesday -0.161thursday -0.147friday r 2=0.020 (0.068) (0.094) (0.095) (0.098) (0.098) +0.848yt-1 -0.907yt-2 +µt -0.842µt-1 +0.944µt-2 (0.029) (0.034) (0.024) (0.026) σ2t: 0.058c +0.298monday -0.123tuesday -0.185thursday +0.092friday (0.119) (0.166) (0.196) (0.189) (0.145) +0.103ε2t-1 +0.860h t-1 (0.013) (0.016) afebi economic and finance review (aefr) vol.02 no.01, june 2017 14 comparing the wednesday’s return of lq45 index with the wednesday’s return of pefindo25 index, it can be concluded that the wednesday anomaly of lq45 produces slightly higher return than that of pefindo25. but the risk contained on wednesday return of lq45 is slightly higher than the risk contained on wednesday return of pefindo25. it seems that even in terms of anomaly it’s still following the most known norm of the relation between risk and return that is “the higher the risk the higher the return”. the next thing to be discussed after we found that dowa exist on market level is to examine whether this phenomena reflected on the individual stocks. the results of dowa examination in lq45 stocks, stated in table 3, shows that most of the stocks (74.29 percent of them) have significantly low (negative) return on monday and significantly high (positive) return on wednesday. table 3 dowa on lq45 stocks (estimates of mean equation and variance equation) stocks arima arch/garch highest return lowest return highest volatity lowest volatility aali (1,0,0) (1,2) friday** monday** monday** friday** adro (1,0,1) (1,1) wednesday** monday** wednesday** tuesday** antm (2,0,2) (1,1) monday** friday** wednesday** monday** asii (2,0,1) (1,1) wednesday** thursday** wednesday** tuesday** bbca (1,0,1) (1,2) wednesday** monday friday** tuesday** bbni (2,0,2) (3,0) wednesday** monday** friday** wednesday** bbri (2,0,2) (1,2) wednesday** monday** friday** tuesday** bdmn (1,0,1) wednesday monday** bmri (2,0,2) (1,1) wednesday** monday** friday** tuesday** ggrm (2,0,3) (1,1) wednesday* thursday** wednesday** thursday** inco (2,0,2) (1,1) wednesday tuesday* wednesday** thursday** indf (2,0,2) (1,1) wednesday** monday** wednesday* thursday** intp (2,0,2) (1,1) wednesday* monday** friday* tuesday** itmg (2,0,2) (1,1) thursday** monday** monday tuesday** jsmr (2,0,2) (1,2) wednesday** monday** monday* thursday* klbf (1,0,1) (1,1) wednesday* monday wednesday** tuesday** lpkr (1,0,3) (1,1) wednesday monday* monday* tuesday** lsip (2,0,2) (1,0) wednesday monday** thursday** wednesday** pgas (3,0,2) (1,2) wednesday** monday** wednesday* monday* ptba (3,0,3) (2,0) wednesday monday** tuesday* wednesday** smcb (2,0,3) (1,1) wednesday** monday** friday** thursday** smgr (2,0,2) (1,2) wednesday** monday** monday** tuesday** tins (2,0,2) (1,1) wednesday* monday** thursday** tuesday tlkm (2,0,2) (1,2) wednesday** monday** friday** thursday* untr (2,0,2) (1,1) wednesday** monday** wednesday** friday** unvr (1,0,1) (2,0) wednesday** monday** tuesday* monday* asri (2,0,3) (1,2) wednesday** monday** thursday** tuesday bbtn (2,0,2) (1,2) wednesday** monday** thursday** tuesday** bmtr (2,0,2) (3,0) wednesday** monday** tuesday** friday** bsde (1,0,1) (1,2) wednesday** monday** thursday** tuesday cpin (3,0,0) (1,2) wednesday** monday** friday** thursday** excl (2,0,3) (1,2) thursday monday** wednesday** tuesday icbp (1,0,1) (1,2) wednesday* monday** wednesday** thursday** akra (2,0,2) (1,0) wednesday** thursday** wednesday** tuesday mncn (1,0,2) (2,0) wednesday** monday** wednesday** thursday** note: * and ** indicate significance at 10 percent and 5 percent respectively as for the examination of dowa on pefindo25 stocks, the results are quite similar with the result of lq45 stocks. the pattern of monday and wednesday is day-of-the-week anomaly on different stock capitalization: evidence from indonesian stock market 15 still dominating the results, but the stocks that experienced it are in the lower proportion, only about 47.38 percent of them share the same pattern as lq45 stocks. the results are shown in table 4. table 4 dowa on pefindo25 stocks (estimates of mean equation and variance equation) stocks arima arch/garch highest return lowest return highest volatity lowest volatility aces (1,0,1) (1,1) friday monday wednesday** thursday** arna (2,0,2) (3,0) friday* monday friday** wednesday** aisa (0,0,2) (1,2) wednesday tuesday monday** friday** amag (2,0,2) (1,1) thursday monday** thursday** friday* asgr (2,0,2) (1,1) wednesday monday monday* tuesday** bisi (2,0,2) (1,1) wednesday friday** wednesday** tuesday** cmnp (3,0,2) (1,2) tuesday friday* monday** wednesday elsa (1,0,1) (1,2) thursday* monday** thursday** tuesday** gzco (2,0,3) (1,3) thursday monday thursday** wednesday** inta (2,0,3) (1,1) wednesday** monday** wednesday** friday** lpck (2,0,3) (2,0) wednesday** monday** wednesday** friday** main (2,0,2) (1,1) wednesday** monday** monday** friday** nikl (3,0,2) (1,2) wednesday tuesday friday** wednesday** pbrx (2,0,2) (1,2) wednesday** tuesday* monday friday* rals (2,0,2) (1,1) wednesday* monday** wednesday** tuesday** sgro (3,0,3) (1,0) wednesday** monday** wednesday** monday** smsm (2,0,2) (1,1) wednesday** friday* wednesday** tuesday** ssia (2,0,3) (1,0) wednesday** monday* thursday** friday** tbla (3,0,2) (1,2) thursday monday** wednesday** tuesday** totl (1,0,1) (1,2) wednesday* friday monday** wednesday** bwpt (1,0,3) (3,0) tuesday monday** wednesday** friday** kren (3,0,3) (1,1) wednesday** monday wednesday** thursday** mapi (1,0,2) (3,0) wednesday* monday** thursday** wednesday** note: * and ** indicate significance at 10 percent and 5 percent respectively based on the result of analysis of dowa on lq45 stocks and pefindo25 stocks, it can be clearly stated that dowa happened on lq45 and pefindo25 are also reflected on their stocks. traditionally, a study of calendar anomaly, also add some explanation or presumption about how could the phenomena happen. thus, this research will also try to provide its own presumption about the cause of the anomaly. it is easier to explain the cause monday effect that exists than to explain the cause of wednesday effect. it because monday effect is a long known phenomenon, and the possible explanations provided by numerous previous literatures are abundant. one of the most widely used theory to explain monday effect is the pessimistic attitude of investors toward monday. this behavior related explanation was based on several reasons. these reasons are: (1) individual investors usually collect and process information outside trading hours such as weekends, (2) lack of analysis reports that support the investor to buy at the weekend to make return monday tends to be lower than other days, (3) the habit of certain companies to release bad news on the weekend made investors become more pessimistic for trading on monday. about the possible explanation for the wednesday effect, we need to refer to previous literatures that study the similar phenomena on the same market. fortunately the study of calendar anomaly on indonesian market had been done before. using also lq45 index, iramani and mahdi (2006) also found dowa in afebi economic and finance review (aefr) vol.02 no.01, june 2017 16 indonesian stock market. but the pattern is a bit different, they also found monday has the lowest return, but for the day that has the highest return is thursday. it is commonly known in dowa case that the information that known to the market can be directly exploited and cause the pattern to move or disappear (philpot and peterson, 2011). so predictably, the market that has been aware of the information about dowa before and then exploit that information, causing the patterns to move its highest return to wednesday, as found in this study. it can be drawn from the our analysis, there is a movement up from monday until reaching its peak in wednesday, indicating that buying action is accumulated in wednesday and investors hold the stocks through tuesday and sell them at some point on thursday. buying action that accumulates on wednesday was suspected to be the cause of the stock price on wednesday to be the highest. there is one last interesting question than can be asked form the dowa findings, that is: could it be exploited to produce return that can beat the market return? to answer this question we calculated a simple scenario that compares the result of holding the lq45 or pefindo25 portfolio throughout the year and the result of doing the active buy and sell strategy between monday and wednesday. the last strategy requires investors to buy stocks on monday and sell them on wednesday. the results are shown on table 5. tabel 5 comparison between the market return and the return of timing strategy lq45 (percent) pefindo25 (percent) accumulative market return per year return of timing strategy accumulative market return per year return of timing strategy 2010 28.31 month ly 1.64 2010 60.13 month ly 1.33 2011 1.82 yearl y 21.3 2011 5.95 yearl y 17.3 2012 8.74 2012 15.53 2013 -3.31 2013 -27.07 2014 23.39 2014 30.66 2015 -14.11 2015 -32.08 average 7.48 average 8.85 it may be inferred from table 6, if an investors execute the timing strategy, either by doing it by buying and selling lq45 or pefindo25 stocks, the investor will has the possibility of gaining return above the market. the yearly average returns of timing strategy both in lq45 and pefindo25 are exceeding the yearly return of their own market in 2011, 2012, 2013, and 2015. it means the possibility of the investor to obtain above market return by doing the timing strategy is about 66.67 percent. it also can be concluded from table 6 that in the implementation of timing strategy, one can obtain better return if he/she use lq45 portfolio or lq45 etf. hence, we recommend lq45 stocks or lq45 etf the implementation of timing strategy. to complete the recommendation we also need to look at the daily risk of each index. the daily risk is shown on table 6. day-of-the-week anomaly on different stock capitalization: evidence from indonesian stock market 17 table 6 daily risks of lq45 and pefindo25 variance mon tue wed thu fri lq45 1.163 0.753 1.044 0.905 1.373 pefindo25 1.319 0.898 1.021 0.836 1.113 the risk of wednesday on pefindo25 is smaller than of lq45, while for tuesday risk, which is the day that also included in the timing strategy, pefindo25 has the higher risk. when the value of the risks of tuesday and wednesday are summed, pefindo25 has a greater risk. thus, in terms of cumulative risk and cumulative return, lq45 is the best option in the implementation of timing strategy. 5. conclusion dowa is proved to exist both in the level of individual stocks as well as in the market level. most of the stocks as well as the two indices investigated exhibit low return on monday and high return on wednesday. however, lq45 has a larger proportion of stocks with dowa than pefindo25. this indicated that dowa is more likely to be exhibited by big cap stocks, opposite to common theory 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(2012). anomali pasar pada return saham : the day of week effect, week four effect, rogalsky effect, dan january effect. jurnal ilmiah akuntansi dan humanika. 2 (1), 1-18. effectiveness of toll road and railway infrastructure development in indonesia 129 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) effectiveness of toll road and railway infrastructure development in indonesia m. afdal samsuddin*, agung rizki putra economic study program, faculty of economics, universitas bangka belitung, indonesia abstract the purpose of this study is to analyze the effectiveness of toll roads and railways on welfare in indonesia from the first quarter of 2006 to the fourth quarter of 2020. toll roads are measured by the length of toll roads, railway lines are measured by the number of train passengers, and welfare is measured by gdp. per capita based on constant 2010 prices. data analysis techniques use vector auto regressive (var), impulse response function (irf), and variance decomposition (vd). the results show that toll roads are much more effective than railways in indonesia during the study period. keywords: toll road, railroad, welfare 1. introduction developing countries are spending a lot of money on transport infrastructure projects that will shape their cities for decades to come. currently, about 20% of world bank loans are used for transportation infrastructure, more than bank loans for social programs. in modern cities, road and rail investments are critical in land use planning and policy, feeder road and road network development, and utility spatial planning. transport infrastructure generates direct welfare benefits through reducing travel and shipping costs, changing the shape of cities, and influencing the costs of the urban environment and the supply of land available for agricultural production (baum-snow et al., 2017) the success of a region's economic development can be seen from the output produced by the local community. in a regional context such as a province, the indicator of economic development to improve people's welfare is income per capita, which describes the average income received by each resident in a certain period of time. the greater the income per capita means the more successful economic development. on the other hand, a decrease in per capita income means a decrease in the level of community welfare. this means that per capita income can also be used as a benchmark for a region's economic growth. the economic growth of a country or region illustrates the success of economic development and is also believed to drip down to the bottom layer (trickle down effect) either by itself or because of government intervention (amri, 2014). the indonesian state was formed not only to achieve independence, but the indonesian state also has aspirations to create a just and prosperous society. but unfortunately the country's ideals are not all realized. the right time to realize general welfare is when indonesia is now an inseparable part of globalization. the creation of prosperity for countries that are ready and able to take advantage of the opportunities that arise in the global era. if our nation is not competent, then what happens is that the indonesian nation is crushed by globalization. the most obvious thing that causes poverty, environmental damage, the occurrence of extraordinary cultural erosion, *coressponding author. email address: m.afdal@ubb.ac.id https://creativecommons.org/licenses/by/4.0/ mailto:m.afdal@ubb.ac.id afebi economic and finance review (aefr) volume 7, no 2 (2022) 130 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) disintegration, infectious diseases, and transnational organized crimes which can essentially be said to be the globalization of crime (prakoso et al., 2020). the way to realize these ideals is through development. one of the most important developments is the construction of transportation infrastructure. infrastructure is one of the factors that determine the economic growth of a country. infrastructure is the driving force of economic growth. the supporting capacity of economic infrastructure is crucial in increasing production, smooth distribution process and increasing the effectiveness and efficiency of business operations. the low economic growth resulted in the government's financial capacity being very limited to be used to maintain, maintain and maintain the economic infrastructure. infrastructure also has an important effect on improving the quality of life and human welfare, among others, in increasing consumption values, increasing labor productivity and access to employment, as well as increasing real prosperity and realizing macroeconomic stabilization, developing credit markets, and their impact on the labor market (septhian & adry, 2018). regional economic development through the provision of road infrastructure is an important factor in efforts to improve the regional economy. development in the transportation sector is aimed at supporting the development of provincial and city districts which are later expected to open isolation and encourage poverty alleviation (amri, 2014). over time, humans always need something that can provide comfort and convenience that can be done efficiently and effectively to live their lives. in everyday life, humans really need infrastructure facilities and infrastructure to support their activities. in almost all parts of the world, in carrying out daily activities, a person needs a lot of supporting facilities and infrastructure so that his goals run well. this support is the availability of adequate infrastructure, where infrastructure has a very important role in the smooth driving of national development such as transportation, communication and information, energy and electricity, housing and buildings, water, roads. the availability of infrastructure plays a role in the distribution network, an energy source that can encourage increased productivity (biomantara & herdiansyah, 2019). having an important role in increasing the level of the economy is the transportation network infrastructure. one of the transportation network infrastructure is the toll road. government regulation no. 15 of 2005 explains that toll roads are public roads that are part of the road network system and as national roads whose use is required to pay tolls. government regulation no. 15 of 2005 explains that the construction of toll roads aims to improve the efficiency of distribution services in order to support economic growth, especially in areas that have a high level of development (barirotuttaqiyyah et al., 2020). the development of road infrastructure in indonesia plays an important role in facilitating the running of the economy for a region, especially toll roads, which are urgently needed to reduce congestion on main cross roads and can increase the distribution of goods and services, especially for areas that have begun to develop. the construction of toll roads has a very important role in supporting the pace of economic, social, cultural, community unity and integrity in interacting and functioning to connect between regions in indonesia (rahmayanti, 2020). toll roads play an important role in connecting between regions in indonesia (ainiyah, 2020). in addition to toll roads, transportation that can improve the regional economy is the railroad. the rail mode of transportation is still the mainstay of the community in general, considering the characteristics that rail transportation has is more effective and efficient when compared to other https://creativecommons.org/licenses/by/4.0/ effectiveness of toll road and railway infrastructure development in indonesia 131 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) land transportation modes. however, trains have not yet become the dominant form of transportation for both passengers and goods in indonesia (kuswati et al., 2019). trains are cheap and affordable mass transportation and are environmentally friendly, but the existence of railway lines is not evenly distributed in indonesia as well as toll roads. the toll road is a paid road so it is very opposite to the train. for this reason, this study examines which one is more effective between the construction of railway lines and toll roads in indonesia. 2. literature study research from (septhian & adry, 2018) which examines the influence of infrastructure on economic growth in indonesia. get results where road infrastructure has a positive and significant impact on economic growth in indonesia. research from (amri, 2014) which examines the effect of transportation infrastructure and population density on per capita income in nine provinces in sumatra. the results show that road infrastructure has a positive and significant effect on per capita income, while population density has no significant effect. research from (r, 2020) which examines the impact of the trans sumatra toll road on the welfare of the community in jatimulyo village, kec. jati agung, kab. south lampung. the results show that although their work and income have not changed much. however, the compensation set by the government can be felt by residents of land affected by land acquisition. research from (ainiyah, 2020) which examines the impact of the gresik-sidoarjo toll road construction on people's welfare in an islamic economic perspective. the results show that with the road to, it increases farmers' income. research from (prakoso et al., 2020) which examines the impact of toll road construction on the social welfare of residents around the madiun toll gate in 2020. the results show that with the existence of toll roads, residents can slowly improve social welfare in all aspects, starting from income, social security, education, health, tourism, and others. the social welfare conditions of the residents around the madiun toll gate have now become fulfilled and the fulfillment of the needs of people's lives has increased more than before. research from (ferrari, 2002) which examines the method of calculating tolls that determine the distribution of the cost burden between motorists and public financing so that social welfare can be optimized. the results show that the optimal toll roads do not depend on the fixed road segment fees that are imposed, whereas they are highly dependent on the marginal costs of public funds and the willingness of motorists to pay. if these two parameters are high, the optimal toll revenue collected on the highway may result in a higher cost than the actual road cost, so the resulting surplus toll revenue can be available for uses other than the road on which the toll is collected. research from (kuswati et al., 2019) which examines the role of rail infrastructure in the regional economy in indonesia. the results show that the variable number of traffic or service routes has a significant influence on grdp growth in areas where there are rail transportation services. research from (biomantara & herdiansyah, 2019) which examines the role of indonesian railways (kai) as transportation infrastructure for urban areas. the results show that rail transportation provides increased accessibility and connectivity between regions to support and develop the region. research from (okoye et al., 2019) which examines the heterogeneous impact of colonial railroads in nigeria. the results show that railways enhance economic development https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 2 (2022) 132 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) in the short term, particularly in areas with low pre-railway access to export ports, including most of the north of the country. this effect persists to this day, although the railroads no longer function. research from (jedwab & storeygard, 2019) examining the economic and political factors in infrastructure investment: evidence from railways and roads in africa 1960-2015. the results show a strong correlation between transport investment and economic development as well as more political factors including pre-colonial centralization, ethnic divisions, european settlement, natural resource dependence, and democracy. research from (kim & go, 2017) examined the impact of railroads on the local economy in the united states. the results prove that railroads contribute to the growth of market-oriented agriculture in rural areas, and increased productivity in the local manufacturing sector. research from (fernando, 2014) which examines the impact of railroads on economic growth in the united states. the results show that railroads have a strong impact on the us economy. research from (donaldson & hornbeck, 2016) which examines the relationship between railroads and economic growth in the us. the result is that the value of farmland increases substantially as the railroad network in the united states increases. research from (hongchang et al., 2018) which examined the impact of high-speed rail (hsr) on economic activity in 200 chinese cities used a new data set from 2007-2014. the results show that the benefits of hsr in terms of increasing china's gdp substantially outweigh the fixed costs, depreciation, and large hsr subsidies. research from (mccarthy & zhai, 2019) which examines the economic impact of short rail infrastructure in georgia. finds that cumulatively, the six systems increase annual output in the $2.8 $14.5 million range, increase annual revenues in the $0.7 $4.1 million range, generate annual value added in the $1.4 $7.5 million, and each year adds an average of 10–93 jobs. research from (yi & kim, 2018) which analyzes the spatial economic impact of road and rail accessibility levels on manufacturing output, with a focus on substitution and complementarity of intra and intermodal relationships. finding that increasing rail accessibility increases the local manufacturing industry's marginal value added related to changes in road accessibility. the marginal value added with respect to rail line accessibility changes increases with rail line accessibility levels, resulting in an increase in returns to scale. 3. research methodology this research is located in indonesia, the data in this study starts from 2006-2019. the data was obtained from the central statistics agency (bps) in the form of welfare (wf) measured based on per capita income at constant prices in 2010 measured in percent, toll roads (tr) measured by track length (km) and railway lines (rr) measured based on the length of the railroad track (km). the analytical method used in this research is vector autoregression (var). a policy is said to be effective, if the contribution of policy shocks to endogenous variables has the largest role (in percent) compared to other policies (satrianto, 2017). the model of the effectiveness of fiscal and monetary policies on economic growth using the var model is shown as follows: 𝑊𝐹𝑡 = 𝛼1𝑖 + ∑ 𝛽1𝑖𝑊𝐹 + ∑ 𝛾𝑖𝑡𝑇𝑅𝑡−𝑖 + ∑ 𝛿1𝑖𝑅𝑅𝑡−𝑖 + 1𝑡 𝑛 𝑖=1 𝑛 𝑖=1 𝑛 𝑖=1 𝑇𝑅𝑡 = 𝛼1𝑖 + ∑ 𝛽1𝑖𝑊𝐹𝑡−𝑖 + ∑ 𝛾𝑖𝑡𝑇𝑅𝑡−𝑖 + ∑ 𝛿1𝑖𝑅𝑅𝑡−𝑖 + 2𝑡 𝑛 𝑖=1 𝑛 𝑖=1 𝑛 𝑖=1 𝑅𝑅𝑡 = 𝛼1𝑖 + ∑ 𝛽1𝑖𝑊𝐹𝑡−𝑖 + ∑ 𝛾𝑖𝑡𝑇𝑅𝑡−𝑖 + ∑ 𝛿1𝑖𝑅𝑅𝑡−𝑖 + 3𝑡 𝑛 𝑖=1 𝑛 𝑖=1 𝑛 𝑖=1 https://creativecommons.org/licenses/by/4.0/ effectiveness of toll road and railway infrastructure development in indonesia 133 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) 4. result and discussion stationary test table 1: stationary test results of welfare, toll roads and railroads variabele augmented dickeyfuller test statistic conclussion walfare (wf) 0.0000 stationer toll roads (tr) 0.0000 stationer railroads (rr) 0.0000 stationer source: results of data processing eviews 9 the first step taken to analyze the effectiveness of toll roads and railways on the balance of payments is the stationary test. from the stationary test, it turns out that the welfare variable, toll roads & railways are not stationary at the level and 1st difference because the probability value of each variable is greater than 0.05. therefore, the stationary test was carried out at the 2nd difference stage. all variables are stationary at the 2nd difference because the probability value of each variable is smaller than 0.05. this condition is shown in table 1. optimal lag test the next step is to perform an optimal lag test. optimal lag selection is important because it can affect the acceptance and rejection of the null hypothesis, lead to estimation bias and can result in inaccurate predictions. the methods used to determine the optimal lag are likelihood ratio (lr), final prediction error (fpe), akaike information criteria (aic), schwarz information criterion (sic), and hannan quinn information criterion (hq) with a minimum value. from table 2 it can be seen that the minimum values of all these criteria appear a lot in lag 4. therefore, it can be said that the optimal lag in this model uses lag 4. table 2: optimal lag test results of toll road and railroad effectiveness models on welfare source: results of data processing eviews 9 stability test lag logl lr fpe aic sc hq 0 -1135.366605 na 9.09e+14 42.95723 43.06876* 43.00012* 1 -1132.377998 5.526103 1.14e+15 43.18408 43.63018 43.35563 2 -1131.11471 2.192877 1.53e+15 43.47603 44.25671 43.77624 3 -1126.272641 7.856942 1.81e+15 43.63293 44.74819 44.0618 4 -1091.405798 52.62920* 6.94e+14* 42.65682* 44.10666 43.21436 5 -1089.491613 2.672635 9.32e+14 42.92421 44.70863 43.61041 https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 2 (2022) 134 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) figure 1: the ar roots modulus value model of the effectiveness of toll roads and railways on welfare after the optimal lag test, it is continued by conducting a var/vecm stability test. this test is carried out so that the irf and fevd results obtained are valid. the stability of the var/vecm system is seen from the inverse roots of the ar polynomial characteristics. if all the ar-roots values are inside the circle, then the var/vecm system can be said to be stable or vice versa. figure 1 shows that all nominal ar modulus values are inside the circle. thus, it can be said that the var system in this model is a stable var. a stable var will result in a valid or precise irf and fevd analysis. cointegration test table 3: cointegration test of the effectiveness of toll roads and railways on welfare source: results of data processing eviews 9 next, the cointegration test is performed. this test is used to determine whether there will be a balance in the long term, that is, there is a similarity of movement and stability of the relationship between the variables in the study or not. if the model is cointegrated then the model is analyzed using the vecm method, but if the model is not cointegrated then the model is analyzed using var. table 3 shows that the three hypotheses in this equation have a probability value greater than 0.05. because the probability value for the three hypotheses in this equation is greater than 0.05, it can be stated that this equation is not cointegrated. thus, the effectiveness of toll roads and railways on welfare can be estimated using a 2nd difference var model. a. irf analysis hypothesized trace 0.05 no. of ce(s) eigenvalue statistic critical value prob.** none * 0.288929 34.62106 29.79707 0.0129 at most 1 * 0.249088 16.54895 15.49471 0.0346 at most 2 0.025449 1.366246 3.841466 0.2425 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 inverse roots of ar characteristic polynomial https://creativecommons.org/licenses/by/4.0/ effectiveness of toll road and railway infrastructure development in indonesia 135 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) figure 2: welfare response due to shock on toll roads (a) and railways (b) then the impulse response function (irf) analysis is used to see the effect of shock from one variable on other variables. a shock to the endogenous variable will affect the variable itself and will spread to other endogenous variables. irf provides the direction of the relationship between the magnitude of the effect of the endogenous variables. the estimation made for this irf is focused on the response of a variable to a change in one standard deviation of the variable itself or of other variables contained in the var model. figure 2 (a) shows the response to changes in welfare as a result of the shock from the toll road. the existence of a shock from the toll road to the response to changes in welfare initially tends to reduce changes in output until period 4 but after that period, the output response moves closer to the equilibrium line and peaks in period 5. therefore, the shock of the toll road to output will increase welfare, then decreased in the 6th period. this ups and downs continued until the 10th period. this means that the toll road shock is not permanent in the long term to welfare. almost the same condition is shown by the welfare response due to the shock of the railway line in figure 2 (b). the shock of the railway line initially caused the welfare response to increase until the 5th period. then it decreased until the 8th period. until the 10th period, the welfare response was still moving up and down. in other words, the railway shock will not have a permanent impact on the balance of payments. b. fevd analysis to see and analyze the effectiveness of toll roads and railways on welfare, it is seen from the forecast error variance decomposition (fevd) value. table 4 shows that in general the variability of welfare in both the short and long term can be explained by the shock from the toll road (other than itself) of 0.2% in the short term and 7.23% in the long term. meanwhile, the variability of welfare in the short term is explained by the railway line shock of 0.014 % and in the long term it is 7.41 %. this condition concludes that the most effective transportation for changing welfare in indonesia is toll roads. this can be seen from the contribution of toll roads to welfare variability which is greatest compared to the contribution of the railway line. table 4: fevd test of toll road and railroad effectiveness model on welfare -4 0 4 8 1 2 3 4 5 6 7 8 9 10 response of d(wf1,2) to d(tr1,2) -4 0 4 8 1 2 3 4 5 6 7 8 9 10 response of d(wf1,2) to d(rr1,2) https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 2 (2022) 136 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) variance decomposition of d(wf1,2): period s.e. d(wf1,2) d(tr1,2) d(rr1,2) 1 7.144377 100 0 0 2 7.15555 99.77642 0.209185 0.014399 3 7.339267 99.03804 0.41196 0.549997 4 7.531584 98.1476 0.801204 1.0512 5 8.052583 90.71022 6.591193 2.698585 6 8.071081 90.41404 6.759021 2.826941 7 8.117934 90.3778 6.826677 2.795522 8 8.149758 90.00162 7.05946 2.938922 9 8.396774 85.65478 7.137833 7.207389 10 8.413887 85.35889 7.230666 7.410445 source: results of data processing eviews 9 toll roads are more effective for welfare in indonesia when compared to railroads because the effect of toll roads on welfare is so large. the construction of toll roads will affect regional development & economic improvement. improve mobility and accessibility of people and goods. toll road users will benefit from savings in vehicle operating costs (bok) and time compared to using non-toll roads. business entities get a return on investment through toll revenues, which depend on the certainty of toll rates. the railway line is considered less effective in this study, it does not mean that the railway line so far in indonesia has not had an effect on improving welfare, but it means that the role of the railway line during the research period is less than that of the toll road. this condition is due to the fact that rail lines in indonesia do not affect gdp per capita as much as toll roads. as we know, the active railway line is only centered in java and parts of sumatra, while the toll road exceeds the railway line, the trans java toll road, the trans sumatra toll road which is almost completed and has operated several segments, in kalimantan it has also been operating. samarinda-balikpapan toll road, trans sulawesi toll road, and bali toll road. from the results above, we can conclude that in social choice theory, every individual has a choice in improving their welfare, therefore, the priority in determining future development policies is the construction of toll roads, after that focus on other transportation such as railways. 5. conclusion the conclusion of this study shows that toll roads are more effective in improving welfare in indonesia when compared to railroads. the effectiveness of toll roads compared to rail lines can be seen from the contribution of toll road shocks to welfare variability which is greater than that of railroads. based on this conclusion, it is suggested to the government through the ministry of transportation to accelerate the construction of toll roads in order to accelerate the economy between regions, as well as to build railway lines, so that mass transportation mobility becomes smooth and reduces city congestion. references https://creativecommons.org/licenses/by/4.0/ effectiveness of toll road and railway infrastructure development in indonesia 137 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) ainiyah, n. n. 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(2018). spatial economic impact of road and railroad accessibility on manufacturing output : inter-modal relationship between road and railroad. journal of transport geography, 66, 144–153. https://doi.org/10.1016/j.jtrangeo.2017.11.017 https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review-final.4.4 the role of tourism in the development of regional economy: case study of the special capital region of jakarta province 27 9 the role of tourism in the development of regional economy: case study of the special capital region of jakarta province sutyastie soemitro remi1*, sihono dwi waluyo2, and bagdja muljarijadi3 1,2,3 padjadjaran university, bandung, indonesia abstract this study aims to assess the economic role of tourism to the economy of the province of the special capital region (dki) of jakarta. the research model used is the input-output model. the results showed that the tourism economy of jakarta contributed significantly to the economy of jakarta. the restaurant sector in the core sectors of tourism (hotel, restaurant, travel agency services and entertainment services, transportation) have the highest backward linkages and forward linkages as well as power distribution and a high level of sensitivity. in the tourist expenditure structure, the expenditure for sectors that are directly related to tourism highway transportation, hotel and restaurant occupy the highest role. sectors that have an impact on the resulting output of the largest tourist expenditure is directly related to the sectors of tourism, namely the hotel sector, followed by the air transport sector, banks, insurance and business services, restaurant and travel agency services. while that get impacted gross value added is the largest hotel, air transport; banks, insurance and business services; restaurant and travel agency services. which have an impact on wages / salaries is the largest hotel sector, air transport, restaurant and travel agency services. the impact of the tax, which obtained the largest sector was the hotel sector, followed by restaurants, trade and travel agency services. the resulting impact of labor is the hotel sector which obtained the largest share, followed by the restaurant sector, air transport and travel agency services. the results also show the potential for increased tourism to the economic value of jakarta which can be achieved by: (1) prepare tourism policy related to trade, the bank sector, insurance and business services sector, the food industry, beverages, tobacco and cigarettes; the electricity sector / gas / water, and the construction sector, and (2) developing the core sectors of tourism with hotel sector priorities, the air transport sector, the sector of the restaurant, travel agency services sector, and the road transport sector. jel classification: h71, l80, l83 keywords: input-output, labor, linkages, multipliers, taxes, wages/salaries * corresponding author. email address: tatiremi@gmail.com mailto:tatiremi@gmail.com afebi economic and finance review (aefr) vol.02 no.01, june 2017 28 1. introduction the global tourism activity shows an amazing development. this economic activity increases continuously and always implements diversification. up to the year 2015 tourism activities are one of the economic sectors that are able to grow rapidly and is one of the largest economic sectors in the world. the number of world tourists increase very rapidly from only as many as 25 million tourists in 1950 to as many as 1.186 million in 2015. the activities of the tourism sector is able to create income that is amazing – from as large as 2 billion usd in 1950 to become as large as 1.260 billion usd in 2015 (unwto tourism highlights, 2016). the regions of europe, asia – pacific and america are the 3 largest tourist destinations in the world. in 2015 europe absorbed 51% from the total tourists in the world and obtained 36% of the income of the world tourism sector. the asia – pacific continent absorbed 24% of world tourists and obtained 33% of income, while the continent of america is able to bring in 16% of world tourists with an income as large as 24%. tourism in the asia – pacific region developed very rapidly in a decade back. for the 20052015 period the arrivals in this region grew to reach 6.1% far more rapid than the global economic development which is only 3.9%. the regions of south asia and southeast asia gave the largest contribution with the rate of tourist growth each as large as 8.4% and 7.9% for a decade back. the southeast asia region contributed as large as 8.8% to the arrivals of global tourists and is in the second place after the northeast asia region which is able to bring in tourists as many as 12% of the number of world tourists in 2015. in the northeast asia region, china is the most developed tourist destination area. china is in the third place in the world of the countries that are able to attract world tourists, and the second largest country in obtaining income from the global tourism sector. meanwhile in the southeast asia region, the order of countries that are able to absorb the most tourists are thailand, malaysia, and singapore, with a percentage of each as large as 10.7% ; 9.2%; and 4.3% from the total world tourists in 2015. indonesia is in the 4th place with the number of tourist arrivals in 2015 as large as 10.4 million tourists (3.7% from the number of world tourists) with an income as large as usd 10.7 billion (2.6% from the world tourism income). the tourism sector in indonesia becomes an important enough sector in contributing national foreign exchange. since the year 2013 the tourism sector is the 4th largest sector of national foreign exchange contribution after oil and gas, coal and palm oil. if in 2007 the contribution of foreign exchange in this sector is as large as 5,345.98 million usd, hence in 2014 the number increased more than twice as many to become 11,166.98 million usd (ministry of tourism 2016). the development of foreign tourists that arrive in indonesia, java island and the special capital region of jakarta in the period of 2001 up to the year 2015 such as shown in picture-1 below. based on the picture, it is seen that the growth of foreign tourist arrivals in the 2007-2015 period is noted on average as large as 8.8% per year. based on the picture it is seen that the arrivals of foreign tourists in indonesia are starting to spread. there are 3 regions that become the primary gates of entry for foreign tourists which are bali, the special capital region of jakarta and the riau islands. based on picture-1, it is seen that the special capital region of jakarta contributed almost 25% of foreign tourist arrivals in indonesia – the second largest after bali which has a percentage that almost reaches 39%. the role of tourism in the development of regional economy: case study of the special capital region of jakarta province 29 figure 1 foreign tourist arrivals to indonesia 20012015 source: central bureau of statistics processed data the contribution of tourism activity to the economy grows more and more, and it is interesting for becoming a research topic. the unwto tourism highlights of 2016 shows that the tourism sector gave a contribution as large as 10% to the world gdp, contributes as large as 7% to world export and is a contributor of employment opportunity which is large enoughone of eleven of the world employment opportunities are contributed by the tourism sector. this data is also strengthened by several studies that counts the real role of the tourism sector in the world (observe the research of dimoska and petrevska, 2012; lau, and co, 2011; lau, and co, 2008; kweka, and co, 2003; balaguer and cantavella-jorda, 2000). such as what is also occurring in the world, the contribution of the tourism sector to the economy of indonesia also shows a significant increase. if in the year 2007 the contribution of the tourism sector to the gdp reached the number 13.3% hence in the year 2013 the contribution increased to become 17.7%. the tourism sector also provides a large enough contribution as a provider of employment opportunity. in the year 2007 the tourism sector provided a role as large as 4.65% in absorbing national labour, then in the year 2013 the role increased to become 6.87% (central body of statistics, 2014). according to the world travel and tourism council, in the year 2014, from the number of tourists that visit indonesia 78.7% visit for having fun, while the other 21.3% visit in implementing business journeys. the income from tourism in indonesia is more from the shopping of domestic tourists, with a value of 76.6%, while the shopping of foreign tourists are only as large as 23.3%. domestic tourist shopping is estimated to grow as large as 6.4% in the year 2015 while the shopping of foreign tourists are only as large as 5.5% (world travel and tourism council, 2015). the development of tourism in the regions are relatively varied. the special capital region of jakarta with a number of foreign tourists almost as large as 25% of the total number of foreign tourists that visit indonesia has a different pattern 5.15 5.03 4.47 5.32 5 4.87 5.51 6.23 6.32 7 7.65 8.04 8.8 9.43 10.41 1.1 1.27 1.13 1.06 1.24 1.22 1.22 1.53 1.45 1.89 2 2.13 2.31 2.312.52 0 2 4 6 8 10 12 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 indonesia jawa dki afebi economic and finance review (aefr) vol.02 no.01, june 2017 30 with bali province. the central body of statistics data show that the total consumption done by tourists in the special capital region of jakarta for the 2009 -2013 period averages as large as 5.6% from the total regional gdp of the special capital region of jakartawhere the percentage of tourist consumption in the year 2009 as large as 4.49% becomes as large as 5.94% in the year 2013 (central body of statistics of the special capital region of jakarta, 2015). while based on the satellite balance of regional tourism of the special capital region of jakarta the consumption contribution of the tourism sector in the special capital region of jakarta in the year 2004 has pushed an increase in the regional gdp as large as rp. 24.8 billion (8.76% of the regional gdp of the special capital region of jakarta), while in the year 2009 the tourist consumption contribution has pushed an increase of the regional gdp as large as rp. 44.24 billion (5.84% of the regional gdp of the special capital region of jakarta). meanwhile in bali province – with a contribution of foreign tourists as large as 39% the contribution of the tourism sector in the year 2007 has pushed an increase in the regional gdp as large as rp. 19.54 billion (46.16% of the bali province regional gdp). the difference that occurs in the other region shows the presence of a different economic structure. in relation with the role of the tourism sector in the regions, there is a need for implementing research about the role and impact of the tourism sector in regional economy. based on the explanations above, the purpose of the writing of this paper is for knowing how large the role of the tourism sector is to the economy of the special capital region of jakarta, and knowing the analysis of the impact of the tourism sector to the output, employment opportunity and income. for the interest of the tourism sector planning in the regions, in this paper, there will be an implementation of the simulation process related with the change of the final demand structure from the tourism sector to the regional economy. 2. research method the method used in this research is a doubling number counting method from the io table analysis to the output structure which occurs in tourism activities. the doubling number counting method is differentiated to become 5 numbers which are output doubling numbers, added value doubling numbers, tax doubling numbers, employment opportunity doubling numbers, and income doubling numbers. other than counting doubling numbers the inter-sector linkage measuring method is also implemented for knowing the amount of linkage up front nor back linkage from several sectors which are present in the economy of the special capital region of jakarta. this research uses data which are from the demand structure and supply structure of the special capital region of jakarta tourism sector which is taken from the satellite balance of regional tourism of the special capital region of jakarta in the years 2004, 2009 and the year 2014 – all of the data illustrates the demand and supply of the tourism sector of previous years. the tourist expenses data in the satellite balance of regional tourism is then processed by using an io table of the special capital region in the year 2006. this is used for analysing the impact of tourist expenses such as in the satellite balance of regional tourism in 2009 and the central body of statistics data of 2014. because there is a sector difference in the ones researched in 2009 with 2004, the sector aggregation is the role of tourism in the development of regional economy: case study of the special capital region of jakarta province 31 implemented from 89 sectors (satellite balance of regional tourism 2004) to become 34 sectors (satellite balance of regional tourism 2009). 3. results and discussion the impact of increasing development activities of the tourism sector is shown by the presence of the increase in consumption of tourists. the increase of tourist consumption will become the primary factor of economic output development. when the economic output increases, it will encourage the occurrence of an increase in economic added value, employment opportunities and people income. this condition will cause an increase in indirect tax that the government receives. a mechanism like that which is explained in the role of tourism activities in the economy. table 1 the impact of the special capital region of jakarta tourist expenses to output ten largest sectors, year 2003 no sector value (rp.million) proportion 1 trade 5,926,269 14.70% 2 road transport 5,889,247 14.60% 3 hotel 5,762,756 14.30% 4 restaurant 5,382,099 13.30% 5 bank, insurance and corporate services 3,180,256 7.90% 6 sea, river, and lake transport 1,800,051 4.50% 7 transportation support services 1,435,082 3.60% 8 entertainment services 1,377,624 3.40% 9 textile industry and leather goods 1,169,970 2.90% 10 electricity/gas/clean water 1,103,516 2.70% 11 others 7,288,678 18.10% total 40,315,548 100.00% source : satellite balance of regional tourism special capital region of jakarta 2004 (processed) the output impact of the tourism sector to the economic output in the year 2003 is as large as 2.1from the total consumption as large as rp. 19.23 trillion which produces an economic output of 40.31 trillion. in the years 2008 and 2013 the role activities of the tourism sector to the economic output decreases to be only 1.26. in the year 2008 from the total consumption of tourists as large as rp 51.75 trillion only produces an output of onlr rp. 64.99 trillion, while in the year 2013 from as many as 74.54 trillion only produces an economic output as large as rp. 93.17 trillion. afebi economic and finance review (aefr) vol.02 no.01, june 2017 32 table 2 the impact of the special capital region of jakarta tourist expenses to output ten largest sectors, year 2008 no sector value (rp.million) proportion 1 hotel 13,486,371 20.80% 2 air transport 8,643,694 13.30% 3 bank, insurance and corporate services 6,153,660 9.50% 4 restaurants 4,719,817 7.30% 5 travel bureau services 4,203,821 6.50% 6 entertainment services 3,322,028 5.10% 7 communication services 2,987,700 4.60% 8 textile industry and leather goods 2,936,912 4.50% 9 food, drinks, tobacco & cigarette industry 2,923,651 4.50% 10 road transport 2,663,446 4.10% 11 others 12,944,245 19.90% total 64,985,346 100.00% source : : satellite balance of regional tourism special capital region of jakarta 2009 (processed) table 3 the impact of the special capital region of jakarta tourist expenses to output ten largest sectors, year 2013 no sector value (rp. million) proportion 1 hotel 21,863,890.95 23.47% 2 air transport 10,472,611.96 11.24% 3 bank, insurance and corporate services 7,997,484.77 8.58% 4 restaurants 7,372,391.10 7.91% 5 travel bureau services 5,454,296.81 5.85% 6 entertainment services 5,105,070.39 5.48% 7 textile industry and leather goods 4,715,970.38 5.06% 8 communication services 4,670,571.93 5.01% 9 food, drinks, tobacco & cigarette industry 4,386,573.35 4.71% 10 road transport 3,473,153.57 3.73% 11 others 17,657,537.03 18.95% total 93,169,552.21 100.00% source : central body of statistics special capital region of jakarta 2014 (reprocessed) there is a difference in the consumption pattern of tourists and the economic structure between the years 2003 and 2008. the difference of the economic structure is seen from the presence of differences in the input coefficient from the special capital region of jakarta io table in the years 2000 and 2006. the presence of a difference in the consumption pattern and the difference of economic structure that causes the role difference of the tourism sector to the economy of the special capital region of jakarta for the period of 2003 – 2013. in the year 2003 the largest sectors that are influenced by the tourism sector are the trade sector, road transport sector, hotel sector, restaurant sector and the bank, insurance, and corporate services sector. while for the years 2008 and 2013 the hotel sector, air transport the role of tourism in the development of regional economy: case study of the special capital region of jakarta province 33 sector, bank, insurance and corporate services sector, restaurant sector, and the travel bureau services sector are the 5 largest sectors which are influenced by the tourism sectorthe commonality of sectors that are influenced is caused by the measuring impact of using the same io table, which is the 2006 io table. the total impact of tourist expenditures to economic added value (regional gdp), to household income, to indirect tax income which is received by the government and to the labour increase for the years 2003, 2008, and 2014 is shown as in table-8 below. though nominally the added value increase occurs as a cause of tourist consumption that visit the special capital region of jakarta however the ratio value that is produced shows the presence of a tendency to decrease. the same pattern is also able to be seen for the components of household income, indirect tax, and also employment opportunities that are createdthough the nominal value is seen to increase however basically the ratio decreases. table 4 the impact of tourist consumption to added value, income, indirect tax, and employment opportunities tourist consumption impact 2003 2008 2013 added value (rp. million) 22,504,762.30 44,241,772 64,021,997.96 income (rp. million) 7,711,220.06 12,429,794 17,973,781.80 indirect tax (rp. million) 337,718.54 1,284,087 1,941,629.44 employment opportunities (persons) 897,607.77 677,355.10 665,615.47 source: data processing results based on table 4 it is seen that there is an occurrence of economic added value increase as a cause of tourist consumption from as many as rp. 22.5 trillion in the year 2003 to become each as large as rp. 44.24 trillion and rp. 64.02 trillion in the years 2008 and 2013. it is also like that with the nominal amount and other variables. though it is seen that there is an increase nominally however basically there occurs a ratio decrease between the added value amounts that are raised to tourist expenditures, from as large as 1.17 in the year 2003 to become 0.85 in the years 2008 and 2013. the same pattern also occurs for other variables. the ratio amount for income, experienced a decrease from as large as 0.4 to become 0.24 and also for employment opportunities from as large as 0.05 to become 0.01 in the same period. the ratio from indirect tax does not experience change for the 2003 up to 2013 period, the number is still as large as 0.02. based on the results of the mentioned counting, it is able to be seen that basically the tourism sector in the special capital region of jakarta up to today still has a relatively small role in the economy of the special capital region of jakarta. the small size role of the tourism sector is also caused because of the low level of linkage between sectors from the 5 sectors of tourist consumption encouragement in the special capital region of jakarta, which are the hotel sector, air transport sector, bank, insurance and corporate services sector, restaurant sector, and the travel bureau services sector. from the five sectors that have the largest value of tourist consumption, only the restaurant sector and also only the bank, insurance, and corporate services sector that are categorized as superior sectors in the economy of the special capital region of jakarta. if compared with the analysis count results of future linkage (power deployment) and also the linkage analysis to the past (power sensitivity), or the afebi economic and finance review (aefr) vol.02 no.01, june 2017 34 value index of power deployment and the index of power sensitivity which is counted from the io table of the special capital region of jakarta year 2006, it is able to be seen that the hotel sector which is the most consumed by tourists since 2008 turns out to have a power deployment index and a power sensitivity index of less than onewhich each are only as large as 0.857 and 0.787which means the hotel sector is not a superior sector in the economy of the special capital region of jakarta. the travel bureau services sector is also included in the sector category that is more forward linkage orientedbecause only the power deployment index has a value of more than oneand it is not included in the superior sectors. only the restaurant sector and also the bank, insurance and corporate services sectorare included in the superior sectors categorybecause they have a power deployment index and a power sensitivity index of more than one. as for the linkage number amounts between sectors in the economy of the special capital region of jakarta are shown as in table 5 below. table 5 the linkage value between sectors in the economy of the special capital region of jakarta no sector power deployment sensitivity degree index power deployment sensitivity degree 1 plants of foodstuffs 1.081 1.005 0.838 0.779 2 plantation and forestry 1.110 1.005 0.861 0.779 3 ranching 1.302 1.001 1.009 0.776 4 fishery 1.123 1.008 0.870 0.781 5 mining and excavation 1.098 1.069 0.851 0.829 6 food, drinks, tobacco, and cigarette industry 1.433 1.798 1.111 1.394 7 textile and leather goods industry 1.231 1.166 0.954 0.904 8 raw wood and goods from wood industry 1.172 1.043 0.908 0.809 9 paper and printing industry 1.274 1.129 0.988 0.875 10 chemical industry 1.317 1.433 1.021 1.111 11 medicine, cosmetics and cleanser industry 1.470 1.183 1.140 0.917 12 goods from refinery production industry 1.152 1.004 0.893 0.778 13 non-metal goods industry 1.349 1.265 1.046 0.981 the role of tourism in the development of regional economy: case study of the special capital region of jakarta province 35 no sector power deployment sensitivity degree index power deployment sensitivity degree 14 metal goods industry 1.366 1.403 1.059 1.087 15 machine industry 1.383 1.123 1.072 0.871 16 transport equipment industry 1.500 1.342 1.163 1.040 17 other industries 1.288 1.004 0.998 0.778 18 electricity/gas/clean water 1.454 1.763 1.127 1.366 19 buildings 1.287 1.675 0.998 1.298 20 trade 1.177 2.822 0.913 2.188 21 restaurant 1.294 1.355 1.003 1.050 22 hotel 1.106 1.016 0.857 0.787 23 train transport 1.398 1.000 1.084 0.775 24 road transport 1.274 1.106 0.988 0.857 25 sea, river, and lake transport 1.252 1.056 0.971 0.818 26 air transport 1.286 1.001 0.997 0.776 27 transport support services 1.176 1.099 0.912 0.852 28 travel bureau services 1.341 1.043 1.039 0.808 29 communication services 1.284 1.335 0.995 1.035 30 bank, insurance and corporate services 1.297 2.866 1.005 2.221 31 government 1.482 1.129 1.149 0.876 32 social and other citizenship 1.354 1.094 1.049 0.848 33 entertainment services 1.425 1.159 1.105 0.899 34 workshops and other services 1.323 1.359 1.025 1.053 source : io table special capital region of jakarta (2006), data is reprocessed when tourists of the special capital region of jakarta consume more of the sectors that have not become superior sectors, the impact to the economy that is inflicted by tourism activity in the special capital region of jakarta is also very limited. because of that it is very natural if the counting results of the impact of tourism activity in the special capital region all this time has not yet provided a significant contribution neither in output increase, to the regional gdp, to household income, to the increase of indirect tax nor to the increase of labour. in the last part of this research a simulation is made about the role of the tourism sector to the economy if supposing the government implements planning through the coordination of tourism activity with the regional economy structure. afebi economic and finance review (aefr) vol.02 no.01, june 2017 36 the simulation is implemented with the assumption that the tourists which visit the special capital region of jakarta will consume more of the sectors that provides many added values to the economy of the special capital region of jakarta consume more in the sectors with a larger added value doubling. in other words, in the last part of this research a with or without policy analysis will be provided which is often used as the base of policy making in development planning. the results of the implemented simulation is shown as in table 3 below. table 6 illustrates simulation results for a change in the pattern of tourist consumption to the change of regional gdp of the special capital region of jakarta in the year 2003 while table -7 and table-8 shows simulation results of the consumption pattern change to the change of the regional gdp of the special capital region of jakarta for the years 2008 and 2013. based on table – 6 it is seen that as a cause of the presence of tourism activity coordination in the year 2003 with the economic structure of the year 2000, the regional gdp of the special capital region of jakarta in the year 2003 will raise as many as 154.4% compared with the actual regional gdpwhich increased from rp. 22.5 trillion to become rp. 34.75 trillion. while for the year 2008 and the year 2013, simulation results show that the increase in the regional gdp of the special capital region of jakarta will become smaller if compared with the simulation of the year 2003 which is only as large as 116.97%. simulation results in the year 2008 gave a change of the regional gdp value from rp. 44.24 trillion to as large as rp. 51.75 trillion, while for the simulation results of the year 2013 the change of regional gdp of the special capital region of jakarta will change from as large as rp. 64.02 trillion to become rp. 74.54 trillion. the simulation regional gdp value that is larger than the actual regional gdp shows the ineffectiveness of the development planning of the tourism sector in the special capital region of jakarta for the period of 2003 up to 2013. the tourism activities in the special capital region of jakarta should be directed to the sectors that are able to encourage the increase of added values to be higher. for example for the year 2003 tourism activities of the special capital region of jakarta is directed to the mice tourism with the development of hotels, also the development of tourism based on the fashion industry-the textile industry and leather goods-and also tourism activities that are able to encourage the transport support service and tourism based on entertainment services. while for the development of the tourism sector in the years 2008 and 2013 is still directed to the mice tourism activity, the tourism activity that is able to encourage the development of transport support services, shopping tourism which encourages the trade sector which is supported by property activities which are able to encourage the wood building materials industry and goods from wood. he more and more the decrease of the percentage value of regional gdp increase as a cause of tourist consumption shows the presence of a role decrease of the tourism sector of the special capital region of jakarta in the period of 2003 up to 2013. the report results of the satellite balance of regional tourism special capital region of jakarta also shows that type of occurrence that the role of the tourism sector to the regional gdp in the year 2003 is as large as 8.76% while in the years 2008 and 2013 the role of the tourism sector to the regional gdp decreased to only 5.84%. in other words the tourism sector in the special capital region of jakarta has not yet become a priority sector that is developed by the regional government of the special capital region of jakarta. the role of tourism in the development of regional economy: case study of the special capital region of jakarta province 37 table 6 simulation of tourist expenditure impact to gross added value year 2003 no sector simulation value (rp. million) nominal value (rp. million) 1 plants of foodstuffs 1,288,597.76 187,093.27 2 plantation and forestry 5,145,394.23 20,545.55 3 ranching 137,537.53 2,907.87 4 fishery 5,300.33 17,993.06 5 mining and excavation 1,512,958.47 251.29 6 food, drinks, tobacco, and cigarette industry 230,736.24 107,670.65 7 textile and leather goods industry 5,464,360.76 455,677.68 8 raw wood and goods from wood industry 388,297.91 23,305.42 9 paper and printing industry 104,575.29 82,576.04 10 chemical industry 55,344.38 17,505.45 11 medicine, cosmetics and cleanser industry 51,066.13 178,950.23 12 goods from refinery production industry 15,209.37 7,832.34 13 non-metal goods industry 112,986.16 142,658.49 14 metal goods industry 77,588.15 70,814.27 15 machine industry 32,296.65 11,985.26 16 transport equipment industry 15,495.63 236,126.51 17 other industries 586,236.42 200,788.41 18 electricity/gas/clean water 962,821.53 377,167.67 19 buildings 499,479.40 329,176.63 20 trade 2,005,880.31 4,550,424.61 21 restaurant 828,498.56 2,308,994.98 22 hotel 5,316,227.44 3,549,474.47 23 train transport 174,805.26 162,681.48 24 road transport 232,320.10 3,302,054.23 25 sea, river, and lake transport 409,013.13 901,877.23 26 air transport 2,639.46 103,184.26 27 transport support services 3,572,288.84 911,481.84 28 travel bureau services 105,488.57 550,537.90 29 communication services 562,108.95 369,342.00 30 bank, insurance and corporate services 3,117,792.04 1,947,204.09 31 government 162,470.04 158,060.57 32 social and other citizenship 185,002.69 548,212.07 33 entertainment services 935,091.87 572,056.80 34 workshops and other services 455,821.99 98,149.68 total 34,751,731.60 22,504,762.30 source : satellite balance of regional tourism special capital region of jakarta 2004 (reprocessed) afebi economic and finance review (aefr) vol.02 no.01, june 2017 38 table 7 simulation of tourist expenditure impact to gross added value year 2008 no sector simulation value (rp. million) nominal value (rp. million) 1 plants of foodstuffs 12,604,160.84 42,134.00 2 plantation and forestry 7,936,406.90 895.00 3 ranching 3,167,482.41 13,853.00 4 fishery 3,619,503.43 306,625.00 5 mining and excavation 2,820,512.71 8,140.00 6 food, drinks, tobacco, and cigarette industry 3,065,685.81 1,704,676.00 7 textile and leather goods industry 2,294,914.52 2,073,502.00 8 raw wood and goods from wood industry 2,278,979.76 178,022.00 9 paper and printing industry 1,948,463.07 219,720.00 10 chemical industry 1,698,367.57 125,515.00 11 medicine, cosmetics and cleanser industry 900,045.47 594,443.00 12 goods from refinery production industry 1,054,811.99 151,431.00 13 non-metal goods industry 917,380.00 412,343.00 14 metal goods industry 826,872.05 59,423.00 15 machine industry 396,982.71 46,716.00 16 transport equipment industry 330,932.70 263,752.00 17 other industries 290,942.18 137,322.00 18 electricity/gas/clean water 628,349.10 416,524.00 19 buildings 524,886.41 671,135.00 20 trade 2,310,334.58 1,315,292.00 21 restaurant 556,454.93 3,160,686.00 22 hotel 184,424.92 10,682,950.00 23 train transport 43,418.05 712,546.00 24 road transport 83,903.89 1,803,070.00 25 sea, river, and lake transport 41,978.03 898,204.00 26 air transport 202.45 5,697,075.00 27 transport support services 43,909.94 798,067.00 28 travel bureau services 2,573.74 2,645,744.00 29 communication services 93,408.54 2,011,152.00 30 bank, insurance and corporate services 755,680.31 4,033,803.00 31 government 44,573.30 145,470.00 32 social and other citizenship 38,179.24 259,016.00 33 entertainment services 40,558.10 1,962,566.00 34 workshops and other services 204,268.36 689,957.00 total 51,749,548.00 44,241,772.00 source : satellite balance of regional tourism special capital region of jakarta 2008 (reprocessed) the role of tourism in the development of regional economy: case study of the special capital region of jakarta province 39 table 8 simulation of tourist expenditure impact to gross added value year 2013 no sector nominal value (rp. million) simulation value (rp. million) 1 plants of foodstuffs 52,783.44 12,112.58 2 plantation and forestry 1,359.58 1,300.22 3 ranching 15,412.08 525,676.86 4 fishery 542,863.41 14,159.97 5 mining and excavation 12,371.73 110,548.46 6 food, drinks, tobacco, and cigarette industry 2,567,473.48 5,146,050.10 7 textile and leather goods industry 3,338,374.03 134,348.07 8 raw wood and goods from wood industry 312,219.97 19,229.01 9 paper and printing industry 332,483.68 371,247.20 10 chemical industry 183,518.82 1,345,771.47 11 medicine, cosmetics and cleanser industry 805,616.59 4,884,110.35 12 goods from refinery production industry 164,463.53 7,305.60 13 non-metal goods industry 661,288.64 1,308,976.90 14 metal goods industry 83,387.45 2,553,202.45 15 machine industry 66,496.43 2,067,514.90 16 transport equipment industry 325,906.50 20,023,893.06 17 other industries 230,732.90 218,834.98 18 electricity/gas/clean water 614,045.81 5,721,889.03 19 buildings 927,378.00 1,524,995.27 20 trade 1,923,006.84 6,848,119.21 21 restaurant 4,953,909.53 1,089,699.69 22 hotel 17,380,113.20 62,667.09 23 train transport 970,569.05 2,106,971.80 24 road transport 2,359,116.90 217,103.03 25 sea, river, and lake transport 977,668.56 139,397.45 26 air transport 6,928,037.72 13,968.26 27 transport support services 899,124.54 203,033.71 28 travel bureau services 3,447,083.67 788,583.36 29 communication services 3,155,670.95 502,451.18 30 bank, insurance and corporate services 5,266,227.66 4,089,977.44 31 government 198,167.72 6,839,978.84 32 social and other citizenship 431,744.30 1,313,300.95 33 entertainment services 3,028,777.13 3,261,230.74 34 workshops and other services 864,604.13 1,072,276.70 total 64,021,997.96 74,539,925.92 source : central body of statistics special capital region of jakarta 2014 (processed) afebi economic and finance review (aefr) vol.02 no.01, june 2017 40 4. summary and suggestions as the capital city of indonesia the province of the special capital region of jakarta has potential that is large enough in attracting tourists, neither foreign tourists nor domestic tourists for visiting the special capital region of jakartathis is proven from almost one fourth of the number of foreign tourist visits that arrive to indonesia through the special capital region of jakarta. the potential of the tourism sector in increasing the economy for the last 5 years is more focused on the activities of hotel service, air transport, restaurants, travel bureau services and activities that are related with financial servicesbank, insurance, and corporate services. the contribution of the special capital region of jakarta tourism sector in the economy does not only come from the regional gdp amount which is able to be raised, but also from the role for increasing household income, increasing employment opportunity and also the potential to increase tax. the potential of tourism development in the special capital region of jakarta to the economy is actually able to be increased. one of the means for increasing the role of the tourism sector in the economy of the special capital region of jakarta is through tourism planning that is more optimal. simulation results show that with a better tourism planning the potential of the increase in regional gdp of the special capital region of jakarta is able to be increased. there are several tourism activities that need to be the attention of the regional government of the special capital region of 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(2005). regional tourism satellite accounts for denmark: accounting and modeling. paper presented at the 15th international input-output conference. spatial autocorrelation unemployment and poverty in the eastern part of indonesia 139 published by afebi economic and finance review this is an open access article under the cc bylicense (https://creativecommons.org/licenses/by/4.0/) spatial autocorrelation unemployment and poverty in the eastern part of indonesia lizarifah, anna yulianita, abdul bashir* department of development economics, faculty of economics, universitas sriwijaya, indonesia abstract this study aims to analyze the spatial interaction of unemployment and poverty in general and locally and identify patterns and structures of economic growth on the islands of sulawesi and papua for the 2016-2020 period. the research method used is moran scatterplot, local indicator of spatial autocorrelation (lisa) and klassen typology. moran's test showed on the poverty variable has a positive spatial autocorrelation and the unemployment variable has a negative spatial autocorrelation. the results of the lisa test mapped the poverty variable in 2016 into l-l criteria in central sulawesi province and in 2020 in central sulawesi and south sulawesi provinces. meanwhile the unemployment variable in 2016 maps papua province into l-l criteria, in 2020 southeast sulawesi province is classified as h-h criteria and papua province is classified as l-h criteria. klassen's analysis classifies two provinces in quadrant i, five provinces in quadrant iii and one province in quadrant iv. keywords: moran’s index, poverty, spatial autocorrelation, unemployment, typology, 1. introduction poverty is a situation when individuals or groups cannot meet the level of economic welfare and their own basic needs. currently, poverty is a serious matter and is still a major problem in the development process in every country, including indonesia. according to feriyanto et al. (2020) the problem of poverty is clearly a difficult problem and is multidimensional in nature more than one problem). in theory, the unemployment rate should lead to an increase in poverty. in this situation, an increase in the unemployment rate will result in an increase in the number of people living in poverty. the problem of poverty has indeed become an annual problem in this country, but when compared to the western and central parts of indonesia, the percentage of poverty in eastern indonesia still dominates. the poverty rate in eastern indonesia is not significantly affected by economic growth, according to regression results from 12 provinces in eastern indonesia. these results show that there is a critical issue in the economic growth process of the eastern indonesian provinces, namely, not only how to quickly develop the economy, but also who plays a role in economic growth. if only welloff people benefit from economic growth, then the benefits of economic growth will only be enjoyed by well-off people. this will have an effect on increasing poverty rates and income disparities in the region (tubaka, 2019). *coressponding author. email address: abd.bashir@unsri.ac.id https://creativecommons.org/licenses/by/4.0/ mailto:abd.bashir@unsri.ac.id afebi economic and finance review (aefr) volume 7, no 2 (2022) 140 published by afebi economic and finance review this is an open access article under the cc bylicense (https://creativecommons.org/licenses/by/4.0/) table 1. poverty rate in sulawesi and papua island 2016-2020 source: central statistics agency, 2016-2020 table 1 reports the three provinces in the two islands above have the lowest percentage of poverty rates, namely west sulawesi, south sulawesi and north sulawesi. meanwhile, the other three provinces, namely papua, west papua and gorontalo have the largest poverty presentations. the problem of poverty cannot be separated from the unemployment rate. in addition to the low human development index and slow economic growth, unemployment is one of the elements that contribute to poverty in developing countries (nurdiana et al., 2020). the number of unemployed in a place can be seen by determining whether the rate of change in the labor force is balanced with the number of available jobs. in addition, the increasing population in each period has a significant effect on the labor force and unemployment (asrol & ahmad, 2018) efforts to reduce poverty in every region of indonesia, especially on the island of sulawesi and papua island, cannot be confused with other regions because they must consider the characteristics of the areas that cause poverty (tubaka, 2019) the central statistics agency claimed in 2016 that indonesia's gdp is led by the western provinces of indonesia and the rest are scattered among the provinces in the eastern region. according to the permendagri ri no. 56 of 2015 concerning regional codes and data on government administrative areas states that the number of provinces in indonesia is 34, in accordance with the codification and organization of regional administration of each province. along the way, it is clear that the two regions have a tendency. provinces in the western indonesia region (kbi) enjoy shorter economic development than with regions or provinces in the eastern indonesia region (tubaka, 2019). with limited resources, poverty alleviation must focus and adapt to the realities and needs of local communities. therefore, the involvement of the government in this matter is very important to increase indonesia's economic growth. this research uses spatial autocorrelation analysis to identify the correlation of poverty and unemployment characteristics between locations in eastern indonesia, especially sulawesi island and papua island. this method is so crucial in providing information about the distribution or grouping of characteristics of an observed location and its relationship with other observed locations. when some places are close to each other, the closer something is, the greater the impact. then there is the possibility that they affect each other (anselin & getis, 1992). this study will compile a map of the distribution of the percentage of poor people and open unemployment rates in sulawesi island and papua island, as well as find images and patterns of economic growth structure province poverty rate (percent) 2020 2019 2018 2017 2016 north sulawesi 7.62 7.66 7.80 8.10 8.34 central sulawesi 12.92 13.48 14.01 14.14 14.45 south sulawesi 8.72 8.69 9.06 9.38 9.40 southeast sulawesi 11.00 11.24 11.63 12.81 12.88 gorontalo 15.22 15.52 16.81 17.65 17.72 west sulawesi 10.87 11.02 11.25 11.30 11.74 west papua 21.37 22.17 23.01 25.10 25.43 papua 26.64 27.53 27.74 27.62 28.54 https://creativecommons.org/licenses/by/4.0/ spatial autocorrelation unemployment and poverty in the eastern part of indonesia 141 published by afebi economic and finance review this is an open access article under the cc bylicense (https://creativecommons.org/licenses/by/4.0/) between locations using the klassen typology. therefore, this study aims to analyze the autocorrelation of unemployment and poverty in eastern indonesia. 2. literature review study by ponce et al. (2020) and xiang et al. (2016) in their research stated that the need for each region to reduce poverty can be identified based on the variables that have been generated. the relationship between unemployment and poverty in this scenario is reversed, according to the principles of contemporary economic theory. this phenomenon can be characterized by in one family there are unemployed, but there are other family members who work and earn enough to support the unemployed. in theory, the unemployment rate should lead to an increase in poverty. in this situation, an increase in the unemployment rate will result in an increase in the number of people living in poverty. the relationship between unemployment and poverty in this scenario is reversed (giovanni, 2018). poverty and unemployment are still the main problems in development both at the national and regional levels. each region can determine what factors can support poverty reduction efforts. this suggests that different regions need to be treated differently in the allocation of aid sectors in poverty reduction programmes. calculating the moran index will tell you which areas have higher poverty rates and tend to group in a particular region. moran index values greater than zero indicate the existence of positive spatial dependence results or patterns with clustered traits and having similar or simply said observations of proximity to have similar characteristics in adjacent alongs. the poverty reduction program that is carried out has not paid attention to spatial aspects so that the policies taken are often not on target. the results of this study are about the spread of poverty and unemployment in line with previous research. in accordance with research conducted by xiang et al. (2016), (hasibuan & hasibuan, 2021) and (sukanto et al., 2019) with the aim of knowing the autocorrelation of spatial analysis to determine the pattern of bonding or relationships between locations (observations) using the test analysis "moran's i and local indicator of spatial autocorrelation (lisa)" found the results that there is positive spatial autocorrelation and grouping in spatial distribution. positive spatial autocorrelation indicates that the values of adjacent locations are similar and tend to be clustered. the poverty grouping occurs where there are provinces with approximately the same observation value as daerah or adjacent neighboring provinces. the economic growth of a region reflects the state of the economy of the area. economic growth is the level of economic development that occurs in a region. if the growth is positive, it indicates an increase in the economy when compared to the previous year. on the other hand, negative economic growth indicates that there is an annual recession, or an economic downturn compared to a year ago. this is in line with research by suryahadi et al. (2012) and ginting & rasbin (2019) the finding that poverty factors can also affect the economy in an area. because the lower the regional economic growth rate, the higher the level of poverty. on the other hand, if a region has a low poverty rate, then the economic growth of the region will be better. therefore, to avoid high levels of poverty, the government must provide jobs that match the available workforce or provide training to ensure that people have the right skills in their respective fields of work so that it will be easy to get a job and be able to increase people's purchasing power. however, it is different from what tubaka said in his research, namely that the poverty rate in eastern indonesia is not significantly affected by economic growth, according to regression results from 12 provinces in eastern indonesia. https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 2 (2022) 142 published by afebi economic and finance review this is an open access article under the cc bylicense (https://creativecommons.org/licenses/by/4.0/) these results show that there is a critical issue in the economic growth process of the eastern indonesian provinces, namely, not only how to quickly develop the economy, but also who plays a role in economic growth. if only well-off people benefit from economic growth, then the benefits of economic growth will only be enjoyed by well-off people. this will have an effect on increasing poverty rates and income disparities in the region (tubaka, 2019). 3. research methodology the study located in the eastern part of indonesia precisely on the island of sulawesi and papua island with a five-year research period, namely from 2016-2020. the data used to use secondary data includes data on the open unemployment rate, poverty rate and grdp per capita. there are four distinct quadrants in the moran scatterplot that show four types of spatial relationships between an area and an adjacent area; quadrant i is an area that has a high value with areas around it that have a high value as well (high-high [h-h]), quadrant ii is an area with a low value surrounded by areas that have a high value (low-high [l-h]), quadrant iii which is an area with a low value surrounded by areas that have lace value (low-low [l-l]), quadrant iv i.e. one of the areas with high values surrounded by areas that have low values (high-low [h-l]). method of local indicator of spatial autocorrelation at the time of global spatial autocorrelation, the moran index has not been able to provide information about spatial patterns in certain areas. therefore, the local indicator of spatial autocorrelation (lisa) is used to obtain information about spatial relations in each region. in addition, the local indicator of spatial autocorrelation is a local indicator used to assess the presence of local spatial tendencies and to show the forms of spatial relationships (saputro et al., 2018) there is spatial autocorrelation showing that the value of a characteristic in a place corresponds to a characteristic value in another adjacent region (lembo, 2006). anselin (1995) in his book entitled local indicators of spatial association (lisa) defines lisa as a statistic that meets two criteria, namely; (1) lisa values in each region can be used to assume a significant spatial relationship by grouping the same values around the area; and (2) the total lisa values for all regions are proportional to the moran index values. the formula of lisa for each region i is written as: 𝐿𝑖 = 𝑍𝑖 𝑚2 ∑ 𝑊𝑖𝑗 𝑍𝑗 𝑛 𝑗=1 with 𝑚2 = 1 𝑛 ∑ 𝑍𝑖 𝑛 𝑖 , 𝑧𝑖 = (𝑥𝑖 − �̅�), 𝑧𝑗 = (𝑥𝑗 − �̅�); 𝐼𝑖 is the lisa value in the region 𝑖; 𝑛 are multiple locations; 𝑥𝑖 is the number of certain events in the area to-𝑖; 𝑥𝑗 is the number of certain events in the area to 𝑗; �̅� expresses the average number of events; 𝑤𝑖𝑗 is an element of the weighting matrix between regions i and j. the total lisa for the entire region as follows: ∑ 𝐿𝑖 𝑛 𝑖=1 = 1 𝑚2 (𝑧𝑖 ∑ 𝑊𝑖𝑗 𝑍𝑗 𝑛 𝑗=1 ) = 1 𝑚2 ∑ ∑ 𝑊𝑖𝑗 𝑍𝑖 𝑛 𝑗=1 𝑛 𝑖=1 https://creativecommons.org/licenses/by/4.0/ spatial autocorrelation unemployment and poverty in the eastern part of indonesia 143 published by afebi economic and finance review this is an open access article under the cc bylicense (https://creativecommons.org/licenses/by/4.0/) 𝑍𝑗 = 1 1 𝑛 (∑ 𝑍𝑖 2𝑛 𝑖=1 ∑ ∑ 𝑊𝑖𝑗 𝑍𝑖 𝑛 𝑗=1 𝑛 𝑖=1 𝑍𝑗 = 𝑛 (∑ 𝑧𝑖 2𝑛 𝑖=1 ) ∑ ∑ 𝑊𝑖𝑗 𝑍𝑖 𝑛 𝑗=1 𝑛 𝑖=1 with the moran (global) index value as in equation (1) which is written as follows: ∑ 𝐿𝑖 = ( 𝑛 𝑊 ∑ 𝑧𝑖 2𝑛 𝑖=1 ∑ ∑ 𝑤𝑖𝑗 𝑧𝑖 𝑧𝑗 𝑛 𝑗=1 𝑛 𝑖=1 ) 𝑛 𝑖=1 x w or ∑ 𝐿𝑛𝑖=1 𝑖,𝑡= i x w so that it is obtained that the moran index value is proportional to the sum of the lisa values, namely: 𝐼 = ∑ 𝐿𝑖 𝑛 𝑖 𝑊 with 𝑊 = ∑ ∑ 𝑤𝑖𝑗 𝑛 𝑖 𝑛 𝑖 . next, the calculation of the expected value 𝐸(𝐼𝑖 ) and 𝑉𝑎𝑟 (𝐼𝑖 ) described as follows: 𝐸(𝐼𝑖 ) = 𝐸 [ 𝑧𝑖 𝑚2 ∑ 𝑤𝑖𝑗 𝑧𝑗 𝑗≠𝑖 ] = 1 𝑚2 𝐸 [𝑧𝑖 ]𝐸 [∑ 𝑤𝑖𝑗 𝑧𝑗 𝑗≠𝑖 ] = 1 𝑚2 (∑ 𝑤𝑖𝑗 𝑗≠𝑖 ) 𝐸 [𝑧𝑖 𝑧𝑗 ] = 1 𝑚2 (∑ 𝑤𝑖𝑗𝑗≠𝑖 ) −𝑚2 (𝑛−1) = − (∑ 𝑤𝑖𝑗𝑗≠𝑖 ) 𝑛−1 = − 𝑤𝑖 𝑛−1 with 𝑤𝑖 is the number of row elements from (∑ 𝑤𝑖𝑗𝑗≠𝑖 ) thus, it is obtained that 𝑉𝑎𝑟 (𝐼𝑖 ) = 𝐸 [𝐼𝑖 2] 2 or 𝑉𝑎𝑟 (𝐼𝑖 ) = (∑ 𝑤𝑖𝑗𝑗≠𝑖 ) 2 ( 𝑛−𝑏2 (𝑛−1) ) + ∑ ∑ 𝑤𝑖𝑘 𝑤𝑖ℎ ( 2𝑏2−𝑛 (𝑛−1)(𝑛−2) )ℎ≠𝑖 − (− 𝑤𝑖 𝑛−1 )𝑘≠𝑖 2 klassen typology method klassen's typology is an analytical tool to determine the pattern and structure of economic growth in an area by determining the average economic growth as a vertical axis and the average grdp as a horizontal axis. the regional approach produces four classifications of districts/cities, each of which has different economic regional growth characteristics, namely; the developed and fast-growing regions (rapid growth region/quadrant i), developed but depressed regions (retarted region/quadrant ii), rapidly developing regions (growing region/quadrant-iii), and relatively underdeveloped areas (relatively backward region/quadrant iv). https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 2 (2022) 144 published by afebi economic and finance review this is an open access article under the cc bylicense (https://creativecommons.org/licenses/by/4.0/) table 2. klassen typology method 4. result and discussion analysis of the spatial interaction of poverty based on the results of data processing output, it was found that the poverty distribution of all provinces on sulawesi island and papua island. there are three kinds of classifications on the poverty distribution map; high, middle, and low. year 2016 year 2020 source: geoda software data processing results, 2022 figure 1. poverty distribution map figure 1 reports the distribution of poverty in sulawesi island and papua island, which were included in the high category in 2016, there were three provinces, namely papua, west papua, and gorontalo. this is due to the geographical conditions and accessibility of this region, which is quite difficult, and the uneven development that occurs in this region. furthermore, there are two provinces that are categorized as medium poverty distribution, namely central sulawesi and southeast sulawesi provinces. meanwhile, the provinces of west sulawesi, south sulawesi and north sulawesi are included in the areas with a low category of poverty distribution. the existence of this pattern allows poverty alleviation policies to be more effective and targeted by distinguishing the handling of areas with relatively low poverty from areas with high poverty. gdrp per kapita (y) growth rate (r) yi < y yi > y ri > r (quadrant-ii) developed and fastgrowing regions (quadrant-i) developed but depressed regions ri < r (quadrant-iii) rapidly developing regions (quadrant-iv) relatively underdeveloped areas papua west papua north sulawesi southest sulawesi central sulawesi gorontalo west sulawesi south sulawesi papua west papua gorontalo north sulawesi central sulawesi southest sulawesi south sulawesi west sulawesi https://creativecommons.org/licenses/by/4.0/ spatial autocorrelation unemployment and poverty in the eastern part of indonesia 145 published by afebi economic and finance review this is an open access article under the cc bylicense (https://creativecommons.org/licenses/by/4.0/) year 2016 year 2020 source: geoda software data processing results, 2022 figure 2. the lisa cluster map poverty figure 2 reports the local spatial impact of poverty in each province on the islands of sulawesi and papua falls under the low-low (l-l) classification. in 2016 there was one province included in the l-l cluster, namely central sulawesi province and in 2020 which was included in the l-l classification, namely the provinces of central sulawesi and south sulawesi. this means that areas with low poverty rates are surrounded by areas with equally low poverty rates. this means that in 2020 central sulawesi province is surrounded by the provinces of west sulawesi, south sulawesi and gorontalo which are also equally low in poverty. likewise, south sulawesi province, which is surrounded by central sulawesi, west sulawesi, and southeast sulawesi, is equally low in poverty. year 2016 year 2020 source: geoda software data processing results, 2022 figure 3. moran's scatter plot of poverty in 2016 it was 0.834 and in 2020 it was 0.846, this value is greater than the value 𝐸[𝐼] = −0,143, so it can be concluded that the poverty spread pattern of 8 provinces on the islands of sulawesi and papua has a positive spatial autocorrelation (figure 3). papua papua west papua west papua north sulawesi north sulawesi central sulawesi central sulawesi southeast sulawesi southeast sulawesi south sulawesi south sulawesi west sulawesi west sulawesi gorontalo gorontalo https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 2 (2022) 146 published by afebi economic and finance review this is an open access article under the cc bylicense (https://creativecommons.org/licenses/by/4.0/) analysis of the spatial interaction of unemployment based on the output that has been obtained on mapping and spreading the unemployment rate of all provinces on the islands of sulawesi and papua in 2016. the provinces of west papua, north sulawesi and south sulawesi are included in the category of high unemployment distribution. furthermore, those included in the category of medium unemployment distribution are gorontalo province, central sulawesi, west sulawesi, southeast sulawesi, and papua. year 2016 year 2020 source: geoda software data processing results, 2022 figure 4. unemployment distribution map additionally, the mapping in figure 4 shows that 2016 that none of the provinces fall into the category of low unemployment. when compared to 2016, in 2020 there was only a slight difference, which was seen in the province of west sulawesi in the previous year, namely 2016. this province is included in the distribution of moderate or medium unemployment, then in 2020 the distribution of the unemployment rate has decreased. the tpt of west sulawesi in the last four years has always been lower than the national tpt, where in 2020 the national tpt was recorded at 7.07 percent. however, this achievement has not met the government's target in west sulawesi which is expected to be reduced to the level of 2.96 percent (hapsoro & yoduke, 2019). figure 5 reports the identifications using mapping or lisa cluster map in 2020 showed that high-high (h-h) spatial relationships occurred in southeast sulawesi province. the h-h relationship shows that provinces with high lisa values are surrounded by provinces that are also high. the low-high (l-h) spatial relationship is a classification with the same province as the previous year, namely 2016, occupied by papua province. as previously explained, this circumstance means that regions with low unemployment rates are surrounded by regions with high unemployment rates. papua papua west papua west papua north sulawesi north sulawesi central sulawesi central sulawesi gorontalo gorontalo southest sulawesi southest sulawesi south sulawesi south sulawesi west sulawesi west sulawesi https://creativecommons.org/licenses/by/4.0/ spatial autocorrelation unemployment and poverty in the eastern part of indonesia 147 published by afebi economic and finance review this is an open access article under the cc bylicense (https://creativecommons.org/licenses/by/4.0/) year 2016 year 2020 source: geoda software data processing results, 2022 figure 5. lisa cluster map unemployment figure 6 also shown the moran index value in 2016 of -0.477 and in 2020 of -0.438, this value is smaller than the value = so it can be concluded that the pattern of unemployment spread of 8 provinces on the islands of sulawesi and papua there is a negative spatial autocorrelation. in this case, the scattered distribution pattern in question means that the provinces in sulawesi and papua have different poverty distributions from each other. in addition, scattered patterns can also be influenced by the distance of provinces from one another.𝐸[𝐼] − 0,143. year 2016 year 2020 source: geoda software data processing results, 2022 figure 6. moran's scatter plot of unemployment papua west papua north sulawesi central sulawesi gorontalo southest sulawesi south sulawesi west sulawesi papua west papua north sulawesi central sulawesi gorontalo southest sulawesi south sulawesi west sulawesi https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 2 (2022) 148 published by afebi economic and finance review this is an open access article under the cc bylicense (https://creativecommons.org/licenses/by/4.0/) analysis of klassen's typology the economic growth of a region reflects the state of the economy of the area. if the growth is positive, it indicates an increase in the economy when compared to the previous year. on the other hand, negative economic growth indicates that there is an annual recession, or an economic downturn compared to a year ago. source: authors calculation, 2022 figure 7. klassen typology of economic growth of sulawesi and papua island from the results of the calculation of the klassen typology, it can be classified that the developed and fast-growing areas on sulawesi island and papua island in 2016-2020, namely central sulawesi province and papua province. economic growth in this region is indeed the highest compared to other provinces on sulawesi island and papua island with an average growth rate of 10.27 percent. meanwhile, papua province is also classified into quadrants i and during 2020 the papuan economy experienced a growth of 2.32 percent. in terms of production, this growth was due to the growth of mining and quarrying business fields by 16.62 percent. based on the analysis of the klassen typology quadrant ii is commonly called a developed but depressed region or province. the provinces that fall into this category are relatively developed areas but within a few years experienced relatively small growth, due to the reduction in the main activities of the provinces concerned. but in this case there is not a single region in the object of study that belongs to quadrant ii. south sulawesi, southeast sulawesi, north sulawesi, gorontalo, and west sulawesi are areas that can develop quickly according to the analysis of the klassen typology. the central statistics agency in 2020 stated that the economy of west sulawesi has indeed contracted as deep as -2.40 percent, supported by the lack of utilization of abundant natural resources but has not been processed properly. pdrb_perkapita 70000.0060000.0050000.0040000.0030000.0020000.00 p e r t u m b u h a n _ e k o n o m i 10.00 8.00 6.00 4.00 papua papua barat sulawesi barat gorontalo sulawesi tenggara sulawesi selatan sulawesi tengah sulawesi utara g ro w th r a te gdrp per capita https://creativecommons.org/licenses/by/4.0/ spatial autocorrelation unemployment and poverty in the eastern part of indonesia 149 published by afebi economic and finance review this is an open access article under the cc bylicense (https://creativecommons.org/licenses/by/4.0/) the area classified in quadrant iv is west papua province. quadrant iv is a quadrant with the designation of a relatively lagging area. according to yuanjaya (2018) there are several factors that contribute to explaining the slow economic performance and development in west papua, namely the location of the west papua region at the eastern end which is very far away and different from other provinces in indonesia. this is in line with research by suryahadi et al. (2019) and ginting & rasbin (2019) states that poverty factors can also affect the economy in an area. because the lower the regional economic growth rate, the higher the level of poverty and vice versa. 5. conclusion the results of the moran test calculation on the poverty variable have positive spatial autocorrelation and the unemployment variable have negative spatial autocorrelation. the results of the lisa test mapped the poverty variables in 2016 into the l-l criteria in central sulawesi province and in 2020 in central sulawesi and south sulawesi provinces. meanwhile, the unemployment variable in 2016 mapped papua province into the l-l criterion, in 2020 southeast sulawesi province was classified as the h-h criterion and papua province was classified as the l-h criterion. klassen's analysis classifies the provinces of central sulawesi and papua as quadrant i (fast-growing and fast-growing regions), quadrant iii (fast-growing regions) occupied by the provinces of south sulawesi, southeast sulawesi, north sulawesi, gorontalo, and west sulawesi while the areas that are classifiedas quadrant iv (relatively underdeveloped areas) are west papua province. references anselin, l. 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(2012). economic growth and poverty reduction in indonesia before and after the asian financial crisis. bulletin of indonesian economic studies, 48(2), 209-227. tubaka, s. (2019). analisis kemiskinan di kawasan timur indonesia. cita ekonomika, jurnal ekonomi, xiii(2), 113–130. xiang, j., li, j., & zeng, j. (2016). spatial difference and its influence factors of cultivated land transition of poverty counties in west of hubei. transactions of the chinese society of agricultural engineering, 32(1), 272-279. yuanjaya, p. (2018). mengejar ketertinggalan: menggali potensi sektor agribisnis kabupaten fakfak, provinsi papua barat. natapraja, 6(1), 99-114. https://creativecommons.org/licenses/by/4.0/ the effect of gross domestic product, energy intensity, population, and urbanization on total co2 emissions (study on brics member countries) 151 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) the effect of gross domestic product, energy intensity, population, and urbanization on total co2 emissions (study on brics member countries) dhinny faadhilah handayani permata hati, fadel nugraha*, hadi sasana economic program study, faculty of economics and business, diponegoro university, indonesia abstract the balance between accelerating the rate of economic growth and protecting the quality of the environment is one of the challenges faced by both developed and developing countries. without a commitment to carry out sustainable development, the use of natural resources and the environment will increase. this increase in utilization increases co2 emissions every year from the combustion of fossil fuels. the increase in co2 emissions is triggered by economic development activities. the purpose of this study is to examine the effect of the variables of gross domestic product, energy intensity, population, and urbanization on total co2 emissions in 2005 to 2018 in brics member countries. this research is a quantitative research type. the data used is secondaru data obtained through library search with panel data totalling 70 observations. the data analysis technique used is multiple linear regression analysis with the analysis model used in this study is panel data regression with fixed effect model. the results of this study indicate that the variables of energy intensity and population have a positive and significant effect, while the variables of gross domestic product and urbanization do not have a significant effect. simultaneously, the independent variable affects the dependent variable. keywords: total co2 emissions, gross domestic product, energy intensity, population, urbanization, fixed effect model 1. introduction policymakers in every country experience tough challenges in dealing with global challenges such as poverty, natural disasters, climate change, financial crises, and issues of sustainable development that focus on integrating economic development and environmental sustainability. the balance between accelerating the rate of economic growth and protecting the quality of the environment is one of the challenges faced by both developed and developing countries. without a commitment to sustainable development, the use of natural resources and the environment will increase. as a result, problems often arise in economic development, namely the trade-off between meeting community needs and efforts to maintain environmental sustainability. according to todaro and smith (2004), economic development has activities that tend to concentrate on exploiting natural resources for an increased standard of living for the people without any implementation in conserving the raw materials used for the production process. sustainable development starts with using natural resources on a large scale to improve people's welfare without regard to environmental sustainability. one of the problems that often occurs in sustainable development, especially the ecological aspect, is global warming. the most significant factor of global warming is greenhouse gases consisting of carbon dioxide (co2), methane (ch4), nitrous oxide (n2o), and three categories of gases containing fluorine. greenhouse gases fluctuate from year to year with insignificant growth rates. *coressponding author. email address: fadelnugraha@students.undip.ac.id https://creativecommons.org/licenses/by/4.0/ mailto:fadelnugraha@students.undip.ac.id afebi economic and finance review (aefr) volume 7, no 2 (2022) 152 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) the intergovernmental panel on climate change (2014) reports that the most significant contribution to co2 emissions is burning fossil fuels and industrial processes related to human activities and high economic growth. based on research conducted by the world resource institute (wri), six countries emitted the most significant co2 emissions in 2018, namely china (10.26bt), the united states (6.135bt), european union (4.263bt), india (2.358bt), and russia (2,217bt). overall total co2 emissions at the world level can be seen in table 1. table 1 total world co2 emissions 2005-2018 (billion metric tons) year total emissions co2 year total emissions co2 2005 27.078 2012 31.806 2006 27.9423 2013 32.3707 2007 28.9893 2014 32.3886 2008 29.2094 2015 32.3655 2009 28.7921 2016 32.3747 2010 30.5824 2017 32.8374 2011 31.4595 2018 33.5133 source: international energy agency, 2020 economic development is progressing because many countries participate and contribute to global economic development. developing countries have an essential role in supporting the economies of developed countries because of the many promising consumer market targets in developing countries. these countries include brazil, russia, india, china, and south africa, better known as the brics. the term brics appeared after south africa joined in 2010. according to brics (2020), brics is an acronym for grouping the world's leading developing countries. brics is an organization formed as an economic association with an important role in global economic growth. countries members of the brics membership have just developed into industrialized countries, which are differentiated based on their size, fast growth, and economic effect. the brics member group has a less developed but fast-growing economy, a large population, an influential government, and a desire to join the global market. the highest average economic growth for brics countries is china, which is 9.18% annually. then india at 6.59% per year, russia at 3.83% per year, south africa at 2.77% per year, and the lowest was brazil at 2.46% per year. periodically, the economies of brics member countries continue to move towards advanced industrialization, with an increase in the economy every year resulting in increased human needs. energy is needed to support the productivity activities of a country so that the availability of energy can affect the results or output of a country's productivity. economic development activities, such as population, also affect co2 emission levels. the world's population is estimated to increase to 7.8 billion in 2025, and 6.7 billion people will live in developing countries. an increase in population means an increase in demand. therefore, humans make various efforts to meet their needs by processing natural resources. if the exploitation process is not controlled, it will harm the environment, namely, an increase in the pollution load into the air or atmosphere. according to (priangani, 2015) brics member countries have contributed significantly to the world's population by 40% and have a land area of a quarter of the total land area in the world. https://creativecommons.org/licenses/by/4.0/ the effect of gross domestic product, energy intensity, population, and urbanization on total co2 emissions (study on brics member countries) 153 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) one of the reasons for the increase in population is urbanization because, along with the increase in population growth, the needs of the community in terms of settlements, space for movement, and mobilization are also increasing. in addition, economic development in the industrial sector is the biggest trigger for increased urbanization. according to (sadorsky, 2013), more than 50% of the world's population lives in urban areas. over time, urbanization will increase because people's tendency to get a decent life is increasing. 2. literature review 1. sustainable development concept according to jazuli (2015), sustainable development is a process that optimizes the benefits of natural and human resources by harmonizing natural resources with humans in development. according to kurniawati (2012), three aspects affect sustainable development, namely: a. economic aspect sustainable development is closely related to economic growth. it looks for ways to advance the economy in the long run and can improve the welfare of the present generation without future generations. b. social aspect social aspects as community supporters regarding interaction, interrelation, and interdependence. c. environmental aspect environmental or ecological factors are needed to support sustainable development. it is because this aspect is directly related to natural factors that exist on earth, so things that show environmental damage are more pronounced. 2. emission co2 air pollution can be interpreted as the presence of one or more substances (pollutant gases) that can harm living things, disturb comfort, or are destructive. according to (thistlethwaite et al., 2013), pollutant gases can be divided into two, namely: a. a natural pollutant gas this type of pollutant tends to balance ecosystems long-term such as pollutants released by volcanoes. b. anthropogenic pollutant gas this type of pollutant does not appear naturally. however, it is due to effects caused by human activities, such as air waste produced by industry, motor vehicle exhaust, the decomposition process from burning waste, and food processing activities carried out by households. 3. gross domestic product according to (todaro & smith, 2012), the environmental kuznets curve or ekc is an inverted u-shaped graph that illustrates the relationship between per capita income and environmental quality, whether it is pollution or other environmental damage in a country which will increase and then decrease with an increase in per capita income. in another sense, ekc theory explains that economic growth will initially increase environmental damage because the state will make increased production its main focus without paying attention to environmental aspects. if this is continuously carried out, it will result in increasingly severe environmental pollution, such as water, soil, and air pollution. however, at a certain level of per capita income, environmental pollution will decrease. https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 2 (2022) 154 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) 4. energy intensity according to the directorate general of new, renewable energy and energy conservation (ebtke), energy intensity is the ratio between the amount of energy consumption per gross domestic product and is used to assess a country's energy efficiency. the lower the energy intensity number, the more efficient energy use in a country. the size of energy intensity does not fully describe energy efficiency, but at least it can show that the smaller the ratio, the better the use of energy in the production process. 5. population according to the world bank, population numbers are based on a de facto definition of the population, which counts all residents regardless of legal status or citizenship, just like one of the population theories pioneered by malthus. thomas robert malthus, an english priest, pioneered malthus' theory. in his article "an essay on the principle of population," he stated that a country's population generally tends to increase according to a geometric/geometric progression that doubles every 30-40 years. at the same time, since every fixed factor (land) experiences diminishing returns, the food supply can only increase arithmetically. when the land owned by each person becomes smaller, the population's contribution to production will eventually decrease (todaro & smith, 2012). malthus' theory also emphasizes the importance of balancing population growth with food supplies because land, as a natural resource, cannot provide food to meet the needs of an increasing population. therefore, the carrying capacity of the soil as an environmental component decreases due to the increasing human burden. the total population must be balanced with the environmental threshold not to disturb the environment's carrying capacity so that natural disasters such as floods, droughts, crop failures, and other disease outbreaks do not occur. 6. urbanization according to (tjiptoherijanto, 2016), urbanization is defined as the proportion of the population living in urban areas (urban areas). according to (todaro & smith, 2012), the positive relationship between urbanization and per capita income is the most obvious and prominent specific fact of the development process. generally, the more advanced a country is based on per capita income, the greater the number of people living in urban areas. therefore, urbanization can be considered as a natural phenomenon that is in line with economic development and population welfareurbanization. 3. research methodology this study uses secondary data types with the library research data collection method. the data on co2 gas emissions was obtained from the international energy agency. data on gross domestic product, population, and urbanization were obtained from the world bank. meanwhile, energy intensity was obtained from the statistical review of world energy. the data analysis technique used is multiple linear regression analysis, which aims to see the effect of each independent variable on the dependent variable. the samples in this study are total co2 emissions, gross domestic product, energy intensity, population, and urbanization of brics member countries, namely brazil, russia, india, china, and south africa in 2005-2018. data analysis method the analytical tool used in this study is multiple linear regression analysis with the selection of the fixed effect model. the research model to be estimated is as follows: https://creativecommons.org/licenses/by/4.0/ the effect of gross domestic product, energy intensity, population, and urbanization on total co2 emissions (study on brics member countries) 155 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) 𝐿𝑛𝐶𝑂2𝑖𝑡 = 𝛼0 + 𝛼1𝐿𝑛𝐺𝐷𝑃𝑖𝑡 + 𝛼2𝐿𝑛𝐸𝐼𝑖𝑡 + 𝛼3𝐿𝑛𝑃𝑃𝑖𝑡 + 𝛼4𝐿𝑛𝑈𝑃𝑖𝑡 + 𝐴𝑅(1) + 𝜇 …………………………………………………………………………………….(3.1) lnco2 = natural logarithm of total co2 emissions produced in 5 brics member countries lngdp = natural logarithm of gross domestic product per capita in 5 brics member countries lnei = natural logarithm of energy intensity in 5 brics member countries lnpp = natural logarithm of population in 5 brics member countries lnup = natural logarithm of urbanization in 5 brics member countries α0 = intercept α = coefficient value of each variablel i = cross-sectional data of 5 brics member countries t = time series data of 5 brics member countries ar (1) = rho μ = error term 4. results and discussion object description a. brics overview according to (brics, 2020), brics is an acronym for the grouping of the world's leading developing countries, namely brazil, russia, india, china, and south africa. brics is an organization formed as an economic association with an important role in global economic growth. the emergence of the brics as an economic association was through an economist from england, jim o'neill, who contributed his ideas to form an international organization in the field of finance. brics was formed to uphold peace, security, and shared prosperity. 1) in the field of peace and security, the aim is to spread equality in international relations and spread democracy to avoid strife and war. 2) leaders have a goal to create strategies in the area of topical cooperation. 3) it maintains the stability of the country's growth in an economic crisis caused by european and american influences. 4) reforming global governance and financial reform. b. environment overview in brics member countries currently, the focus is on the brics economy while considering environmental interests and rapid economic development and their contribution to global economic growth. more precisely in 2007, the brics economy was rich in natural resources. on average, the largest energy supply in brics member countries is coal. china's interest in coal partly drives this. c. co2 emission conditions in brics member countries china became the first country to produce the highest co2 emissions among other countries in the brics member countries. from year to year, there is always an increase in total co2 emissions, with an average of 8,050.5 million tons. the high level of co2 emissions in china is caused by china's high dependence on coal and china's very high energy needs, which contribute to the world's most considerable pollution. then in second place is india with total co2 emissions, which tend to increase yearly. however, india has targeted reducing emissions below 33-35% by 2030. in addition, india is also targeting to acquire 450 gw of https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 2 (2022) 156 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) electricity from ebt by 2030. with this, india's energy capacity will be obtained from generators that do not use fossil fuels. in third place are russia, then brazil, and south africa. d. gross domestic product condition in brics member countries countries that are members of the brics are countries that are heading towards industrialization. economic power within brics member countries varies widely. brazil with its agricultural products, russia with its energy, china with its increasing manufacturing, india with its services, and south africa with its wealth of mineral resources. based on data (imf, 2013), the brics countries have a total gross domestic product of us$16.6 trillion, equivalent to 22% of the world's gross domestic product. the contribution of brics countries in overall economic growth over the last decade has reached 50%, which makes this group of countries develop as essential leaders in global economic development. e. energy intensity condition in brics member countries energy intensity, also known as economical energy efficiency, refers to the amount of energy consumption per unit of economic output. russia consumes the highest per capita energy among other brics countries, with an average of 196.85 gigajoules per capita. it relates to russia's natural resource wealth, and it is predicted to remain the largest net exporter of energy, with exports reaching 4% of world energy demand in 2035. meanwhile, india is the country that consumes the lowest at 19.39 gigajoules per capita. f. population condition in brics member countries the brics has continuously contributed to almost half of the world's population resulting in increasing demand for energy. the highest total population is china, with a population in 2018 of 1,392,730,000 million people. the number shows an increase from the previous year, which was 1,386,395,000 million people. then in the following sequence, india has the second highest population density, with a total population of 1,352,617,328 million people. while in third place with a significant difference from the previous country, namely brazil with 209,469,333 million people, followed by russia with a total population of 144,477,860 million people, and south africa with a population of 57,779,622 million people. g. urbanization condition in brics member countries the brics countries have experienced rapid urbanization in the last three decades. however, it has created various problems, such as air pollution, congestion, habitat destruction, and other problems that threaten the sustainable development of urbanization. data analysis a. model selection 1) chow test table 2. chow test redundant fixed effects tests equation: fem test cross-section fixed effects effects test statistic d.f. prob. cross-section f 131.724290 (4,61) 0.0000 cross-section chi-square 158.597472 4 0.0000 https://creativecommons.org/licenses/by/4.0/ the effect of gross domestic product, energy intensity, population, and urbanization on total co2 emissions (study on brics member countries) 157 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) source: output eviews, 2021 the probability value of the f test and chi-square is 0.0000, which means it is smaller than the significance level α = 5% (0.05). thus, the initial hypothesis was rejected, and the model chosen was the fixed effect model or fixed effect. then further testing is needed namely the hausman test. 2) hausman test table 3. hausman test correlated random effects hausman test equation: rem test cross-section random effects test summary chi-sq. statistic chi-sq. d.f. prob. cross-section random 526.897162 4 0.0000 source: output eviews, 2021 the probability value of the f test and chi-square is 0.0000, which means it is smaller than the significance level α = 5% (0.05). thus it can be concluded that in this study, it is better to use the fixed-effect model. b. classic assumption detection results 1) normality detection figure 1. normality detection result source: output eviews, 2021 based on figure 1, the normality test results showed that the jarque-bera probability value is 0.909986, which is greater than α = 5% (0.05), so these results meet the normality test requirements. it means that the data used in the research is normally distributed. https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 2 (2022) 158 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) 2) autocorrelation detection table 4 autocorrelation detection results after level 1 differential cross-section fixed (dummy variables) r-squared 0.999616 mean dependent var 7.159621 adjusted r-squared 0.999553 s.d. dependent var 1.131635 s.e. of regression 0.023925 akaike info criterion -4.487119 sum squared resid 0.031483 schwarz criterion -4.152598 log likelihood 155.8314 hannan-quinn criter. -4.355129 f-statistic 15902.55 durbin-watson stat 1.969762 prob(f-statistic) 0.000000 inverted ar roots .68 source: output eviews, 2021 based on table 4 above, the durbin watson stat value, after being estimated, is 1.969762. the durbin watson stat value, after being estimated, is between du and 4-du or du < d < 4du, it can be concluded that there is no autocorrelation problem in the model. 3) heteroscedasticity detection table 5. heteroscedasticity detection results dependent variable: resabs method: panel least squares date: 08/03/21 time: 00:40 sample: 2005 2018 periods included: 14 cross-sections included: 5 total panel (balanced) observations: 70 variable coefficient std. error t-statistic prob. c -2.271382 1.133488 -2.003888 0.0495 loggdp 0.030235 0.052769 0.572981 0.5688 logei 0.022970 0.048755 0.471135 0.6392 logpp 0.126045 0.063824 1.974868 0.0528 logup -0.148884 0.127688 -1.165998 0.2482 source: output eviews, 2021 https://creativecommons.org/licenses/by/4.0/ the effect of gross domestic product, energy intensity, population, and urbanization on total co2 emissions (study on brics member countries) 159 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) based on table 5, the results of heteroscedasticity using the glejser test show that there are no statistically significant independent variables affecting the dependent variable because the significance probability value is above α = 5% (0.05). 4) multicollinearity detection table 7. multicollinearity detection results loggdp logei logpp logup loggdp 1.000000 0.528311 -0.191058 0.048959 logei 0.528311 1.000000 -0.593804 0.729695 logpp -0.191058 -0.593804 1.000000 -0.694788 logup 0.048959 0.729695 -0.694788 1.000000 source: output eviews, 2021 based on the results of the correlation matrix in table 7, the value of the correlation coefficient between independent variables does not exceed the rule of growth (0.80). therefore it can be concluded that the estimation model in this study did not detect any multicollinearity. c. statistical test results 1) determination coefficient test (r2) table 8. determination coefficient test results r2 r-squared 0.999616 adjusted r-squared 0.999553 s.e. of regression 0.023925 sum squared resid 0.031483 log likelihood 155.8314 f-statistic 15902.55 prob(f-statistic) 0.000000 source: output eviews, 2021 based on the estimation results in table 8 above, the r-squared value for total co2 emissions is 0.999616. it means that the total co2 emission variable in the model is 99.96% influenced by independent variables such as gross domestic product, energy intensity, population, and urbanization. while other variables outside the model explain the rest. 2) simultaneous significance test (f test) in table 8, the probability value of the f statistic is 0.0000. in other words, this value is smaller than α = 5% (0.05), so it can be concluded that the independent variables simultaneously influence the dependent variable. https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 2 (2022) 160 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) 3) partial significance test (t-test) table 9. partial significance test results (t-test) variable coefficient std. error t-statistic prob. c -26.64829 6.621003 -4.024812 0.0002 loggdp 0.262455 0.177643 1.477424 0.1453 logei 1.036819 0.165558 6.262556 0.0000 logpp 1.621361 0.382883 4.234611 0.0001 logup -1.282239 0.578788 -2.215386 0.0309 ar(1) 0.677332 0.111593 6.069655 0.0000 source: output eviews, 2021 based on the results of the t-test in table 4.8, it can be seen that: the gross domestic product (gdp) variable has a t value of 1.477424 with a t-table value of 1.99714, so the gross domestic variable does not partially affect the total co2 emission variable. the energy intensity variable (ei) has a t value of 6.262556 with a t table value of 1.99714, so it can be concluded that the energy intensity variable partially affects the total co2 emission variable. the population variable (pp) has a calculated t value of 4.234611 with a t table of 1.99714, so it can be concluded that the population variable partially affects the total co2 emission variable. the urbanization variable (up) has a t value of -2.215386 with a t table of 1.99714, so it can be concluded that the urbanization variable does not partially affect the total co2 emission variable. discussion based on the test results with the multiple linear regression method, the regression equation is obtained as follows: 𝐿𝑛𝐶𝑂2𝑖𝑡 = −26.64829 + 0.262455 ∗ 𝐿𝑛𝐺𝐷𝑃𝑖𝑡 + 1.036819 ∗ 𝐿𝑛𝐸𝐼𝑖𝑡 + 1.621361 ∗ 𝐿𝑛𝑃𝑃𝑖𝑡 − 1.282239 ∗ 𝐿𝑛𝑈𝑃𝑖𝑡 + 𝐴𝑅(1) + 𝜇……………………….(3.2) effect of gross domestic product on total emissions co2 the statistical test results show that the gdp variable has no significant effect on co2 emissions. this is because the countries studied in this study, namely countries that are members of the brics, have just developed into industrialized countries or have not yet fully become industrialized countries. evidenced by the economic strength within the brics member countries varies greatly. brazil with its agricultural products, russia with its energy, china with its increasing manufacturing, india with its services, and south africa with its wealth of mineral resources. it is a concern that every country needs to apply the concept of sustainable development so that economic and environmental sustainability can be aligned in the future and anticipate changes in the economy's direction. these results follow the research of noor and saputra (2020), which states that the existence of ekc cannot be validated in the four countries because energy and transportation https://creativecommons.org/licenses/by/4.0/ the effect of gross domestic product, energy intensity, population, and urbanization on total co2 emissions (study on brics member countries) 161 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) policies in each country have been unable to suppress environmental degradation. in addition, gdp does not have a significant effect on co2. this shows that the increase in energy use, which results in co2 emissions, is still a driver of economic activity in the countries studied. effect of energy intensity on total emissions co2 the value of the energy intensity coefficient (ei) produces a positive value for total co2 emissions of 1.036819, meaning that every 1% increase in energy intensity, assuming other variables are constant, will cause an increase in total co2 emissions in brics member countries by 1.037%. in addition, the energy intensity variable has a t-count value of 6.262556 which is greater than the t-table of 1.99714, meaning that the energy intensity variable has a positive and significant effect on the level of environmental damage as measured using the total co2 emission variable. these results are consistent with wang et al. (2017), stating that energy intensity positively affects co2 emissions in each model. this means that technological improvements will reduce carbon emissions, and the impact of energy intensity on emission reductions in the eastern and central regions is more significant than in the western regions. effect of population on total emissions co2 the value of the population coefficient (pp) produces a positive value for total co2 emissions of 1.621361, meaning that every 1% increase in population, assuming other variables are constant, will cause an increase in total co2 emissions in brics countries by 1.621%. in addition, the population has a t-count value of 4.234611 which is greater than the t-table of 1.99714, meaning that the population variable has a positive and significant effect on the level of environmental damage as measured using the total co2 emission variable. this research aligns with the statement of todaro and smith (2012), which states that environmental damage is worsening due to a surge in population growth. the rapid rate of population growth and the development of economic activities in developing countries tend to result in widespread environmental damage. effect of urbanization on total emissions co2 the urbanization coefficient (up) value produces a negative value on total co2 emissions of 1.282239, meaning that every 1% increase in population, assuming other variables are constant, will reduce total co2 emissions in brics countries by 1.282%. in addition, the population variable has a t-count value of -2.215386 which is smaller than the t-table of 1.99714, meaning that the urbanization variable has a negative and insignificant effect on the level of environmental damage as measured using the total co2 emission variable. the results of this study state that urbanization in brics countries has a negative effect on co2 emissions. co2 emissions in brics countries have begun to decline, especially in brazil, russia, and south africa. in these countries, the more people who live in cities tend to reduce or minimize co2 emissions. this is because the energy use of urban residents is currently more efficient. meanwhile, in china and india, with urban populations that are not too many, there is a tendency for co2 emissions to increase as the year progresses. these results are consistent with the research by huo et al. (2020) entitled “exploring the impact of urbanization on urban building carbon emissions in china: evidence from a provincial panel data model” which states that urban residents negatively affect urban building carbon emissions at a significant of 1% on a scale national and in the eastern and western regions. with the increasing urban population, people will shift their energy from traditional fuels to modern energy sources. https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 2 (2022) 162 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) 5. conclusion based on the results of panel data regression analysis using the fixed effect model, which aims to determine the effect of gross domestic product, energy intensity, population, and urbanization on total co2 emissions in brics member countries in 2005-2018, several conclusions can be drawn as follows: 1. gross domestic product generates a positive value but does not significantly affect total co2 emissions. this is because the countries in this study, namely countries that are members of the brics, have just developed into industrialized countries or have not yet fully become industrialized countries. 2. energy intensity has a positive and significant effect on total co2 emissions. increasing energy intensity will increase total co2 emissions in brics member countries. these results follow previous research stating that technology can reduce co2 emissions. nevertheless, on the other hand, technological development also requires time which cannot be offset due to the rapid use of energy, which results in co2 emissions. 3. population has a positive and significant effect on total co2 emissions. this means that an increase in population will increase total co2 emissions in brics member countries. these results are consistent with previous research, which states that population is the main contributor to co2 emissions among all variables. 4. urbanization has a negative and insignificant effect on total co2 emissions. this means that increased urbanization will reduce total co2 emissions in brics member countries. this is indicated by brazil, russia, and south africa, where more than 50% of the population lives in urban areas. while in 2011, china had just stepped on 50% and continued to increase, and india was only around 31%. based on the results and discussion, several suggestions can be submitted: 1. gdp can be increased by not destroying the environment or increasing co2. therefore, it is necessary to make adjustments to economic growth that are more environmentally friendly. 2. energy intensity has a positive and significant effect. therefore, it needs to be handled from two sides of energy. from the demand side, it is maximizing technology that can save energy. it is expected to switch to alternative or renewable energy from the supply side. 3. urbanization can reduce co2 emissions with indications that urban communities are much more educated and can save energy consumption. if so, better education is needed for the whole community. the hope is that even though the higher the population increases co2 emissions if people are educated to save energy, they can reduce their energy consumption and be wise in their use. 4. future researchers are expected to be able to increase the research period and variables outside the model to get better results in decision making. references huo, t., li, x., cai, w., zuo, j., jia, f., & wei, h. (2020). exploring the impact of urbanization on urban building carbon emissions in china: evidence from a provincial panel data model. sustainable cities and society, 56, 102068. https://doi.org/10.1016/j.scs.2020.102068 jazuli, a. (2015). dinamika hukum lingkungan hidup dan sumber daya alam dalam rangka pembangunan berkelanjutan. jurnal rechts vinding: media pembinaan hukum nasional, 4(2), 181. https://doi.org/10.33331/rechtsvinding.v4i2.19 kurniawati, r. (2013). modul pariwisata berkelanjutan. petungkriyano. noor, m. a., & saputra, p. m. a. (2020). emisi karbon dan produk domestik bruto: investigasi hipotesis environmental kuznets curve (ekc) pada negara berpendapatan menengah di kawasan asean. jurnal wilayah dan lingkungan, 8(3), 230–246. https://creativecommons.org/licenses/by/4.0/ the effect of gross domestic product, energy intensity, population, and urbanization on total co2 emissions (study on brics member countries) 163 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) https://doi.org/10.14710/jwl.8.3.230-246 priangani, a. (2015). perkembangan brics (brazil, russia, india, china and south africa) dalam kancah ekonomi politik global. jurnal kebangsaan, 4(7), 5. https://media.neliti.com/media/publications/103254-id-none.pdf sadorsky, p. (2013). do urbanization and industrialization affect energy intensity in developing countries? energy economics, 37, 52–59. https://doi.org/10.1016/j.eneco.2013.01.009 thistlethwaite, g., salisbury, e., pang, y., maccarthy, j., & misselbrook, t. (2013). air quality pollutant inventories for air quality pollutant inventories for england , scotland , wales and northern ireland : 1990 – 2011 (issue september). tjiptoherijanto, p. (2016). urbanisasi dan pengembangan kota di indonesia. populasi, 10(2), 57–72. https://doi.org/10.22146/jp.12484 todaro, m. p., & smith, s. c. (2012). the developed and developing world income. wang, y., kang, y., wang, j., & xu, l. (2017). panel estimation for the impacts of populationrelated factors on co2 emissions: a regional analysis in china. ecological indicators, 78, 322–330. https://doi.org/10.1016/j.ecolind.2017.03.032 https://creativecommons.org/licenses/by/4.0/ microsoft word d23a-591b-ec64-ec2f gender equality impact on foreign direct investment growth of asean countries 70 gender equality impact on foreign direct investment growth of asean countries vernanda fairuz 1)* , muhammad findi alexandi 2) , yeti lis purnamadewi 3) 1,2,3 department of economics, faculty of economics and management, ipb university, indonesia abstract asean become one of the main destination location for foreign direct investment (fdi) however its fdi growth showed a declining trend. on the other hand, gender equality of this region keep progressing over time and surpassed the global average gender equality index. this paper examined the effect of gender equality on the growth of foreign direct investment inflows using static panel model for eight asean countries for 2010-2016 period. our result showed that gender equality could boost the fdi inflow growth through the increase of labor force participation and tertiary education. labor force participation able to enhance the effort of boosting fdi growth through the macroeconomic channel such as gdp growth, infrastructure, inflation, interest rate and exchange rate. keywords: asean, fdi growth, gender equality, panel data, panel least square 1. introduction investment holds an important key for social, economic and political development of a nation. not only generates income, it also enhances economy’s producing capacity through the increase of capital stock. when a country, especially developing countries such as asean countries is unable to create sufficient investable fund from its domestic sources, foreign sources capital remains an important part for economic sustainability (hossain and chowdury 1998). one of the foreign capital form is foreign direct investment (fdi), which is an investment made to acquire a lasting interest to have an effective choice in the management of the enterprise in foreign country according to the united nations conference on trade and development (unctad). therefore, fdi considered to be the engine of economic growth, since modernization theory suggests that economic growth requires capital investment. moreover, the new growth theory highlights that it is the knowledge transfer through fdi to the developing countries that are scarce in the necessary infrastructure and education. multinational corporations’ investment in the host country imposes the pressure on the local firms to develop new technologies and innovate. besides, fdi also brings to the host country a set of managerial skills and marketing knowledge (adams 2009). the importance of fdi on economic growth also confirmed by yaseen (2014) in the study of fdi in jordan, najib et al. (2013) of pakistan’s fdi and melnyk et al. (2014) economic growth is vital and desirable for every country since it is the indicator of nation’s welfare. economic growth increases incomes and hence living standards. it reduces unemployment, manages the business cycle and is linked to reducing poverty and increasing social equity (clarke 2003). therefore, many researches have emerged to confirm the contribution of fdi on economic growth. research by alfaro et al. (2004) suggested that fdi plays an important role in contributing to economic growth when level of development of local financial markets is also taken into consideration. this finding confirmed by cahyono, studying the matter in indonesia in 2013, where fdi affect economic growth positively and has larger effect than the domestic investment. *corresponding author. email address: vernandafairuz@gmail.com afebi economic and finance review (aefr) volume 4, no 02 (2019) 71 furthermore, a causal relationship between the two variable discovered by mohammed abbes et al (2014). the results indicated that unidirectional causality exists between foreign direct investment and economic growth for asia and oceanic, middle east, north america north africa and central africa. moreover, there is bidirectional causality fdi and gdp for latin america and europe. this is also one of the finding resulted from alfredo, et al. study in 2004, where the link between fdi and growth is causal, which is when fdi promotes growth through financial markets. fdi also proved to be resilient during crisis period. after the global crisis of 1998, fdi in association of southeast asia nations (asean), for example, start to bounce back five years span after the crisis. the global crisis in 2008 again cause the inflow on this region to sink. however, the recovery takes shorter time than the one in 1998, which shows asean resilience in enduring crisis and maintain sound environment to attract investment. such benefits have encouraged the developing nations, including asean countries to focus themselves for attracting fdi inflows, which is evident by its amount of inflow and inward stock compared to another country. asean account for 28% of asia’s fdi inflow and 9% of the world’s fdi inflow by the latest 2017, also 7% of world’s inward stock by 2016. asean occupied the fourth position largest fdi inflow receiver following respectively, united states, united kingdom and china. in 2013 the asean – 5 (indonesia, malaysia, philippines, singapore and thailand) received greater inflows in amount of $128.4 billion than china for $117.6 billion according to united overseas bank (uob). on the other hand, by fdi inward stock, asean (brunei darussalam, cambodia, indonesia, lao people's democratic republic, malaysia, myanmar, philippines, singapore, thailand, and viet nam) filled the second largest position after us, competed hong kong, china, uk, and canada. among numerous determinants of growing fdi inflow, labor wage is one of the most important factor. investment largely depends on wage levels, that there is a positive correlation between fdi and labor costs differential in research by hubert janicki in 2004. he found that, a change of $1 in the annual wage difference between the host and source economy in the manufacturing sector results in a corresponding change of us$17,278 of fdi. therefore, cheap labor is particular interest for countries whose wage levels are high, and where firms are looking to reduce costs by relocating production to a region where resources are available at a lower cost. this finding is in contrast with research by bahar bayraktarsaglam in 2017 which he found that, a fall in the unit labor costs encourages fdi, which supports the cost seeking motive of fdi. specifically, in asia including asean. there has been a regional shifting in the flow of fdi. studied by daniel allen (2014), the most significant driver of regional change is the rise in production costs in china’s traditional manufacturing centers, wage rise mean chinese and foreign companies are already moving their low-cost manufacturing operations to countries such as vietnam and cambodia. chinese manufacturing wages, which have risen annually by over 10 per cent for the past few years, are already significantly higher than those in thailand, indonesia and vietnam. workers’ wages in ho chi minh city, for example, averaged us$120 a month in 2015, a third of the average figure in guangzhou. salaries in jakarta even half the amount of that in dongguan. therefore, compared with china (especially with the pace of rapid economic development of china) labor costs in vietnam and indonesia are now much cheaper table 1 asean-china labor wage comparison region minimum wage monthly (us$) average wage asean myanmar 65 70-90 cambodia 75 100 vietnam (ho chi minh city) 110 120 thailand (bangkok) 230 230 indonesia (jakarta) 228 228 china guangzhou 295 760 dongguan 210 420 gender equality impact on foreign direct investment growth of asean countries 72 the emergence of this topic is provoked by the existence of disparity in asean labor force market between male and female. according to world economic in 2016 gender wage gap in asean are as high, thailand and singapore as 37%; brunei darussalam as 23% and 28% in cambodia. this fact raises a question whether gender inequality might be profitably exploited by foreign investors. as another gender inequality aspect such as access to health and education creates a pool of low paid workers which will reduce the labor cost (brairnard 1997). therefore, many research has emerged regarding this issue. figure 1. wage ratio between male and female compared to the monthly wage each years of asean countries 20112016 the changing role of women and growing awareness of their economic inequality with respect to men have brought international attention to gender issues. according to asean secretariat, unlike in south asia, sex selection at birth do not practiced by asean member countries, therefore the number of female population show a slightly higher number than males. in recent years, the position of women in society also improved in the region. the number of women holding public office has grown, especially in local government. obtaining vocational skills and academic qualifications is far more possible now, with the exception of cambodia and laos, the numbers of women progressing to post-secondary training is also rising. the expansion in education has contributed to the blossoming of female oriented non-governmental organizations (ngos) since the 1980s, which have given the knowledge and organization skills that equip them participate more in economic roles, although it is still lower than male, both for labor force participation rate and pre secondary education or training (meng 1998). according to asia development bank, with relatively low education level, limited access to economic opportunities and socio-cultural norms and culture, women are more likely to hold lower-quality employment or vulnerable employment (own-account work and unpaid contributing family member). fdi in this region mostly concentrating their more labor-intensive activities where labor costs are lower and more capital-intensive activities where capital costs are lower, as brairnard (1997), gender inequality might be profitably exploited by foreign investors. as gender inequality in access to health and education creates a pool of low paid workers which will reduce the labor cost. maximized fdi could benefit the host country through technology spillovers, human capital formation support, improvement of competitive business environment, contribute to international trade integration and improvement of enterprise development (kurtishi et al 2016). but relies heavily on wage comparative advantage through discrimination of gender in order to reap the fdi benefit comes with its own caution. not only it will cause the global community loses out on skills, ideas and perspectives that are critical for addressing global challenges and harnessing new opportunities, a recent study by imf concluded that gender 0 20 40 60 80 100 2010 2011 2012 2013 2014 2015 2016 100 120 140 160 180 200 average monthly wage(us$) female to male ratio (%) afebi economic and finance review (aefr) volume 4, no 02 (2019) 73 inequality will create an average income loss of 17.5% in the long run for developing countries and 14% for oecd countries. the current level of discrimination is estimated to induce a loss of up to us$ 12 trillion or 16% of global income. against this background, this paper intent to shed some light in the influence of gender inequality on fdi inflows of asean countries fdi plays a vital role in the formation of supply chains and production networks for asean. because of that, asean countries governments’ have committed to accelerate infrastructure investment which provides great growth potential for the region. asean with a population of more than 600 million people and about half of which are under 30 years of age indicating a large and growing market, together with the availability of low-cost labor is an attractive destination for the foreign investor. the countries comprising the asean have continued to attract a significant amount of fdi inflows, with accounting for more than 18% of total fdi inflows to the asia pacific region. however, according to the united nations, throughout 2011-2014 although the asia pacific region remains attractive to investors, who accounts for 37% – 40% of total global fdi, it has not reached the level of high growth since 2008. specifically, in asean, region where its fdi account for 8% share of global fdi inward stock, the growth was volatile in 2010 and has been declining since 2012 onwards. while the gender equality in this region keep progressing and has surpassed the global average gender equality score as shown in figure 1. this raises a question whether improvement in gender equality affects fdi inflow. figure 2. asean fdi growth and asean and global gender equality comparison the year of 2016 to 2017 considered as the strongest calls for gender equality as more actions regarding this issue strikes in many countries. started with women’s march in new york, usa in january. the launch of equal pay coalition by united nations and ilo, initiated by iceland in march. the adoption of domestic violence law by kyrgyzstan in april. the removal of legalized child marriage by latin america in june. the abolition of marrying the victim rape law by tunisia in july. and the most controversial yet magnifying the me-too movement against the sexual harassment towards women and men around the globe. these actions were ignited by the realization of the society that gender inequality is still an unsolved issue that we face in day to day life despite the goals or effort made by the global institutions and each of the governments of countries itself. over the past ten years, the average gender gap in asean has been progressing from 33% to 30%, while the world’s average is 32%. even though it’s a slow movement, compared to the historical data and also the world’s average, asean has made its way for a progressive effort to achieve the gender equality. the most persisting issue of gender equality in asean gender equality impact on foreign direct investment growth of asean countries 74 exist in the political participation aspect as it has the highest gap ranged from 69% to 93%. the gender gap in labor force participation is narrowest for cambodia 10% and widest for indonesia 41% the average gender gap in the labor force participation rate across all asean member states is 19%. in terms of wage, the gap over time in the asean member states ranges from 27% to 33%. one of the causes of low gender gap in asean is the educational attainment gap which almost closing in primary and tertiary education. despite the impressive progress, gender inequality is still a persisting issue in asean and these facts cost not only women’s individual well-being and life choices but also the countries’ economic loss. according to mckinsey global institute (mgi) research has found. asean countries could add us$1.2 trillion of gdp to their economies, 30% more than would be the case without gender inequality. along these lines, the link between fdi and gender inequality has emerged within many topics of empirical literature but have not reach consensus yet. findings of matthias buses and christian spiel mann shows the results regarding comparative advantage and gender inequality, implied that industrialized countries do not have a problem with gender discrimination in developing countries; they may even profit from its occurrence due to the possibly lower prices for unskilled-labor-intensive goods. importantly, developing countries with less gender inequality might be negatively affected, as their comparative advantage in unskilled-laborintensive commodities may erode if other countries with a similar factor endowment rely on unskilled females in their export sector. mai hoai and tung bui (2015) confirmed these findings by revealed that fdi takes advantage of large discrimination in economic and political rights between the two genders and considers it as a tool to increase their female labor participation. moreover, in countries where there is higher mean of school years among women, the expectation would be that more women will be employed in higher skilled jobs and vice versa. however, the reality is contradicted to that. the female labor force participation rate in myanmar is more or less constant at approximately 50% indicating that the high tertiary level education attainment by women does not translate into more paid employment among women. this is also true for a number of other countries including singapore, thailand, indonesia, brunei darussalam and viet nam. as opposed to that, general argument stated that healthy and well educated workers rise productivity and attract foreign investor, by means no evidence is found that countries with greater gender inequality have a comparative advantage in attracting fdi flows, and all evidence of statistical significance suggest rather the opposite (kucera 2002). further research shows that the effect of gender inequality in terms of labor on fdi can be found indirectly through women’s political rights on parliamentary representation. michal brozozowski (2013) revealed that that efficiency-seeking multinational more willingly invest in countries where cheap (but not necessarily unskilled) female labor is plentiful. higher female parliamentary representation in the source country narrows the wage gap between sexes, reduces the availability of cheaper female labor and constitutes an fdi push factor. by the same token, women’s political activism in the host countries may lead to a rise in female labor compensation and thereby weaken fdi inflows. these findings confirmed by mai hoai and tung bui (2015) where fdi takes advantage of large discrimination in economic and political rights between the two genders and considers it as a tool to increase their efficiency in their research focusing on female labor participation. according to the explanation above, the problem formulation of this research are as follows: 1. how are the dynamics of fdi inflow growth and gender equality in wage, labor participation, human development factors, political empowerment of asean countries? 2. how does gender equality in those aspects affect asean fdi inflow growth and the attempt to encourage fdi growth? afebi economic and finance review (aefr) volume 4, no 02 (2019) 75 2. literatur study fdi has been a subject of many researches. isabel faeth (2009) reviewed nine theoretical models of foreign direct investment (fdi) to derive the relevant determinants of fdi in real world. the outcome of this research shows that dunning’s oli framework which combined ownership, location and internalization advantages as determinants of fdi (after they were previously discussed in separate theories) proved to be a better approach of explaining fdi as linked to mnes, which were seen as firms with market power. this combination which includes market size and characteristics, factor costs, transport costs and protection and other factors, such as political regime and infrastructure quality had explanatory power when analyzed under the oli framework. other factors that were experimented with in empirical studies are r&d and advertising expenditure, skill and technology intensity, the existence of multiplant enterprises and firm size were important ownership advantages in a number of studies. research by kucera (2001) presented as a critical evaluation of the effects of core labour standards on fdi using ordinary least squares and two-stage least squares regressions. in a survey he held to assess the fdi determinants, he found that quality of labour as fifth most important variables of fdi. there was some earlier evidence that higher female percentages of industrial employment are associated with lower manufacturing wages (kucera, 2001). since then, thorough study regarding gender discrimination and fdi has emerged in many literatures. an empirical study conducted by matthias busse and christian spielmann in 2003 explored the international economic effects of gender discrimination, namely the linkages of gender inequality with comparative advantage (trade) and foreign direct investment flows. the results indicated that gender inequality is positively associated with comparative advantage in unskilled-laborintensive goods, that is, commodities where the impact of gender bias is likely to be felt most strongly. another similar research was assembled to examine the gender inequality in labor market and foreign direct investment utilizing a panel dataset consist of asean members except brunei with time period from 1990 to 2002. cian mc leod as the writer used a fixed effect model to control for unobserved cross-country factors and find that labor market equality does have a positive effect on foreign direct investment. however, he fails to find a statistically significant effect after accounting for autocorrelation and heteroscedasticity later in 2007 matthias busse extend his research by scrutinize the importance of gender inequality in education as a determinant of fdi through standard gravity model. upbringing of this topic is provoked by the fact that data on wage differences are only available for selected years and a limited number of countries. especially the insufficient country coverage may cause seriously biased results when analyzing fdi determinants. moreover, even if available, wage data typically refer to the manufacturing sector only. similar arguments apply to labor market participation rates. again, problems of reverse causality loom large (braunstein 2006). the insignificant results kucera (2001) achieves when adding the proportion of female workers in industry to his list of fdi determinants may well reflect that causality between fdi and female employment shares goes both ways. busses’ finding clearly reject the view that foreign investors favor locations where educationrelated gender disparities may offer cost advantages0. rather, he found that gender disparity discourages fdi inflows. however, the strength of this relation depends on the level of education as well as on the destination and source of fdi flows. michał brzozowski (2013) argued that that women’s representation in parliaments is another aspect of the gender gap that may shape foreign investors decisions. if fdi is mostly low-cost seeking oriented, however, gender inequality in health and access to education may create a pool of low-pay workers that can be profitably exploited unless the level of productivity is not seriously hindered by gender disparities. these hypotheses are verified in the framework of a standard gravity model using system generalized method of moments technique. employing the same technique, mai hoai and tung bui (2015) investigate the impact of gender inequality from developing asia – pacific perspective. the study finds that fdi exhibits a particular efficiency seeking behavior. fdi are drawn to hosted countries with gender equality impact on foreign direct investment growth of asean countries 76 narrowed health gap between man and women. but takes advantage of large discrimination in economic and political rights between the two gender and considers it as a tool to increase their efficiency. in asean itself, in the period of 2010 – 2016 while the fdi inflow keep progressing, its growth shows a declining trend. for that reason, this paper analyzes the fdi inflow growth which differentiate this research from previous researches. including the countries selected as research object and the time period. 3. research methodology this research relies on the use of secondary data. presented as panel, the data consist of time series from 2010 to 2016 with cross section of eight asean countries including brunei darussalam, cambodia, indonesia, malaysia, philippines, singapore, thailand and vietnam due to the data limitation on lao pdr and myanmar. the type and sources of variables used are explained as followed. the data used for this research is sourced from unctad, world bank and international parliamentary union this study utilizes econometric quantitative approach by static panel for its research. to analyze the effect between each variable, the regression method used for the estimation are common-constant (pooled ordinary least square/pls), fixed effect (fixed effect model/fem), or random effect (random effect model/rem) continued by chow and hausman test to get the best fitted model for the estimation. data processing for this research employs microsoft excel 2013 and eviews 9.0 to aim its objectives. adopting to the model by the study of hoai (2015), brzozowski (2013), and mcleod and also considering data availability and other model alternatives adopted by many other similar preliminary researches, the model specification in this study can be formulated as follows: ����� = � + ��� _���_ ����� + �������� + ��� _���_� ����� + ��� _��� �_����� + ����_� �� + ���� �� + �� ���_1_2�� + �� ���3�� + �! ������ + �� ��"�� + ��� #���$%�� + �����_#���$%�� + &�� …….. (1) this research uses fdi stock data as an alternative to net inflow of foreign direct investment as a percentage of gdp, because stocks are much less volatile than flows. this variable is considered as a more suitable one for empirical studies as has already been applied in previous researches (hoai and bui, 2015; brozozwski, 2013; busse and nunnenkamp, 2007) flows are more volatile not only due to the existence of economic shocks, but are also very dependent on individual large-scale investment decisions. the addition of inflation, exchange rate and interest rate is based on theoretical consideration and preliminary researches which also use these variables as macro-economic control variable in analyzing gender effect on fdi. mcleod uses world government index as a proxy for infrastructure. this research use gross capital formation since it includes land improvements, plant, machinery and equipment purchases, the construction of roads and railways, schools, offices, hospitals, private residential dwellings as well as commercial and industrial buildings which represent broader aspect of infrastructure as it has been confirmed in many literature studying the determinant of fdi (kariuki 2015; shah 2014) for the gender variables this research adapted the study by mai hoai and tung bui (2015) where they analyze the effect of gender equality consisted of secondary gap, tertiary gap, economic and political rights and health gap on fdi inflow of asia pacific countries. the use of primary and secondary school enrollment ratio as proxy for low skilled labour force adapted from research by michal brozozwski (2013) and matthias busse and nunnenkamp (2007), labor participation and wage separately, gives more significant result as a proxy for economic rights and gives clearer image of the characteristics of fdi in host country (kucera 2002; busse 2003). this research aims to analyses whether gender equality could enhance the attempt to increase fdi inflows, therefore this study estimate in stepwise manner, adapting the estimation strategy by mphigalale tshifhiwa victor (2011), mai hoai and tung bui (2015), afebi economic and finance review (aefr) volume 4, no 02 (2019) 77 michal brzozowski (2013) and matthias busse (2003) in research regarding to similar matter. the purpose of this estimation is to ascertain the robustness of any eventual relationship between the two variables, avoiding multicollinearity and overfitting. model 1 estimate a baseline model with only the control variables consist macroeconomic variables only, namely, gdp growth, inflation growth, infrastructure growth, trade growth and exchange rate. from model 2 to 7, it introduces respectively the six proxies of gender equality discussed in the previous section, namely primary education gap, tertiary education gap, political rights, labour participation gender ratio, wage ratio and gender health gap. last, model 8 introduce wage in general along with the control variable to see the relation to fdi. by adapting this method, it allows us to see which gender aspect has the largest effect on fdi and the relation of macroeconomic variable, and its pure impact on fdi before it interacts with other aspect of another gender variable. the model specification in stepwise manner can be formulated as follows 1. model 1, baseline regression model, estimating the effect of macroeconomic variable as control variable on fdi inflow ���$% = �0 + �1� _���_ ���$% + �2����$% + �3� _���_� ���$% + �4� _��� �_���$% +�5��_� $% + �6�� $% + & $ % …………… (2) 2. model 2 , e s t i m a t e s t h e e f f e c t o f macroeconomic v a r i a b l e o n f d i inflow, by including wage variable f��$% = �0 + �1� _���_ ���$% + �2����$% + �3� _���_� ���$% + �4� _��� �_���$% + �5��_� $% + �6�� $% + �7#���_�� + & $ % …………… (3) 3. model 3 , e s t i m a t e s t h e e f f e c t o f macroeconomic variable on fdi inflow, by including gender variable proxies as female to male ratio of primary school enrolment f��$% = �0 +�1� _���_ ���$% + �2����$% + �3� _���_� ���$% + �4� _��� �_���$% + �5��_� $% + �6�� $% + �7 ���_1_2$% + &$% …………… (4) 4. model 4 , e s t i m a t e s t h e e f f e c t o f macroeconomic variable on fdi inflow, by including gender variable proxies as female to male ratio of primary school enrolment ���$% = �0 + �1� _���_ ���$% + �2����$% + �3� _���_� ���$% + �4� _��� �_���$% + +�5��_� $% + �6�� $% + �7 ���_3$% + &$% …………… (5) 5. model 5 , e s t i m a t e s t h e e f f e c t o f macroeconomic variable on fdi inflow, by including gender variable proxy as female to male ratio of life expectancy ���$% = �0 + �1� _���_ ���$% + �2����$% + �3� _���_� ���$% + �4� _��� �_���$% + +�5��_� $% + �6�� $% + �7 ����$% + &$% …………… (6) 6. model 6 , e s t i m a t e s t h e e f f e c t o f macroeconomic variable on fdi inflow, by including gender variable proxies as female to male ratio of labor participation ���$% = �0 + �1� _���_ ���$% + �2����$% + �3� _���_� ���$% + �4� _��� �_���$% + �5��_� $% + �6�� $% + �7 ��" + & $ % …………… (7) 7. model 7 , e s t i m a t e s t h e e f f e c t o f macroeconomic variable on fdi inflow, by including gender variable proxies as female to male ratio of political rights ���$% = �0 + �1� _���_ ���$% + �2����$% + �3� _���_� ���$% + �4� _��� �_���$% + �5��_� $% + �6�� $% + �7 �'� + & $ % …………… (8) 8. model 8 , e s t i m a t e s t h e e f f e c t o f macroeconomic v a r i a b l e o n f d i inflow by including gender variable proxies as female to male ratio of wage ���$% = �0 + �1� _���_ ���$% + �2����$% + �3� _���_� ���$% + �4� _��� �_���$% +�5��_� $% + �6�� $% + �7 #���$% + & $ % …………… (9) 4. result and discussion dynamics of fdi on asean countries the growth of fdi inflow vary between each countries of asean with a declining trend overall. in 2010, the fdi stock in this region doubled from 14% in 2009 to 28%, 2010 by generating a record high of 1.127 billion us$ inward stock and 75.8 billion us$ inflows. gender equality impact on foreign direct investment growth of asean countries 78 intra-asean flows also exceeded the 10 billion us$ mark for the first time (12.1 billion us$) since the asian financial crisis in 1997. most of this increase are sourced from equity investment and reinvested earnings which has been key drivers of fdi growth in asean. another factor that boosted fdi growth in the region last year is the increasing trend toward mergers and acquisitions (m&a). in 2010, cross-border inward m&a purchases in asean increased by more than 200% to us$14 billion, while m&a sales declined by 21% to us$10 billion. singapore is the largest market for this investment although the highest growth in 2010 is achieved by indonesia. its inflows in 2010 alone amount to four times its average inflows (2.6 billion us$) in more than a decade and exceed the us$10 billion mark for the first time (13.3 billion us$). it also achieved the second largest fdi stock after singapore. much of this increase came from equity investment and reinvested earnings, facilitated perhaps by small investment projects with quick profits rather than the traditional infrastructure projects with long gestation period for returns. the fdi stock growth of this region start to decelerated in 2011 by the rate of 10%. sharp decline in cambodia by -51% is one of the contributing factor to this deceleration of asean fdi stock. the world economic crisis put, us and eu, cambodian main garment importers, in a deep recession. in addition, the cambodian economy has been virtually fully dollarized since 1995 (zamaroczy & sa, 2002). under the policy of quantitative easing of the u.s., the financial stability of the cambodian riel was thrown into question. furthermore, the border conflict over preah vihear temple degraded the situation as cambodia and thailand had skirmishes and closed border. furthermore, the sovereign debt crisis eu creates spillover effect on the inflow fdi of this region, even with the limited exposure by the european banks in asean. the underlying reason are first, us and eu account for 20% of the asean total trade, therefore any deterioration in these country will definitely impact asean, since according to imf, a further deterioration in the eu sovereign crisis will cut world gdp growth by 0.4%. second, the resulting de-leveraging by european banks is likely to impact on the fund market including financial flow to emerging market like asean. especially in fdi, the eu accounts for the largest source of inflows into asean. therefore, any intensification of the debt crisis will have significant global repercussions (imf 2011) fdi regained its strength and recovered slowly from 18% becomes 10% in 2011 to the 8% increase become 18% in 2012. the world economy, especially the us and eu, was getting better. consequently, the cambodian inflow of fdi surged up sharply at 207% with the leading investors consist of china, korea, malaysia, uk and usa, focusing on industry (mainly garment and textile) 70.14%, agriculture 13.9%, services 6% and tourism 9.9%. (loem senghuo, 2015). another key contributory factor to increasing fdi flows is the competitive advantage of the region in terms of the supply of low cost skilled and unskilled labour which has also become the main reason of investment by chinese companies while there was an increasing cost pressures in china. therefore, chinese textiles and garments manufacturers in the pearl river delta has relocated to asean. fdi stock growth falls by 9% in 2013. this occurrence is contributed strongly by the fact the declined regional economic growth from 5.8%. however, the improved policy environment, strong macroeconomic fundamentals, regional market prospects and growing positive investor sentiment has made fdi in 2013 continued to surge and are about on par with those to china for the first time since 1993. inflows in 2013 exceeded $122 billion – pushing the region’s rapidly rising inward fdi stock to $1.6 trillion intra-asean investment contributed about 17% to the total inflows in the region and is a major source of investment in most asean member states. in 2013, some 88% of the 99,434 tariff lines in asean were at a rate of 0% for intra-asean imports. by, the year of 2014 fdi continue to grow constantly at 9%, driven by a 26% increase in intra-regional investment and strong fdi inflows from a majority of dialogue partners particular, fdi flows from the united states rose by 165%, followed by increases from australia (63%), the european union (eu) (31%), the republic of korea (22%) and china afebi economic and finance review (aefr) volume 4, no 02 (2019) 79 (31%). investment from hong kong (china) rose by 82%, to $9.5 billion. intraasean investment rose from $19.4 billion in 2013 to $24.4 billion in 2014, accounting for 18% of total inflows into the region. this upward intraregional trend suggests a growing interest of asean companies in establishing a stronger regional presence, particularly in recent years, in light of emerging opportunities and aec-2015 influences. fdi stock growth declined by 6% to the region, from $130 billion in 2014 to $120 billion 2015. the performances of asean member states were uneven. the significant decline in fdi was particularly visible in services, intracompany loans and cross-border m&a activities. the intracompany loans component of fdi finance in the region declined significantly, from 14 per cent in 2014 to only 1 per cent in 2015, which contributed to the $10 billion decline in fdi flows, due to significant outflows of loans by mnes or affiliates based in singapore and thailand. flows to the services industries declined by 21 per cent, to $79 billion – dragged down by a fall in fdi in finance. investments in the primary industries were flat, at the same level as in 2014 ($12 billion). there were some positive developments: fdi in manufacturing rose significantly, expansionary investment activities continued to grow, the use of equity capital for fdi activities rose to an all-time high, and intraregional investment remained strong. nevertheless, these positive developments were insufficient to compensate for the overall decline, led primarily by services. fdi flows in asean remained constant at a high level in 2016 despite a decline to $96.7 billion. flows to the region fell by 20 per cent, reflecting the general decline in global fdi flows and in flows to developing economies. a significant fall in fdi in two member states, caused by one off factors, dragged down inflows in the region. flows from most asean dialogue partners rose, but a single significant divestment, acquisitions of foreign assets by asean companies in their home countries and large repayments of intracompany loans in one member state contributed to the decline. cross-border m&a sales in asean fell by 25 per cent, from $10.3 billion in 2015 to $7.7 billion in 2016, which also contributed to the fall in fdi inflows. inflows from a number of major source countries rose, but not enough to overcome the decline. there has been shifting in the major economic sector of fdi inflow. in its first 25 years, fdi inflow to the region has dominated by manufacturing sector, afterwards, there has been a shift in this sector and a progressive rise in services fdi into the region over the last two decades (asean investment report 2017). in the beginning of 20th century, manufacturing sectors still holds more than 30% of the total fdi inflow to the region. by the latest of 2016, it only holds 17% share of total fdi while service sectors dominate the fdi inflow with 70% share of the total fdi inflow. these shifts are the result of the changing structure of the world economy, as well as the composition of global fdi: as economies industrialize, the structure of gdp moves more towards the production and consumption of services (unctad 2004). the inflow of fdi also exhibit a locational pattern. indonesia, vietnam, malaysia, thailand were the largest recipients of manufacturing fdi since they are a populous economy with strong industrial bases and well trained workforces. in the primary sector, brunei darussalam, cambodia, indonesia, malaysia and myanmar were the main recipient states because of their large agriculture sectors and their mineral oil and gas resources. on the other side, services fdi to asean is dominated by singapore – in 2016 this member state received nearly 90 per cent of all services fdi into the region. moreover, as fdi in financial services accounts for two thirds of services investment in singapore (including regional headquarters and holding companies), this one industry has a huge bearing on trends in the region apart from financial services fdi in infrastructural services was widespread during 2012–2016, and especially high as a share of total services fdi in cambodia, lao, myanmar and vietnam (clmv) member states as well as indonesia and malaysia. fdi in closely connected industries such as construction and real estate was also proportionally high in some member states over the same period, including in populous ones such as the philippines, thailand and viet nam. fdi in trade is also widespread. fdi in accommodation and food gender equality impact on foreign direct investment growth of asean countries 80 services is significant in clmv members, such as cambodia, myanmar and viet nam, not only because of rising tourism but also, as importantly, growing business travel. the european union (eu) is the largest source of investment in the region. according to asean investment report(air), some eu multinational enterprises (mnes), such as shell (netherlands) and hsbc (united kingdom), have been operating in the region since the 1800s.presently, eu companies, such as total (france), british american tobacco (united kingdom), siemens (germany), bp (united kingdom) and unilever (netherlands and united kingdom), operate in multiple asean member states and are involved in different types of activities. the european union (eu) is the largest source of investment in the region. according to asean investment report(air), some eu multinational enterprises (mnes), such as shell (netherlands) and hsbc (united kingdom), have been operating in the region since the 1800s.presently, eu companies, such as total (france), british american tobacco (united kingdom), siemens (germany), bp (united kingdom) and unilever (netherlands and united kingdom), operate in multiple asean member states and are involved in different types of activities. traditionally, eu fdi in asean has been driven by resource-and efficiencyseeking motives. increasingly, it is also driven by market-seeking motives and strategic assetseeking motives, reflecting the opportunities associated with the region’s growing market, rapid economic growth and regional integration. the sectoral distribution of eu fdi in asean in 2005–2010 and 2011–2016 differs significantly. in the earlier period, manufacturing investment dominated. in the more recent period, eu fdi in manufacturing has declined, while investment into finance and other services (in particular in wholesale and retail trade) increased substantially, along with renewed interest in mining activities. the second largest contributor host country of fdi asean is united states which accounted for about 11 percent of cumulative fdi flows into asean from 2010 to 2015, and united states mnes are actively involved in sourcing arrangements, including contract manufacturing, in the region. on a global level, about 4.6 per cent of united states fdi worldwide is in asean. the 72 percent of united states fdi in asean is in the services sector. manufacturing accounts for 20 per cent, and mining for the remainder. japan placed third as the largest contributor of asean fdi inflow which operate in mostly, automotive parts and components, and electronics industries. a majority of these japanese mnes provide services or produce parts for larger mnes, either as suppliers or contract manufacturers. they play an important role in the linkages between them and the foreign and local msmes in the region. they help strengthen the regional production networks of many large mnes, especially in the automotive and electronics industry in asean. the majority of large mnes present in asean possess a long history in the region and are market-oriented, such as unilever (united kingdom–netherlands, food and beverages), nissan (japan, motor vehicles), general electric (united states, industrial and commercial machinery), royal dutch shell (united kingdom–netherlands, oil and gas) and mitsui & co. (japan, general trading company). other mnes, large and small, such as seagate (united states) and quanta computers (taiwan), have a more focused presence in asean because they are using the region as a competitive location to supply global markets as part of their global value chains (gvcs). dynamics of gender equality on asean countries gender equality in asean countries keep improving over time including for each country. the highest gender equality gained by philippine with the score of 78% overall and included as top 10 country with high gender equality. the lowest score held by cambodia by the score of 65% overall in 2016 and lower than the global average. the average of gender equality for primary and secondary school enrollment of asean region ranges between 98% to 99% with an increasing trend. however, the gap is not fully closed yet. according to unicef, gender disparity in education is a prevalent issue that is afebi economic and finance review (aefr) volume 4, no 02 (2019) 81 linked to pervasive socio-cultural gender biases in the region. traditionally, a boy's education has been seen as an investment, increasing the earnings and social status of the family and different standards apply for girls. the latest data explained that in asean average, 1% of the girl’s population in asean don’t get the education they deserve due to the existence of gender bias. cambodia has the lowest country average with the score of 92%while malaysia and singapore holds the first position. the low ratio of cambodia gender equality in primary education happened due to the act that even though access to primary education have improved, traditional challenges and emerging issues still holds back cambodia to achieves gender equality on the other hand, gender equality in tertiary education tells a different story. the gap is closing and keeps going down each year. except for vietnam, the number of female school enrolment in tertiary education exceed the male with the highest ratio held by indonesia. in asean countries, this is in line as explained by united nations that though greater financial capacity in the family had a significantly positive effect on attendance for both genders, it affected girls' education rates almost twice as much as that of boys. as the highest level of education, only families with medium high income, with the exception of scholarship are able to enrolled their kids. therefore, there is no social and economic constraints for both gender to enroll in tertiary education. gender equality in labor participation also shows an increasing trend despite the slow progress. the ration in this region ranges between 74% to 77%. in other words, there is a remaining gap of approximately 30% in labour force market between each gender despite the losing gap of education attainment both in primary and tertiary level. however, from the sectoral perspectives the labor participation ration shows a similar pattern as the educational attainment. services sectors as the sector which requires high skill and education has the highest ratio amongst other sectors with data ranges from 126% to 130%. in other words, the number of female workers exceeds the number works just as the number of female student exceeds the number of male student in tertiary education level. industry sector has the lowest labour participation ratio due to the nature of its work which is brawn intensive instead of brain intensive as service sector does (brzozowski 2013). life expectancy ratio gained by respectively, vietnam, thailand, and philippines. however, there is a declining trend from 2010 to 2016. this is due to the shifting of lifestyle of the population in this region. this can be explained by research in many countries such as united states, denmark, finland, norway, sweden. during 1970–1989 demonstrated that on average, 2.4 years or more than 40% of the total sex difference in life expectancy in 1970– 1974 was estimated to be attributable to smoking in these countries. since 1980 in the united states, men’s rates of lung cancer mortality, although still increasing, have slowed down in pace; in contrast, women’s rates of lung cancer mortality have skyrocketed. this trend reflects, in large part, the later adoption of smoking by women. political participation in this region remains low from time to time although there was some significant increase in certain countries. countries with highest political participation are philippines, singapore, and cambodia. while the lowest are malaysia and thailand. the condition of sociocultural of the nation which is concentrated with patriarchal culture is one of the obstacles to the actualization of women as the nation's policymakers. the patriarchal culture illustrates the high dominance of men who do not give women a chance to pass. this culture considers women weak and positions women more as housewives. with these conditions, the financial capacity of women is also limited (inwantoro, 2014) wage equality fluctuates from time to time, lies in the range of 0.63 to 0.80 country with highest wage equality are brunei and cambodia while the lowest are malaysia, singapore and thailand. taken together, these numbers may imply that women as a whole earn less than men. latest, in 2016 the gender wage gap is widening. where women only earn 67% of what men earns for the similar works. this is related to the occupation segregation issue persisting in asean where women are crowded into a particular work field, in asean case, the service sector. leading to larger supply relative to demand, therefore decreasing the marginal product and finally the wage of female workers. gender equality impact on foreign direct investment growth of asean countries 82 the impact of gender equality on fdi for model 1 according to table 2. variable that has significant effect of fdi inflow growth are real gdp growth, infrastructure growth, inflation, interest rate and exchange rate. real gdp growth has significant positive effect on fdi. this is in line with market size hypothesis which stated that a large market is necessary for efficient utilization of resources and exploitation of economies. gdp growth also show the largest coefficient among others, meaning fdi inflow of asean has the tendency of market seeking behavior. this is also confirmed by reality captured by asean investment report stating that m manufacturing and services fdi in south-east asia, and in the rest of the developing world, focused primarily on local markets, as part of mnes’ domestic strategies (i.e. marketseeking fdi). table 2 estimation result variables model (1) (2) (3) (4) (5) (6) (7) (8) gr_gdp _riil 0.341 0.640 0.705 0.348 0.673 0.268 0.347 0.218 (0.00) (0.00) (0.00) (0.03) 0.000 (0.06) (0.00) (0.33) gr_infra _gcf 0.197 0.200 0.185 0.245 0.235 0.153 0.113 0.251 (0.015) (0.00) (0.00) (0.00) 0.000 (0.08) (0.23) (0.00) gr_net _trade -0.018 0.012 -0.008 -0.010 -0.005 -0.018 -0.018 -0.022 (0.142) (0.39) (0.25) (0.39) (0.26) (0.09) (0.16) (0.06) infd -2.240 -1.969 -2.055 -2.624 -1.759 -2.195 -2.086 -1.756 (0.029) (0.02) (0.01) (0.00) (0.01) (0.02) (0.00) (0.10) inrr -0.021 -0.013 -0.012 -0.023 -0.009 -0.022 -0.036 -0.018 (0.042) (0.12) (0.11) (0.00) (0.16) (0.02) (0.01) (0.11) er_ln 0.388 0.044 0.011 -0.336 0.013 -0.433 -0.315 -0.426 (0.014) 0.5920) (0.01) (0.02) (0.01) (0.00) (0.04) (0.02) ln_wage -0.023 (0.01) redu _1_2 -0.940 (0.12) redu_3 0.059 (0.00) rlab 0.142 (0.06) rlife 0.605 (0.343) pol 0.077 (0.72) wage -0.055 (0.80) c 2.043 0.221 1.052 1.653 -0.022 1.670 1.912 2.278 0.006 0.012 0.104 0.011 0.677 0.036 0.027 0.004 infrastructure can reduce the investor’s cost as it is essential for the smooth functioning of multinational’s affiliate production and trade activities (shah, 2014). net trade affect fdi negatively insignificant. this is in accordance with the trade balance and foreign capital theory where the decrease of export or trade deficit leads to capital inflow from foreign country. this finding also in l i n e with research by gareth gray (2014) whom found out that the expected sign is dependent on whether the foreign investors is planning to export that product it produces in the host country to neighboring countries, or whether it plans to only serve that host country’s market. infrastructure growth also has significant positive effect on fdi, because a good theory suggests exportorientated fdi is positively influenced by how open that host country is, while non-export orientated investments are negatively affected by increased trade openness. most services fdi is likely to be of a horizontal nature (nonexport), aimed at the host country market in which the investment is made, rather than vertical (intended afebi economic and finance review (aefr) volume 4, no 02 (2019) 83 for export back to the home market). therefore, the trade openness could in asean countries has negative relations since it is shown in the composition of fdi inflow itself which dominated by service sectors. although, estimation result shows insignificant result since, it is often difficult to export a service. sometimes the service rendered offers an intangible benefit. as a result, it has little to do with trade flows per se and the effect becomes insignificant (gray 2014) real exchange rate also has negative yet significant effect on fdi inflow. meaning, appreciation in the local currency of host country increases the fdi inflow. similar finding by analyzing the same region, showing that if the fdi's objective is to serve the host country market, then the fdi and trade are substitutes; which means, the appreciation of the host currency attracts the fdi inflows due to higher purchasing power of the domestic consumers. inflation rates have the same effect as exchange rate in accordance with the fisher theory. moreover, low inflation is a sign of a good program that helps to attain higher growth in the short run. for that reason, maintaining low and stable price level is a good way to attract more fdi (hoai 2013). interest rate shows a negative and significant effect on fdi inflows. the similar result found by siddiqui, et al (2014) in studying interest rate as fdi determinant in asean 5 countries. when inflation rate is low, nominal interest rate declines and as a result cost of capital is low. furthermore, the availability of capital at cheap lending rate would enable foreign investors not only to locate better partners in the host countries with sufficient domestic investment to supplement but would also maximize the return on their investment. this supported findings by whom elaborates interest rate theory with investment according to keynes which can be seen from the marginal efficiency of investment (mei) and marginal efficiency of capital (mec). mei describes the investment relationship that has been made by an entrepreneur within a certain period. meanwhile mec emphasizes more on the relationship between expected results from the capital invested by an entrepreneur. the relationship is made for businesses that have a higher rate of return than the prevailing interest rate. thus an increase in interest rates will hamper investment growth, and vice versa, the increase in investment is driven by a decline in interest rates. model 2 the effect of macro-economic variables in addition with wage on fdi inflow growth model 2 shows monthly minimum wage has negative and significant effect on fdi inflow growth. meaning a one percent increase of wage will decrease fdi inflow by 0.023 percent. this shows not only market seeking fdi in asean also have efficiency seeking in its nature. an increase in labor wage will decrease rate of return therefore discourgaes fdi. asean also proved to have low wages as its comparative advantage. this study confirmed that wage become a significant determining factor of great inflow of fdi in asean countries. when including this variables, there are a significant difference on the effect of gdp growth on fdi. real gdp growth effect magnitude is increased twice compared model without wage variables from 0.3 to 0.6. exchange rate and net trade also has change of direction in affecting fdi. exchange rates and net trade affect fdi positively and significant. however, the result is not significant for net trade. model 3 the effect of macro-economic variables in addition with primary and secondary education ratio on fdi inflow growth model 3 shows primary and education ratio has negative insignificant effect on fdi inflow. this variable is a proxy the availability of skilled and educated labor growth. the negative signs show that the majority of work fields for low skilled workers are brawn intensive (brzozowski, 2013). the labour demand for this work fields relies heavily on male workers compared to female as the data shows male labour force dominated the agricultural and industry work sectors, this fact justifies the occupational crowding model by barbara bergmann. however, for asean region this variable is in significant in affecting the fdi gender equality impact on foreign direct investment growth of asean countries 84 inflow. the inclusion of this variables caused significant increase on explanatory power of real gdp growth. there is also a change of direction of exchange rate effect on fdi. model 4 the effect of macro-economic variables in addition with tertiary education ratio on fdi inflow growth this model shows tertiary education ratio has positive significant effect on fdi inflow growth. tertiary education is used as a proxy for the availability high-skilled labor force as the tertiary level is associated with some vocational training in certain countries (brozozwski 2013). a positive and significant result shows that fdi inflow of asean countries are not only market seeking but also efficiency seeking. high skill labor has a greater productivity and in turn higher output. this result can also cause by the characteristics of labour demand in the market as the data shows that fdi in asean flows majorly to service sectors which requires high skilled or educated labour. moreover, the service sectors of this region is dominated by female workers which can be explained by the occupational segregation theory. the inclusion of this variable doesn’t caused any significant change in the explanatory power and direction of macro-economic variables effect on fdi model 5 the effect of macro-economic variables in addition with labor participation ratio on fdi inflow growth model 5 shows with labor participation ratio has positive significant effect on fdi inflow growth. with asean receiving a high level of fdi in female intensive sectors such as services, the gender equality and increase of female labor participation rates plays a prominent role in attracting fdi in the region. the inclusion of this variables caused significant change in the explanatory power of real gdp growth and. the direction and explanatory power of exchange rate effect on fdi is also differentiates. model 6. the effect of macro-economic variables in addition with life expectancy ratio on fdi inflow growth model 6 shows life expectancy ratio has positive insignificant effect on fdi inflow growth. this ratio is chosen to show the health gap between male and female. this result is in line with t h e s t u d y b y m a i hoai a n d thung bui in 2015 in studying fdi and gender in asia pacific. by employing a labor force with good health, both vertical and horizontal fdi firms can maximize their productivity. better health virtue would reduce the probability of absenteeism. therefore, life expectancy has positive effect in attracting fdi however the result is insignificant for this region. the inclusion of this variables doesn’t cause significant changes in explanatory power and direction of the variables. model 7. the effect of macro-economic variables in addition with political participation ratio on fdi inflow growth model 7 shows political participation ratio has positive insignificant effect on fdi inflow growth. the finding of this research is in contrast with mai hoai and tung bui in 2015 which shows negative effect of the variable on fdi. the argued that an increased women’s representation effect policy output which may trigger greater interest in issues of equality, importantly in sex discrimination in the labor market. as mentioned earlier in the relations of gender on fdi (figure 13), a rise in worker rights might discourages fdi inflows since it will increase the labour cost. however, the effect of the variables in asean country shows a different story. political and macroeconomic stability, as well as respect for political rights between gender in the host countries are regarded as preconditions for a successful promotion of a country as an fdi-friendly economy. moreover, an increase in this aspect will trigger the awareness of gender inequality issue and increase female rights not only in labor market but in human capital development aspect such as education and health. an increase in these aspect will in turn increase the fdi. however, the estimation doesn’t show a significant result for this region. this might be caused by the probability that increased women’s representation has little effect on policy output for afebi economic and finance review (aefr) volume 4, no 02 (2019) 85 gender equality. the inclusion of this variables doesn’t cause significant changes in explanatory power and direction of the variables model 8. the effect of macro-economic variables in addition with wage ratio on fdi inflow growth model 8 shows wage ratio has negative insignificant effect on fdi inflow growth. this result is in line with the previous researches stated that low labor cost is a competitive advantage in attracting fdi as its tend to flow in countries where inequality gap is large (kucera 2002; mcleod 2002; busse 2003). as explained by the occupational crowding model, women are often seen as a secondary force in the labor market because of their ability to give birth. furthermore, certain industries are characterized by gender fragmentation where female labor force is overcrowded. as a consequence, average wage i s lowered to cope with increasing unemployment the more d iscrimination there is, the more competitive the labor market gets as firms can lower their wage cost (hoai and bui 2015). however, the effect of this variables is not significant this may be caused by the probability that the benefits of low compensation costs may be completely outweighed by low productivity of less educated workers. both arguments are relevant for the cost-oriented or vertical fdi. 6. conclusion fdi inflow growth of asean countries has volatile dynamics with declining trend. characteristics of asean countries are mostly market seeking and efficiency seeking. it is market seeking due to the fact that variable which has the strongest effect based on the estimation is economic size which represented by gdp growth. efficiency seeking due to the significant effect of wage on fdi inflows. fdi flows majorly to service sectors which dominated by female labour force and requires high skilled or educated workers. the ratio of tertiary education is high and has positive and significant effect on fdi that’s how fdi is also resource seeking. gender equality in asean is relatively high compared to the world’s average. however, the gender gap in this region still exist. with the highest inequality lies on political participation, followed by respectively from the lowest are wage ratio, labor participation, primary and secondary school enrollment, life expectancy and tertiary education. with overall country has the highest rate of equality is philippine and cambodia the lowest. based on the estimation result, macro-economic variable with significant effect towards fdi are gdp growth, infrastructure g r o w t h positively and inflation, interest rate ad exchange rate negatively. gender variable that has significant effect are t e rt i ar y education and labor participation both affect fdi positively. specifically, for gender equality in labor participation rate is able to enhance the effort of attracting fdi as it increases the explanatory variables of gdp growth significantly. gender wage r atio affect fdi negatively and insignificant. this does not rule out that foreign investors aim at reducing wage costs for similarly qualified labor since the estimation result shows overall wage affect in the same direction significantly. as a developing country which its economic also supported strongly by foreign investment, not only the amount of flow but the growth of flow itself should also take into consideration. in order to boost its fdi inflow amount and also its growth their governments must be fully aware of the extent of structural changes in the characteristics of fdi. fdi is shifting towards knowledgeand skill-intensive manufacturing – as well as services. the competitive advantage of low labour costs may become less relevant as a locational determinant of export-oriented fdi. given minimum levels of skills and infrastructure, low labour costs may still matter, but only in a handful of low technology activities. therefore, government should not rely heavily on low labour cost in order to attract fdi especially through the disparity of gender, since it will fail to induce higher value-added fdi and will suffer slower economic growth. gender equality impact on foreign direct investment growth of asean countries 86 instead, asean countries should focus on determinants which strongly affected fdi without sacrificing its development of human capital. human capital has been one of the most essential factors for long term growth and competitiveness. to build future economies that are both dynamic and inclusive, everyone must have equal opportunity. therefore, the effort to boost fdi growth by also enhance gender equality should not only be seen as an option but rather a purpose. specifically, in the aspect female labor force participation rate and its skill or education of the labor. female participation rate is still low compared to men. it is thus crucial especially in a context of increasing competition for fdi that developing countries formulate policies that can raise the level of labour participation rate by creating supportive environment for both gender to be actively participate in the labor market and having a low turnover rates for women as the job level is higher. it is also vital for asean to maintain its rate of tertiary school enrolment ration to increase build up the level of education and skill of the human resources as it is necessary to raise not only the volume but also the quality and sophistication of the fdi that a country could attract. again, this has to be accompanied by the effort to keep supportive environment for female especially mothers to stay at the labor force market or else the high rate of high educated female wouldn’t be able to enhance the effort of attracting fdi. specifically, for country such as indonesia, one of the underlying factor of for female to leave labor force market is the decision to take care of the family. it is difficult to have it both ways for female worker in indonesia due to the flexibility of labor force regulation. although the concept is still not familiar, paternity leave is already being applied in indonesia for onem o n t h duration. however, while paternity pay in other country such as united kingdom is 90% of the weekly earning, in indonesia its only 50% therefore most people choose not to take it. it is necessary for government to create a better policy regarding this aspect since paternity leaves is important to share the burden for families. it can promote parent-child bonding, improve outcomes for children, and even increase gender equity at home and at the workplace. increasing paid leave, and innovative strategies to break down cultural barriers, can have a big impact on how much paternity leave male workers take. the government should also ensure that lower income, more vulnerable women have access to rewarding work opportunities. empirical analyses should always end with a word of caution. and limitations. this scope of this study limited to only eight countries of asean excluding lao pdr and myanmar due to data limitation. also the macroeconomic variables and gender equality variable is still not adequate enough to describe the determining factors of fdi. moreover, the result of this research are still on aggregate level. therefore, it is recommended to do a research in more disaggregated analysis, such as sectoral level, also use a different approach on the method of study, may yield important insights. references abbes, m., belmokaddem, m., guellil, m. s. a. & ghouali, y. z. (2014). causal interactions between fdi, and economic growth: evidence from dynamic panel co-integration sahraoui. procedia economics and finance, 23(1), 276 – 290. adams. (2009). foreign direct investment, domestic investment, and economic growth in sub-saharan africa. journal of policy modeling, 31(6), 939-949. https://doi.org/10.1016/j.jpolmod.2009.03.003. alfaro, l., areendam, c., sebnem, k. o. & selin, s. (2004). fdi and economic growth: the role of local financial markets. journal of international economics, 64(1), 89-112. afebi economic and finance review (aefr) volume 4, no 02 (2019) 87 asean secretariat. 2017. asean: a community of opportunities. jakarta: asean secretariat. asean secretariat. 2017. asean investment report 2017. foreign direct investment and economic zones in asean. jakarta: asean secretariat. brzozowski, m. (2013). gender equality as the determinant af fdi flows to central european countries. ekonomia journal, 33. busse, m. & spielmann, c. (2003). gender discrimination and the international division of labour. hamburg (de): hamburg institute of international economics busse m. & nunnenkamp, p. (2007). gender disparity in education and the international competition for fdi. hamburg (de): hamburg institute of international economics interactions between fdi, and economic growth: evidence from dynamic panel cointegration sahraoui. procedia economics and finance, 23(1), 276 – 290. cahyono, d. k. (2013). determinan foreign direct investment (fdi) dan pengaruhnya terhadap produk domestik bruto (pdb) di indonesia. bogor: sekolah pascasarjana institut pertanian bogor. clarke, m. (2003). is economic growth desirable? a welfare economic analysis of the thai experience. entre for strategic economic studies. melbourne: victoria university. faeth, i. (2009). determinants of foreign direct investment – a tale of nine theoretical models. usa. journal of economic surveys, 23, 165–196. https://dx.doi.org/10.1111/j.1467-6419.2008.00560.x. hossain, a., anis, c. & elgar, p. (1998). open-economy macroeconomics for developing countries. united kingdom. kucera. (2001). the effects of core workers rights on labour costs and foreign direct investment: evaluating the “conventional wisdom”. geneva (ch): international institute for labour studies. mankiw, n. g. (2007). macroeconomics. toronto: thomson nelson. mcleod, c. & sophister, s. (2014). gender equality in the labour market and foreign direct investment. the student economic review, 26, 133-141. melnyk, l., oleksandr, k. & serhiy, p. (2014). the impact of foreign direct investment on economic growth: case of post communism transition economies. problems and perspectives in management, 12(1). meng, x. (1998). gender occupational segregation and its impact on the gender wage differential among rural-urban migrants: a chinese case study. applied economics, 30(6), 741-752. najia s. n., maryam, m. & nabeel, r. (2013). pakistan’s fdi impact of foreign direct investment on economic growth of pakistan. advances in management & applied economics, 3(1), 35-45. victor, m. t. (2011). the impact of trade openness on foreign direct investment. inflows in emerging market economies. yaseen, h. (2014). the impact of foreign direct investment fdi on economic growth of jordan. european journal of bussines and management, 6(1), 39. afebi economic and finance review-final.5.5 the financial performance of regencies/cities in south sumatera province (2006-2015 time period) 43 10 the financial performance of regencies/cities in south sumatera province (2006-2015 time period) siti rohima1* 1 sriwijaya university, palembang, indonesia abstract this study is for observing the regional financial performance influence of regencies/cities in south sumatera province. the research is implemented quantitatively by using the data panel double regression of the 2006 – 2015 time period. regional financial performance covers fiscal decentralization, autonomy, effectiveness and efficiency. based on a partial count, fiscal decentralization has a regression coefficient as large as 62.73185, which means fiscal decentralization has a positive and significant influence to economic growth. then regional finance autonomy has a regression coefficient as large as -16.04656 which means that regional autonomy has a negative influence yet significant to economic growth. observing from regional financial effectiveness which has a regression coefficient as large as -0.074855, which means that effectiveness has a negative influence and not significant to economic growth. regional financial efficiency has a regression coefficient as large as -0.254122, which means that efficiency has a negative influence and not significant to economic growth. based on the count as a whole it means that fiscal decentralization, regional finance autonomy, effectiveness, and efficiency have significant influences to economic growth. this means regional financial performance is very influential to the economic growth of regencies/cities in south sumatera province in the 2006-2015 time period. jel classification: e02, h70, h77 keywords: autonomy, economic growth, effectiveness, efficiency, regional financial performance, fiscal decentralization 1. introduction regional autonomy provides authority to regions for extracting potential and regional source of income as funds to manage each of the regions. as emphasized by suparmoko (2002) regional autonomy is defined as the authority of the autonomic region for managing and looking after the interest of local people according to their own initiatives based on the people’s aspiration. the regional autonomy policy where every region has a right, authority, and obligation for managing and looking after their own government affairs and the local people’s interests corresponding with the regulations of acts that apply for increasing effectiveness and efficiency of government enforcement and increase the service to the people. the regencies/cities in south sumatera province have different potential and sources of income. this will bring out the occurrence of inequality of regencies/cities caused by differences in natural resource contents, demographic condition differences, * corresponding author. email address: sitirohima@unsri.ac.id mailto:sitirohima@unsri.ac.id afebi economic and finance review (aefr) vol.02 no.01, june 2017 44 the hampered mobility of goods and services, concentration difference of regional economic activities, and allocation difference of interregional development funds (sjafrizal, 2008). interregional development fund allocations that are different is caused by the difference of financial sources for funding expenses such as the source of income which is from the locally generated revenue and balancing funds and funding sources that are from the excess difference of budget counting. because of that, regional governments are demanded to be able to extract the potential that the regions have through contribution increase of locally generated revenue as the largest source of regional income. each region has income that is of a different type and fluctuates. in line with the development in south sumatera province, palembang city has an economic growth rate which is relatively high. in the year 2015. palembang city placed in the top row of which experienced growth reaching 8.14 percent and only palembang city which is able to grow above 8 percent. the economic growth of regencies/cities in south sumatera province in the year 2015 shows a significant enough difference between palembang city compared with other regencies/cities. this is seen from the second largest economic growth which is located in the 6 percent range which is east oku regency as large as 6.82 percent and the third place is ogan ilir regency as large as 6.68 percent. it is noted that as many as 5 regencies and 1 city placed the economy growth range as large as 6 percent, as many as 2 cities and 4 regencies in the 5 percent range and 4 regencies are in the 4 percent range. musi banyuasin regency has the lowest economic growth of the regencies/cities in south sumatera province which is as large as 4.21 percent, while pali regency becomes the second lowest as large as 4.23 percent and north musi rawas regency as the third lowest as large as 4.94 percent (central body of statistics, 2015) the occurrence of inequality (imbalance) such as seen in the economic growth rate of palembang city with other regencies/cities is caused by a difference of natural resource contents, difference of demographic condition, the hampering of goods and services mobility, and allocation difference of interregional development funds (sjafrizal, 2008). interregional development fund allocations that are different is caused by the difference of financial sources for funding different expenses and the ability of the regions. the ability of the regions for fulfilling needs and expenses that are implemented is much determined by the performance of regional finance. as rocky as the performance of regional finance, there are always evaluations and research, so inputs and improvements are able to be provided in the future. the performance of regional finance covers fiscal decentralization ratio, autonomy ratio, efficiency ratio, and effectiveness ratio. the autonomy of a region is able to be seen from the ability of the region for fulfilling all its needs by increasing income from its regions and decrease dependence from the central or other regions. as explained by halim (2012), stated that the primary characteristics that a region is able to implement autonomy are (1) the regional financial ability, which means the region has the ability and authority for excavating financial resources, manage and use its own budget for financing the government enforcement; (2) the dependence to the central aid has to be as minimal as possible, because of that locally generated revenue has to be the largest financial source which is supported by balancing policies of the central and the regions. the financial performance of regencies/cities in south sumatera province (2006-2015 time period) 45 in other words, the success of regional autonomy development is able to be seen from the degree of regional fiscal autonomywhich is the comparison between locally generated revenue with the total regional income spending budget that increases more and more. referring to the explanation before, there will be a more in depth study about regional finance performance to economic growth of regencies/cities in south sumatera province. problems as for the problems that will be studied are: 1. how are the regional regency/city finance performance in south sumatera province. 2. how is the influence of regional finance performance to the economic growth of regencies/cities in south sumatera province in the 2006-2015 time range? 2. literature review 2.1 regional financial performance performance is the achievement of what is planned, neither personally nor of an organization. if the achievement is corresponding with what is planned, the performance done will be implemented well. if the achievement is more than what is planned it is able to be said that the performance is very good. if the achievement is not corresponding or less than what is planned, the performance is bad. financial performance is a measure of performance that uses financial indicators. the use of ratio analysis in the public sector specifically in the regional income spending budget is not yet implemented much, so theoretically there is not yet a unanimous agreement about the name and manner of measurement. nevertheless in order to manage regional finance that is transparent, honest, democratic, effective, efficient, and accountable, the ratio analysis to the regional income spending budget needs to be implemented although the accounting manner in the regional income spending budget is different with the financing that private companies have (halim, 2012). financial ratio analysis in the regional income spending budget is implemented by comparing results that are reached in one period compared with the previous period so it is able to be known how the tendency occurs. other than that it is also able to be implemented with the manner of comparing with the financial ratio of certain regional governments with the financial ratio of other regions that are closest or have a relatively same regional potential for being able to be seen how the financial position of the regional government to other regional governments is. in regional financial performance analysis there are several ratio used, among others : a. fiscal decentralization ratio b. finance autonomy ratio c. effectiveness ratio d. efficiency ratio afebi economic and finance review (aefr) vol.02 no.01, june 2017 46 2.2 economic growth economic growth is able to be defined as the gross domestic product (gnp) or gross national product (gdp) increase without regarding if the increase is more or less than the population growth level or if an economic structure change occurs or not. economic growth is defined as activity development in the economy that causes goods and services that are produced in society to increase and the prosperity of the people to increase (sukirno, 2013). according to budiono (2002) economic growth is the process of per capita output increase in the long term. average expenses per capita are the costs that are spent for the consumption of all household members for one month neither from purchasing, giving, nor self-production divided with the number of family members. household consumption. according to todaro (2000) there are three factors or primary components in economic growth among others : a. capital accumulation which covers all forms or types of investment which is planted in soil, physical instruments and capital or human resources b. population growth which in the end will increase the number of workforce. c. technological progress is the source of economic growth that is the most important. the problem of economic growth is able to be viewed as a macroeconomic problem in the long term which is able to be measured by the ability of a country in producing goods and services from one period to another period. basically economic growth is influenced by four factors which are population number, number of capital goods stocked, surface area, and the achieved technology level (sukirno, 2013). the experts pay more of their attention to the influence of population increase to economic growth, the more the population increases, it will cause an increase of per capita income. if the population number continues to increase exceeding the optimal point, the population growth will cause the decrease of the economic growth value. according to the classic theory which is pioneered by adam smith, david ricardo, malthus and john stuart mill. that economic growth is influenced by four factors which are population number, number of capital goods stock, surface area and the achieved technology level (sukirno, 2013). the experts pay more attention to the influence of population increase to economic growth, the more the population increases, it will cause an increase in per capita income. if the population number increases continuously exceeding the optimal point, the population growth will cause a decrease of economic growth value. 2.3 hypotheisis based on the conceptual frame (thinking framework) the researcher makes the hypothesis as the following: h0 : fiscal decentralization, regional financial autonomy, effectiveness and efficiency does not influence positively and significant to economic growth of regencies/cities neither partially nor together. h1 : fiscal decentralization, financial autonomy effectiveness and efficiency has a positive and significant influence to economic growth of regencies/cities neither partially or together. the financial performance of regencies/cities in south sumatera province (2006-2015 time period) 47 3. research method 3.1 research scope this research about financial performance analysis of regencies/cities in south sumatera province uses the quantitative research method. data that are used in this research are secondary data from many types of resources. in the analysis of this research the researcher took data from the budget realization report and report of regional gross domestic product of regencies/cities in south sumatera province for the 2006-2016 period, which is published by the finance department directory general of finance balancing (www.djpk.depkeu.go.id) and the central body of statistics south sumatera (www.sumsel.bps.go.id). 3.2 data analysis technique in the regional financial performance analysis there are several ratio which are used, among others: a. fiscal decentralization degree ratio the fiscal decentralization degree ratio is counted based in the comparison between the total locally generated revenue and total local revenue. this ratio shows the degree of locally generated revenue contribution to total local revenue. the higher the locally generated revenue contribution, the higher the ability of the regional government in decentralization enforcement. the fiscal decentralization degree ratio, specifically the locally generated revenue component compared with total local revenue. table 1 interval scale of fiscal decentralization degree ratio. interval scale of fiscal decentralization degree. % regional finance ability 00,00 – 10,00 very less 10,01 – 20,00 less 20,01 – 30,00 adequate 30,01 – 40,00 moderate 40,01 – 50,00 well > 50,00 very well the fiscal decentralization degree is able to be counted by using the following equation : ddf = padt / tpdt x 100% remarks: ddf = fiscal decentralization degree padt = total locally generated revenue year t tpdt = total local revenue year t b. regional finance autonomy ratio according to halim (2012) regional finance autonomy or fiscal economy shows the regional finance ability in self-financing in activities of government, development, and service to the people. regional finance autonomy is shown by the size of locally generated revenue compared with regional income. the autonomy level illustrates the level of people participation in paying tax and local retribution which are the primary components in locally generated revenue. the regional finance autonomy ratio is shown by the amount of locally generated revenue compared with local revenue that are from other sources (transfer revenue) among others : tax sharing, natural resource non-tax sharing, http://www.djpk.depkeu.go.id/ http://www.sumsel.bps.go.id/ afebi economic and finance review (aefr) vol.02 no.01, june 2017 48 public allocation funds and special allocations, emergency and loan funds (widodo, 2001). the regional finance autonomy ratio is shown by the amount of locally generated revenue compared with local revenue that are from other sources (transfer revenue) among others : tax sharing, natural resource non-tax sharing, public allocation funds and special allocations, emergency and loan funds (widodo, 2001). the equation used for counting autonomy ratio is : autonomy ratio = locally generated revenue total transfer revenue 𝑥 100% (1) table 2 assessment criteria of autonomy ratio percentage criteria relation pattern 0 -25 25-50 50-75 75-100 very low low moderate high instructive consultative participative delegated source: halim (2008) c. effectiveness ratio the effectiveness ratio illustrates the ability of the regional government in realizing locally generated revenue that is planned compared with the target that is assigned based on the region’s real potential. locally generated revenue is effective if the ratio reached reaches 100 or more than 100%. therefore the larger the effectiveness ratio the better the government performance (halim, 2012). effectiveness ratio = locally generated revenue income realization assigned locally generated revenue target income 𝑥 100% (2) table 3 assessment criteria of effectiveness ratio percentage finance performance criteria above 100% 90-100 80 90 60 80 less than 60 very effective effective adequately effective less effective not effective source: halim (2008) d. regional finance efficiency ratio the regional finance efficiency level analysis is able to be counted by using the efficiency ratio, which is the ratio that illustrates the comparison between output and input or the realization of expenses with the realization of regional income. according to halim (2012) the regional finance efficiency ratio is able to be measured with: efficiency ratio = total regional expense realization total regional income realization 𝑥 100% (3) the financial performance of regencies/cities in south sumatera province (2006-2015 time period) 49 table 4 assessment criteria f finance efficiency ratio percentage criteria above 100% 90-100 80 90 60 80 less than 60 very efficient efficient adequately efficient less efficient not efficient source: halim (2008) this research uses the quantitative analysis technique. the analysis technique of this research uses ratio for observing the fiscal decentralization level, autonomy, effectiveness, regional finance efficiency and economic growth. the double regression linear analysis is used for observing regional financial performance to economic growth. in analyzing the influence of financial performance to economic growth, a test instrument is used which is a descriptive statistics analysis, regression analysis, and hypothesis test. the double regression linear analysis a simple linear regression data panel model in measuring if the dependent variables are really determined by the independent variable with the least squares (ls) method. as for the equation model which is used in this research is : lnegit = ɑ + β1lndfit+ β2 lnkkdit+ β3 lnefkit + β4lneffit+ etit (4) remarks : eg = economic growth α,β = coefficient dfit = fiscal decentralization in region i on year t kkd = region financial autonomy in region i on year t efk = region financial effectiveness in region i on year t eff = region financial efficiency in region i on year t etir = error term 4. results 4.1. regional financial performance 4.1.1.fiscal decentralization the assessment of regional financial performance is implemented to the regional income spending budget. the budget as an instrument of government policy has to be able to show a good performance. the purpose for internal assessment is for encouraging economic growth so it is expected to be able to cause a positive domino effect which is decreasing unemployment and decreasing the poverty rate. the related performance with the budget is financial performance in the form of comparisons between components in the budget. the comparison between components that are in the budget according to halim (2004) is measured by using several ratios which are developed based on financial data which is sourced from the regional income spending budget among others are autonomy ratio, effectiveness ratio, efficiency ratio, growth ratio, and suitability ratio. while mahmudi (2011) measures financial performance by using the regional autonomy ratio, regional dependence ratio, decentralization degree, effectiveness ratio and locally generated revenue efficiency, degree of region owned enterprise contribution, and ratio of income to debt. this research observes regional financial afebi economic and finance review (aefr) vol.02 no.01, june 2017 50 performance by observing fiscal decentralization, autonomy ratio, effectiveness ratio and efficiency ratio. fiscal decentralization is the ability of a region in decentralization enforcement. this ratio shows the degree of locally generated revenue contribution to total local revenue. the higher the locally generated revenue contribution, the higher the ability of the regional government in implementing decentralization. the fiscal decentralization ratio per regency/city is able to be seen in table 1 (attachment 1). in the 2006-2015 time period, the regency that has the lowest fiscal decentralization ratio is south oku regency with an average ratio of 1.81percent. this regency is a newly developed regency with the source of income still dependent on the central and balancing funds. as a whole the average fiscal decentralization of regencies/cities in south sumatera province covers the regencies/cities of prabumulih, pagaralam, lubuk linggau, banyuasin, musi banyuasin, muara enim, musi rawas, empat lawang, lahat, ogan ilir, oki, oku, okut, and okus in the very low category which is below 10 percent. the fiscal decentralization ratio of palembang city is in the less category with an average ratio of 17.59 percent. the fiscal decentralization ratio is able to be seen in the following figure 1. figure 1 fiscal decentralization ratio of regencies/cities source: processed data 2016 autonomy is an important factor in the implementation of regional autonomy. based on the autonomy ratio, palembang city has an autonomy ratio as large as 26.6 percent with a low criteria and a consultative relation pattern. based on the time series analysis it is able to be seen the percentage increase of balancing fund income from the central government. in 2008 there occurred an increase in the balancing fund income as large as 11.65 percent. in 2009, 2010 and 2011 the increase of balancing income funds are not too significant only as large as 5.74 percent, 4.51 percent, 3,33 percent. if analyzed from public allocation income funds from national income spending budget transfers, the growth of the public allocation funds of cities are able to be stated as consultative. the financial performance of regencies/cities in south sumatera province (2006-2015 time period) 51 4.1.2. regional financial autonomy the province of south sumatera has 16 regencies/cities which have varying levels of autonomy. based on the regional income spending budget of regencies/cities years 2006-2015 it is able to be observed in table 2. the average regional autonomy ratio in the last ten years which are the years of 2006/2015 are in the very low criteria which is under 25 percent which covers the regencies/cities of prabumulih, pagaralam, lubuk linggau, banyuasin, musi banyuasin, muara enim, musi rawas, empat lawang, lahat, ogan ilir, oki, oku, okut, and okus. this condition interprets the autonomy pattern that is still instructive. the instructive relation pattern is which the role of the central government is more dominant than the autonomy of the regional government. the instructive pattern makes for a very high dependence for the regional government to the central government financially. this occurrence is strengthened with the transfer income of regencies/cities which are sourced from the central government transfer/balancing funds, income of tax sharing, income sharing of non-tax (natural resources), public allocation funds, specific allocation funds, central and other governments transfers, specific autonomy funds, adjustment funds, government transfer, the ratio of regency/city autonomy is able to be seen in the following figure 2. figure 2 autonomy ratio of regencies/cities source: processed data 2016 autonomy is an important factor in the implementation of regional autonomy. based on the autonomy ratio, palembang city has the autonomy ratio as large as 26.6 percent with a low criteria and a consultative relation pattern. based on the time series analysis the percentage difference of balancing income funds from the central government is able to be seen. in 2008 there occurred an increase in balancing income funds as large as 11.65 percent. in the years 2009,2010, and 2011 the increase of balancing income funds are not too significant only as large as 5.74 percent, 4.51 percent, 3.33 percent. if analyzed from the public allocation income funds from afebi economic and finance review (aefr) vol.02 no.01, june 2017 52 regional income spending budget transfers, the growth of city public allocation funds are able to be said as consultative. 4.1.3. regional financial effectiveness the effectiveness ratio illustrates the ability of the regional government in realizing the locally generated revenue which is planned with an assigned target based on regional potential. it is able to be stated that the larger the effectiveness ratio the better the regional government performance. as long as the 10 year time period which is 2006-2015, the region that has the largest effectiveness ratio is okus regency with a value of 209.9 percent or very effective. other than okus the cities/regencies that are in the very effective category are palembang, prabumulih, pagaralam, lubuk linggau, banyuasin, musi banyuasin, muara enim, musi rawas, empat lawang, lahat, oki, oku. it is able to be summarized that in the year 2007 palembang city is able to streamline its locally generated revenue realization which is sourced from the locally generated revenue sourced from tax income, retribution income, income of region owned companies and results of regional wealth processing that is separated and other forms of locally generated revenue that are agreed upon well. the region that has the lowest effectiveness ratio is ogan ilir regency with a value of 73.3 percent which means that it is less able to streamline the locally generated revenue realization which is sourced from tax income. this large inequality is caused by the difference in locally generated revenue which is targeted with the locally generated revenue realization for the two regions which are fairly significant, other than that it is caused by the difference in locally generated revenue for each region. the effectiveness ratio illustration of regencies/cities in south sumatera province is able to be seen in the following figure 3. figure 3 effectiveness ratio of regencies/cities source: processed data 2016 the financial performance of regencies/cities in south sumatera province (2006-2015 time period) 53 4.1.4. regional financial efficiency regional financial efficiency is used for illustrating the comparison between output and input or realization of expenses with the realization of regional income, the larger the ratio value the larger the efficiency level that is applied in the region. based on research and counting each regency/city has a different efficiency level. basically each region has an expected target and achievement. they have different strategy and sources that are able to be made into income. so it is able to be obtained between what is expected and realized in a concrete way. components from the total spending consists of operational spending, capital spending, unexpected spending, and transfer spending, while components from local revenue consists of locally generated revenue, transfer income, and other agreed forms of local income. such as in the year 2008 the increase of regional spending realization is higher than the acquisition of regional income realization. this causes an increase in the financial efficiency ratio of regional governments. the efficiency ratio increase of certain years is the cause of the increase in regional income and regional spending in the same year. the higher the financial efficiency ratio the more efficient the financial management in the region. the graphical illustration is able to be seen in figure 4. figure 4 regional financial efficiency ratio source: processed data 2016 in the last 10 years regencies/cities in south sumatera province reached a ratio of 80%-90%. the efficient category covers palembang, prabumulih, pagaralam, lubuk linggau, musi banyuasin, empat lawang, lahat, okut, and okus. the adequately efficient ratio category covers banyuasin, muara enim, musi rawas, ogan ilir, oki, and oku. 4.2 the influence of regional financial performance to economic growth the regression data panel test results with the pooled least square model. based on the regression data panel results above it is known that the determination coefficient shown with the adjusted r-squared value is as large as -0.51 afebi economic and finance review (aefr) vol.02 no.01, june 2017 54 percent. other than that test results also show a durbin-watson stat that is low which is 0.650472. 4.2.1. fixed effect model the result of data panel regression with the fixed effect model. based on the data panel regression above it is known that the determination coefficient which is shown with the adjusted r-squared value of 34.11 percent. other than that, the test results also show the durbin-watson stat value that is high which is 1.114882. 4.2.1.1. random effect model the result of data panel regression with the random effect model. based on the data panel regression above it is known that the determination coefficient which is shown with the adjusted r-squared is as large as 7.33 percent. other than that, the test results also show the durbin-watson stat value which is 0.577736. 4.2.2. data panel model selection hausman test based on the test results above it is known that the chi square statistic value is as large as 17.224252 with a chi square table in d.f (4) α = 5 percent is 9.487729 so the chi square statistic > the chi square table value, so h0 is rejected. so the data panel model that is able to be used is the fixed effect model. 4.2.3. hypothesis test this hypothesis test is implemented to observe if there is a direct influence between independent variables to dependent variables neither partially nor together. as for what is used to implement the hypothesis test, are: a. determination coefficient test (r2) the determination coefficient test is used for measuring the amount of the model’s ability in explaining the variation of dependent variables, the r2 value range is 0 up to 1 the more the r2 is closer to 1 the more the independent variables provide all needed information for predicting the dependent variable variation. the test results uses a fixed effect model, fiscal decentralization influence, regional finance autonomy, effectiveness, and efficiency to economic growth in regencies/cities in south sumatera province an adjusted r2 value as large as 0.341114 is able to be obtained. which means the independent variables that are in the model are able to explain the dependent variables as large as 34.11 percent, while the rest 65.89 percent is explained by other variables outside the model. b. f test (the together test) the f test is used for testing if independent variables influence together to the dependent variable which is by comparing f-statistic with f-table. the results of the fixed effect model obtained an f-statistic value of 5.256744. in the confidence level α = 5 percent with a df1=k-1 (4) and df2=n=k (144), so an f-table as large as 2.434503 is obtained. f-statistic > f-table so it is able to be summarized that h1 is accepted. this means that independent variables (fiscal decentralization, regional financial autonomy, effectiveness and efficiency influences significantly together with the dependent variable (economic growth). c. t-test (partial test) this test is implemented for testing if the independent variable influences partially to the dependent variable, which is by comparing each t-statistic value from the regression with the t-table in determining the hypothesis accepted or refused. in the the financial performance of regencies/cities in south sumatera province (2006-2015 time period) 55 confidence level α = 5 percent df =n-k (144), a t-table as large as 1.976575 is obtained. such as seen on the following table 5. table 5 results of t-test table (partial test) variable coefficient std. error t – statistic sig. df eg 62.73185 15.12778 4.146799 0.0001 kkd eg -16.04656 6.712601 -2.390513 0.0183 efekkd eg -0.074855 0.134993 -0.554508 0.5802 efikd eg -0.254122 0.768409 -0.330712 0.7414 source : processed data, 2016 at the variable of fiscal decentralization, has coefficient regression for df such as 62.73185. it shows that fiscal decentralisation has the positive and significant influence to the economic growth. t statistic is bigger than t-table, it can be concluded that ha is acceptable and ho is un-acceptable. fiscal decentralisation is comparing the regional real income (pad) to total revenue of the region. furthermore, the variable of the regional financial autonomous has coefficient regression for kkd such as -16.04656. kkd probability value of 0.0183 <value a significance level of 0.05, which means ha accepted and ho un-accepted. it could be concluded that the region’s financial autonomous has negative influence but it is very significant to the economic growth. the financial autonomous is so much needed for the better growth and development of a region. but the readiness of each region is deferent. according to the research observed by efendi (2011), it is found that the region’s financial autonomous is still relatively small, and it is found that very difficult to increase the region’s financial autonomous. such the research which is conducted in nganjuk stated that the region’s financial autonomous seems still very low and it is less of fiscal decentralisation. these means that the regional government is still very much depends on the central government. the research made by gomes (2013) stated that there are some obstacles that makes the region’s financial autonomous is difficult to be implemented such as the difficulty in increasing the tax revenue, the difficulty in decreasing the expenses, the dependency from the central government, including in expecting financial sources from the other party’s concerned and from the outside region. from the point of view of regional financial effectiveness it has coefficient regression for efekkd such as -0.074855. efekkd have a t-statistic <t-table. moreover, the probability value of 0.5802 efekkd> value significance level of 0.05, which means that ho is accepted. it could be said that the effectiveness has negative influence and not significant to the economic growth. the regional financial efficiency has coefficient regression for efikd such as -0.254122, have a t-statistic <t-table. moreover, the probability value of 0.7414 efikd> value significance level of 0.05, which means that ho is accepted. it is means that efficiency has negative influence and not significant to the economic growth. afebi economic and finance review (aefr) vol.02 no.01, june 2017 56 5. discussions the assessment of regional financial performance is implemented to the regional income spending budget. the budget as an instrument of government policy has to be able to show a good performance. the purpose is for internal assessment nor in encouraging economic growth so it is expected to be able to cause a positive domino effect which is decreasing unemployment and decreasing the poverty rate. the performance that is related with the tbudget is a financial performance in the form of comparisons between components in the budget. the comparison between components which are in the budget according to halim (2004) is measured by using several ratios that are developed based on financial data sourced from the regional income spending budget among others the autonomy ratio, effectiveness ratio, efficiency ratio, growth ratio, and suitability ratio. while mahmudi (2011) measures financial performance by using the regional autonomy ratio, regional dependence ratio, decentralization degree, locally generated revenue effectiveness and efficiency ratio, degree of region owned company contribution and income to debt ratio. this research observes the regional financial performance by observing fiscal decentralization, autonomy ratio, effectiveness ratio and efficiency ratio. fiscal decentralization is the ability of a region in decentralization enforcement. this ratio shows the contribution degree of locally generated revenue to total local revenue. the higher the locally generated revenue contribution the higher the ability of the regional government in decentralization enforcement. in the 2006-2015 time period the regency with the lowest fiscal decentralization ratio is south oku regency with an average ratio of 1.81 percent. this regency is a regency that is newly split with the income source still dependent on the central and balancing funds. as a whole the average fiscal decentralization of regencies/cities in south sumatera province covers the regencies/cities of prabumulih, pagaralam, lubuk linggau, banyuasin, musi banyuasin, muara enim, musi rawas, empat lawang, lahat, ogan ilir, oki, oku, okut, and okus in the very low category which is lower than 10 percent. the fiscal decentralization ratio of palembang city is in the less category with an average ratio of 17.59 percent. in the fiscal decentralization ratio counting in south sumatera province shows the categories of less and very less. so it is able to be summarized that the abilities of regencies/cities implementing decentralization is still less able if they are only funded on their own. so the role of the central government is needed to be more dominant than the autonomy of the regional government. the regional autonomy ratio on average for the last ten years which are the years 2006/2015 are in the very low category which is below 25 percent of which covers the regencies/cities of prabumulih, pagaralam, lubuk linggau, banyuasin, musi banyuasin, muara enim, musi rawas, empat lawang, lahat, ogan ilir, oki, oku, okut, dan okus. this condition interprets the autonomy pattern which is still instructive. the instructive relation pattern is which the role of the central government is more dominant than the regional government autonomy. the instructive pattern that makes dependence of the regional government financially to the central government is still very high. this is strengthened with the transfer income of regencies/cities which is sources from the central government transfer/balancing funds, tax sharing income, non-tax income sharing (natural resources), public allocation funds, specific the financial performance of regencies/cities in south sumatera province (2006-2015 time period) 57 allocation funds, central and other government transfers, specific autonomy funds, adjustment funds, government transfers. autonomy is an important factor in the implementation of regional autonomy. based on the autonomy ratio. palembang city has an autonomy ratio as large as 26.6 percent with a low criteria and a consultative relation pattern. based on the time series analysis the percentage increase is able to be seen of the balancing fund income from the central government. in the year 2008 there occurred an increase of balancing funds as large as 11.65 percent. in the years of 2009,2010 and 2011 the balancing fund income increase is not too significant only as large as 5.74 percent, 4.51 percent,3,33 percent. if analyzed from the public allocation funds from national income spending budget transfers the growth of public allocation funds of cities are able to be called consultative. the effectiveness ratio illustrates the ability of regional governments in realizing locally generated revenue which is planned with an assigned target based on regional potential. it is able to be said that the larger the effectiveness ratio the better the performance of the regional government. for the 10 year time period which is 2006-2015, the region that has the largest effectiveness ratio is okus regency with a value of 209.9 percent or very effective. other than okus the regencies/cities that are in the very effective category are palembang, prabumulih, pagaralam, lubuk linggau, banyuasin, musi banyuasin, muara enim, musi rawas, empat lawang, lahat, oki, oku. it is able to be summarized that in the year 2007 palembang city is able to streamline the realization of its locally generated revenue which is sourced from the locally generated revenue sourced from tax income, retribution income, income from region owned companies results and results of regional wealth processing that is separated and other forms of agreed locally generated revenue well. the region that has the lowest effectiveness ratio is ogan ilir regency with a value of 73.3 percent, which means it is less able to streamline its locally generated revenue realization which is from tax income. this large inequality is caused because of a difference in the targeted locally generated revenue with the locally generated revenue realization for the two regions differ significantly, other than that is as a cause of the locally generated revenue for each region is different. regional financial efficiency is used for illustrating the comparison between output and input or spending realization with regional income realization. the higher the ratio value the higher the efficiency level that applies in the region. based on research and counting each regency/city has different efficiency levels. basically each region has a target and achievement level that is expected. they have strategies and sources that are different and are able to be made into income. so it is able to be obtained between what is expected and what is realized concretely. the total spending component consists of operational spending, capital spending, unexpected spending, and transfer spending, while components of regional income consists of locally generated revenue, transfer income, and other agreed regional income. such as in the year 2008 the increase of regional spending realization is higher than the acquisition of regional income realization. this causes an increase in financial efficiency ratio of the regional government. the efficiency ratio increase of certain afebi economic and finance review (aefr) vol.02 no.01, june 2017 58 years is a cause of the increase in regional income and regional spending in the same year. the higher the financial efficiency ratio the more efficient finance management is in the region. in the period of the last 10 years regencies/cities in south sumatera province reached a ratio of 80 -90 percent, the efficient category covers palembang, prabumulih, pagaralam, lubuk linggau, musi banyuasin, empat lawang, lahat, okut, and okus, the adequately efficient covers banyuasin, muara enim, musi rawas, ogan ilir, oki, and oku. based on the determination coefficient test count (r2) which is used for measuring the amount of model ability in explaining the dependent variable variation. the r2 value range is 0 up to 1 the closer the r2 approaches 1 the larger the independent variables are in providing all information that is needed for predicting the dependent variable variation. the test results using the fixed effect model, fiscal decentralization influence, regional financial autonomy, effectiveness and efficiency to economic growth in regencies/cities in south sumatera province the adjusted r2 as large as 0.341114. which means the independent variables that are in the model are able to explain the dependent variables as large as 34.11 percent, while the rest 65.89 percent are explained by other variables outside of the model. based on the f test, results of the fixed effect model regression an f-statistic value of 5.256744 is obtained. in the α = 5 percent confidence model with df1=k-1 (4) and df2=n-k (144), so an f-table as large as 2.434503 is obtained. f-statistic > f-table so it is able to be summarized that h0 is accepted and h1 is rejected. it means that independent variables (fiscal decentralization, regional financial autonomy, effectiveness, and efficiency) have significant influences together to the dependent variable (economic growth). regencies/cities in south sumatera province have different individual influences for every change in the fiscal decentralization ratio, regional financial autonomy, regional financial effectiveness, regional financial efficiency and economic growth. based on test results using the fixed effect model, it is able to be seen the interpretation of regencies/cities in south sumatera province, regencies/cities that have a positive coefficient influence which means it experienced increase which are prabumulih, pagaralam, lubuk linggau, banyuasin, lahat, ogan ilir, east oku and south oku. while that have negative coefficients are palembang, musi banyuasin, muara enim, musi rawas, empat lawang, oki, and oku. the three largest that have positive coefficients are pagaralam, prabumulih, and south oku as large as 3.546777, 1.802535, and 1.49899. other than that these 3 regencies/cities also have the largest individual influence with each as large as -0.348297, -0.470423, and -0.605984. the regency/city that has the smallest positive coefficient which is lahat as large as 0.010246 with an individual influence of -0.250738 and that has the smallest negative coefficient which is palembang as large as -5.334590 with an individual influence of -5.595574. if seen as a whole the increase of fiscal decentralization ratio, regional finance autonomy, effectiveness and efficiency to economic growth for the 2006-2015 time period, the largest occurred in pagaralam city and the lowest occurred in palembang city. the financial performance of regencies/cities in south sumatera province (2006-2015 time period) 59 in the confidence level of α = 5 percent, df n-k (144), the t-table as large as 1.976575 is obtained. in the fiscal decentralization variable which has a regression coefficient for df is as large as 62.73185. this shows that fiscal decentralization has a positive and significant influence to economic growth. such as known, fiscal decentralization compares between locally generated revenue and total local revenue. the amount of locally generated revenue is very influential to economic growth. next the regional financial autonomy variable has a kkd regression coefficient as large as -16.04656. so, it is able to be summarized that regional financial autonomy has a negative but significant influence to economic growth. financial autonomy is really needed for the growth of a region and a better development. yet the readiness of each region is different. the reality that is faced is financial autonomy in the regions are still small and increasing regional financial performance is very difficult such as the research implemented by wahyuniarti (2007). the research implemented in nganjuk stated that regional financial autonomy tends to be low and less fiscal decentralization, which means that regions still depend on the central government. such as the case with the research implemented by gomes (2013), many factors cause the regional financial autonomy to be difficult to implement, among others are the difficulty to raise taxes, the difficulty to decrease expenses, dependence on the central government. this includes expecting sources of income from other regions and other parties. as seen from effectiveness, regional finance has a regression coefficient for efekkd which is as large as -0.074855. so, it is able to be summarized that effectiveness has a negative influence and not significant to economic growth. this is almost the same with the regional finance efficiency level. regional finance efficiency has a efikd regression coefficient as large as -0.254122. which means that efficiency has a negative influence and not significant to economic growth. yet based on the count together shows that fiscal decentralization, regional financial autonomy, effectiveness and efficiency for the last 10 years which are the years of 2006-2015 influences positively and significantly to economic growth. 6. summary and suggestions summary the summary obtained from the discussion before is that regional financial performance for regencies/cities in south sumatera province have different ratios. regional financial performance seen from the fiscal decentralization ratio, autonomy ratio, effectiveness ratio and efficiency ratio. when seen from the fiscal decentralization ratio it is summarized that as a whole the average fiscal decentralization of regencies/cities in south sumatera province covers the regencies/cities of prabumulih, pagaralam, lubuk linggau, banyuasin, musi banyuasin, muara enim, musi rawas, empat lawang, lahat, ogan ilir, oki, oku, okut, and okus in the very low category which is under 10 percent. the fiscal decentralization ratio of palembang city is in the less category with an average ratio of 17.59 percent. when seen from the average region autonomy ratio in the very low criteria which is under 25 percent. which covers the regencies/cities of prabumulih, pagaralam, afebi economic and finance review (aefr) vol.02 no.01, june 2017 60 lubuk linggau, banyuasin, musi banyuasin, muara enim, musi rawas, empat lawang, lahat, ogan ilir, oki, oku, okut, and okus. this condition interprets the autonomy pattern that is still instructive. the instructive relation pattern is which the role of the central government is more dominant than the autonomy of the regional government. the instructive pattern is what creates a very high level of dependence of the regional government financially to the central government. when seen from the effectiveness ratio, the region that has the largest effectiveness ratio is okus regency with a value of 209.9 percent or very effective. other than okus the city/regency that are in the very effective category are palembang, prabumulih, pagaralam, lubuk linggau, banyuasin, musi banyuasin, muara enim, musi rawas, empat lawang, lahat, oki, oku. in the time period of the last 10 years regencies/cities in south sumatera province reached an 80-90 percent ratio. the efficient category covers palembang, prabumulih, pagaralam, lubuk linggau, musi banyuasin, empat lawang, lahat, okut, and okus. the adequately efficient ratio category covers banyuasin, muara enim, musi rawas, ogan ilir, oki, and oku. the second summary is that regencies/cities in south sumatera province, the regencies/cities that have a positive coefficient which means experienced increase are prabumulih, pagaralam, lubuk linggau, banyuasin, lahat, ogan ilir, east oku, and south oku. while those that have negative coefficients are palembang, musi banyuasin, muara enim, musi rawas, empat lawang, oki, and oku. the three largest that have positive coefficients are pagaralam, prabumulih, and south oku as large as 3.546777, 1.802535, and 1.49899. other than that these 3 regencies/cities also have the largest individual influence with each as large as 3.285793, 1.541551, and 1.238006. while the three largest that have negative coefficients are oki, musi banyuasin, and oku as large as -0.087313, -0.209439, and -0.345000 which have individual influences as large as -0.348297, -0.470423, and -0.605984. the regency/city that has the smallest positive coefficient is lahat as large as 0.010246 with an individual influence of -0.250738 and that has the smallest negative coefficient is palembang as large as -5.334590 with an individual influence of -5.595574. generally fiscal decentralization, autonomy effectiveness and efficiency have positive and significant influences to economic growth. from statistic test results it is already proven that regional financial performance of regencies/cities in the regional income spending budget will support economic development in the region. suggestions 1. the optimization of locally generated revenue especially to income sources that have a prime potential by providing financial aid, providing an active role in implementing education and problem solving and paying attention to the development. 2. for continuation researchers it is suggested to be able to implement research that is more detailed or adding other variables. 3. increase development to the primary sector that is used for increasing economic growth and regional physical growth, road building, irrigation, networks and public facilities of the people. the growth of routine spending should be pressed on the contrary the growth of development spending has to be more and more increased to provide a multiplier effect. the financial performance of regencies/cities in south sumatera province 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(2010). pengaruh dana perimbangan terhadap pertumbuhan ekonomi sumatera barat. padang: universitas andalas. operating performance, market performance and sustainability performance before and after the covid-19 pandemic era in indonesia 103 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) operating performance, market performance and sustainability performance before and after the covid-19 pandemic era in indonesia khofipa oktasya1), amrie firmansyah2)* 1department of accounting, polytechnic of state finance stan. indonesia 2department of public sector accounting, polytechnic of state finance stan, indonesia abstract this study examines differences in operating performance, market performance and sustainability performance before and after the covid-19 pandemic. research data employs secondary data from financial statements and annual reports of consumer goods sector companies listed on the indonesia stock exchange (idx). financial and annual reports are sourced from www.idx.co.id, www.idnfinancials.com and the company's official website. based on purposive sampling, the research sample used is 92 observations of 46 companies for the 2019 observation year (before the covid-19 pandemic era) and 2020 (before the covid-19 pandemic era). this study concludes that there are no differences in operating performance and market performance before and after the covid-19 pandemic, while sustainability performance has differences before and after the covid-19 pandemic. this research suggests that the indonesia financial services authority (ojk) needs to increase supervision over the implementation of sustainability carried out by listed companies and harmonize policies on sustainability disclosure with disclosure standards that apply globally. keywords: operating profit, firm value, corporate social responsibility, covid-19 pandemic. 1. introduction the covid-19 pandemic has had a very serious impact on all countries in the world, including indonesia. this condition causes indonesia's economic, health and social order to weaken due to the implementation of social distancing policies to prevent the covid-19 virus (modjo, 2020). current conditions pose a serious threat to various industrial sectors in indonesia, especially in the performance of companies that impact capital market conditions (saraswati, 2020). the existence of the covid-19 pandemic has resulted in changes to the company's economic conditions (agusmadi et al., 2020). the company's declining operating performance due to various regulations can negatively impact its productivity and profitability (lowardi & abdi, 2021). good operating performance can be reflected in high profitability, and responsible disclosure will affect the demand for company shares. meanwhile, high stock prices describe good market performance (saputra & martha, 2019). the crisis caused by the covid-19 pandemic has caused the world stock market to turn red (fauziyyah & ersyafdi, 2021). various world financial bodies estimate that the covid-19 pandemic will cause a global economic contraction of -2.0% to 2.8% in 2020 from the previous growth of 2.9% on average (modjo, 2020). the international monetary fund (imf) and the world bank predict that by the end of the first quarter of 2020, the global economy will enter a very sharply corrected recession (liu et al., 2020 (nasution et al., 2020)). unlike the previous *coressponding author. email address: amrie@pknstan.ac.id https://creativecommons.org/licenses/by/4.0/ mailto:amrie@pknstan.ac.id afebi economic and finance review (aefr) volume 7, no 2 (2022) 104 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) financial crisis, the covid-19 pandemic has hit both the demand and supply sides. thus, itspressure on growth is being felt in many countries (modjo, 2020). according to s&p (burhanuddi & abdi, 2020), the increasingly widespread covid-19 will prolong the period of the fall of the asia pacific economy. countries that are predicted to be threatened with being dragged into a recession are australia, hong kong, singapore, south korea, japan and thailand. in addition, china's economic growth for 2020 is estimated to decline from 5.7% to 4.8% (burhanuddi & abdi, 2020). it underlies investors' concerns, causing the chinese stock price index to fall by 10%. indonesia has also felt the impact of the covid-19 pandemic. in two consecutive quarters, national economic growth contracted to 5.32% (junaedi & salistia, 2020). before the covid-19 pandemic, the condition of the national capital market was relatively good, judging by the jci, which touched 6300 in early january (fakhrunnas, 2020). this is a good achievement for the company's economy as an important pillar of national economic growth. this indicates a stable national economic prospect, with an economic growth rate of 5%-5.5% (fakhrunnas, 2020). much different from the conditions after the covid-19 pandemic, which caused the performance of companies in indonesia to decline drastically. the jci has decreased to below the 4000 level, and economic growth has decreased to 6.58% daily, which is the worst decline in nine years (tamara, 2020). this decline occurred due to investor distrust in regulations made by the government. according to investors, the indonesian government was not yet serious enough in responding to the impact of the covid-19 pandemic (fakhrunnas, 2020). it prompted investors to withdraw their funds from the indonesian capital market, which in turn caused the stock price index to decline. the decline of the company's stock price index significantly influences operating performance and market performance (saraswati, 2020). the decline in stock prices due to the covid-19 pandemic indicates the company has a poor market performance because it cannot attract investors to buy its shares. go-public companies issue shares to obtain funds for companies to carry out operational activities, expand, pay debts, increase liquidity and other purposes (marsandy et al., 2018). the decline in share prices also disrupted the company's operating performance. funds that should be used for company operations, such as purchasing raw materials, paying employee salaries, and other company operational needs, have decreased, so many companies are experiencing difficulties in their funding activities. it will be a problem for the company's business cycle, affecting its operating performance. many companies have been negatively affected by the covid-19 pandemic, but few have benefited from this situation by earning positive profits. the consumer goods industry sector had the smallest index decline of 9.96%, much different from the property industry sector, which experienced a decrease of 33.32% (saraswati, 2020). the decline, which was not so large compared to other industries, was triggered by the great demand from the public. people still need consumer goods that cannot be substituted or purchased, even during the pandemic. therefore, the declining index is not too large, and the chance of returning to normal is very large (saraswati, 2020). if the demand for a stock increases, the stock market price will also increase, reflecting the positive assessment of investors and potential investors toward the company (sintyana & artini, 2019). https://creativecommons.org/licenses/by/4.0/ operating performance, market performance and sustainability performance before and after the covid-19 pandemic era in indonesia 105 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) one of the lucky companies during the slump in the indonesian stock market is pt indofood cbp sukses makmur. the operating performance of pt indofood cbp or icbp showed a positive response by recording total net sales of rp 46.64 trillion in 2020, a significant increase compared to 2019, which recorded a figure of rp 42.30 trillion. this increase in net sales also increased the company's profit by 24%, from idr 7.4 trillion to idr 9.2 trillion (amelya et al., 2021). in line with closing stocks which rose by 4.25% or 375 points to rp 9,200 (tari, 2021). good performance can be reflected in the company's operating performance which can generate profits and leverage (wahyuningsih & mahdar, 2018). the company's operating performance can be said as a formal effort carried out by the company to assess the efficiency and effectiveness of the activities that have been carried out for a certain period (saputra & martha, 2019). in contrast, the factors that affect market performance are the stock price (saputra & martha, 2019). to maintain a good stock price, the company must maintain and increase investor confidence by providing the best performance (saraswati, 2020). investor confidence in the company can occur because of a mutually beneficial relationship. as owners of capital, investors want the information reported in financial statements to show good performance and have promising prospects. companies' disclosure of the information concerns one aspect of performance and sustainability performance indicators, namely economic, social and environmental performance (maulida & adam, 2011). poor market performance and operating performance can result in the company's financial statements showing poor performance because it has difficulty measuring its ability to generate profits. this will also impact the fall in the value of companies traded in the capital market. it is undeniable that the covid-19 pandemic has had a serious impact on reducing the company's operating performance and market performance. a serious decline in the company's operating and market performance due to the covid-19 pandemic must be reported in the company's financial statements for the benefit of external parties. however, often disclosures in the company's financial statements do not relate to the economic conditions of a country at that time, so it does not reflect the actual performance of the company, which in turn causes a bias for investors in assessing the market performance and sustainability performance of a company, or what is called asymmetric information. this asymmetry occurs when the company knows more about company information and prospects from outside parties so investors can access it (dewi & rahyuda, 2020). therefore, research on operating and market performance is important for further investigation to test the difference before and after the covid-19 pandemic. previous studies tested operating performance as the dependent variable using liquidity determinants (amalia et al., 2021; marsandy et al., 2018; tarigan & semuel, 2014; syafa'at, 2021), price earning ratio (amalia et al., 2021), total assets turnover (amalia et al., 2021; marsandy et al., 2018), profitability (marsandy et al., 2018; amelya et al., 2021; tarigan & semuel, 2014; syafa'at, 2021), leverage (tarigan & semuel, 2014; amalia et al., 2021; amelya et al., 2021; syafa'at, 2021; marsandy et al., 2018), sustainable report (tarigan & semuel, 2014; karyawati et al., 2017). https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 2 (2022) 106 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) research on market performance has been conducted before. previous research tested market performance as the dependent variable using the determinants of profitability (sintyana & artini, 2019; dewi & rahyuda, 2020; utami & rahayu, 2003; pramana & mustanda, 2016; saputra & martha, 2019) capital structure (sintyana & artini, 2019 ), company size (sintyana & artini, 2019), dividend policy (sintyana & artini, 2019; dewi & rahyuda, 2020), liquidity (dewi & rahyuda, 2020), the covid-19 pandemic (saraswati, 2020; agusmadi et al. , 2020), interest rates (m. utami & rahayu, 2003), inflation (utami & rahayu, 2003; basit & haryono, 2021), exchange rates (utami & rahayu, 2003; basit & haryono, 2021), stock prices ( saputra & martha, 2019), closing price (saputra & martha, 2019), price to book value (saputra & martha, 2019), political stability (basit & haryono, 2021), size (pramana & mustanda, 2016), corporate social responsibiliy (csr) (pramana & mustanda, 2016; agusmadi et al., 2020), relevance of ownership structure (nurkhin et al., 2017), sustainability information and isclosure (hardiningsih et al., 2020), export (nasution et al., 2020), divestment ((n. s. firmansyah, 2019). the covid-19 pandemic has become a serious issue for companies in the context of a company's sustainability performance. sustainability performance is the responsibility of the company, which can be realized by utilizing disclosure in its financial statements (internal) and environmental performance assessment (external). this disclosure is important to inform all stakeholders of the organization's economic, social and environmental performance (tarigan & semuel, 2014). environmental performance assessment shows how well a company responds to current extraordinary conditions. in the last few decades, corporate social responsibility reports containing additional environmental, social and economic information have begun to be integrated with the annual report (karyawati et al., 2017). financial performance alone is considered irrelevant, so the company's management must report additional information to attract investors' interest (karyawati et al., 2017). currently, companies are not only required to seek profit but also have to pay attention to social responsibility toward the community (wahyuningsih & mahdar, 2018). companies are not only faced with responsibilities based on a single bottom line, namely the value of the company that can be seen from its financial condition but must be based on a triple bottom line, namely financial, social and environmental changes (agusmadi et al., 2020). the financial condition is insufficient to guarantee that the company will grow sustainably (agusmadi et al., 2020). this social responsibility disclosure can be measured by criteria based on indicators from the global reporting initiative (gri) (wahyuningsih & mahdar, 2018). the main goal of gri is to achieve uniform and consistent reporting on the company's sustainability performance (lee, 2015). the practice of corporate social responsibility in indonesia has been regulated in law number 40 of 2007, article 66 paragraph (2) point (c), which explicitly stipulates that companies submit reports on the implementation of social and environmental responsibilities in annual reports. according to cahiri and nugroho (in wahyuningsih & mahdar, 2018), the number of companies that disclose sustainability reports increases from time to time, either as one in their financial statements or reported as separate reports. however, this disclosure is still voluntary. a survey conducted by kpmg in 2013 stated that companies attaching https://creativecommons.org/licenses/by/4.0/ operating performance, market performance and sustainability performance before and after the covid-19 pandemic era in indonesia 107 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) environmental, social and sustainability reports to their financial statements began to increase significantly (wicaksono & septiani, 2020). sustainability performance that the company does not respond to has resulted in the company being left behind in facing the current global issues. based on the results of suhandari's summary (in wahyuningsih & mahdar, 2018), several advantages that companies get when disclosing their sustainability performance include: being able to widen access to resources, expand access to the market, maintain and boost the company's reputation and brand image; obtain a license to operate (social license to operate); increase employee morale and productivity; reduce the company's business risk; reduce costs; open up opportunities to obtain awards and improve relations with stakeholders (stakeholders) and regulators. stakeholders are currently focusing intensive scrutiny on ethical business within the organization, expecting leaders, managers and employees to address the complex environment of organizational ethnic decision-making by implementing sustainability performance with the hope that this will provide a healthy business image by implementing ethical policies and transparency in identifying real-life problems to improve company performance and career advancement (mulyaningsih & hermina, 2017). it is not surprising that sustainability performance has emerged as a new need for shareholders in considering economic decision-making (kuswanto, 2019). therefore, testing before and after the covid-19 pandemic on this sustainability performance needs to be carried out, considering the current conditions, which are much different from the situation before the pandemic. research on sustainability performance has been conducted in indonesia previously. previous research tested sustainability performance as an independent variable using the determinants of market performance (karina & setiadi, 2020; hardiningsih et al., 2020; pramana & mustanda, 2016; pramana & mustanda, 2016; sholikhah & khusnah, 2020), financial performance (tarigan & semuel, 2014), environmental (tarigan & semuel, 2014), social (tarigan & semuel, 2014), tax aggressiveness (a. firmansyah & estutik, 2020), covid19 pandemic (akbar & humaedi, 2020). previous research tested sustainability performance as a dependent variable using profitability determinants (wahyuningsih & mahdar, 2018; liana, 2019; widianto, 2011), liquidity (widianto, 2011), leverage (wahyuningsih & mahdar, 2018; liana, 2019; widianto, 2011), company size (wahyuningsih & mahdar, 2018; liana, 2019; widianto, 2011; safitri & saifudin, 2019), independent board of commissioners (liana, 2019), corporate governance (widianto, 2011; safitri & saifudin, 2019). the purpose of this study is to examine operating performance, market performance and sustainability performance simultaneously before and after the covid-19 pandemic era. research on operating performance, market performance and sustainability performance simultaneously in events before and after the covid-19 pandemic era has never been done in previous studies. in a previous study conducted by indriani & firmansyah (2021), operating and market performance testing was carried out during and after the stock split. another study by aliwartaya & saryadi (2018) examined operating and market performance during the events before and after the acquisition. another study by marsandy et al. (2018) only performs operational performance testing in events before and after going public. other studies such as amalia et al. (2021), amelya et al. (2021), syafa'at (2021), and pratama et al. (2021) only https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 2 (2022) 108 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) tested one dependent variable, namely operating performance in events before and after the covid-19 pandemic. in contrast to previous research, the use of sustainability performance in this study uses the 2018 gri standards index while widianto (2011) uses the gri g3, dwigana (2019) compares the gri standards with isr, heryanto & juliarto (2017) use the gri g4 index, ningsih & cheisviyanny (2019) using the gri g4 index. the advantage of gri standards 2018 compared to the previous one is that it is more dynamic by using modular documents with 36 modules so that it is easy to make changes to the number of modules (www.majalahcsr.id, 2017). another advantage that gri standards 2018 has compared to the previous gri is the use of language that is easier to understand, each module contained in gri standards 2018 can be recognized as a separate part of the module while still being related to one another, distinguishing which clauses are appropriate to be suggested and that must be followed, facilitates the process of the most appropriate revision (www.majalahcsr.id, 2017). this research is expected to contribute to or complement the literature on the analysis of operating performance, market performance and sustainability performance before and after the covid-19 pandemic era in the context of research in financial accounting. in addition, this research is expected to be useful for the financial services authority (ojk) to improve investor protection policies and the implementation of sustainability for companies listed on the indonesia stock exchange. 2. literature study signaling theory emphasizes that the main problem between company management and external parties as stakeholders lies in the difference in the information held by the two. when internal parties know more about the company, they are urged to convey their information to stakeholders to increase its value (mariani & suryani, 2018). the information referred to here is the company's financial statements and annual reports. the information in the financial statements and annual reports must be complete, accurate, relevant and timely due to the company's accountability for one accounting period. the covid-19 pandemic has had a negative impact on the company's performance, as reflected in the signals given by the company in its financial statements and annual reports. one of the impacts of the covid-19 pandemic in the research conducted by syafa'at (2021) showed a decline in the company's operating performance due to the declining number of people's purchasing power in 2020. however, several sectors also earned positive profits as in the research conducted. by amelya et al. (2021) against pt indofood cbp sukses makmur. this condition is caused by the increasing need for consumption in response to government policies related to lockdown and social distancing policies. this difference in the impact of various sectors makes disclosing relevant information necessary. this study is in line with research conducted by junaidi & salim (2021) that there are differences in the impact experienced by companies from various industrial sectors. operational performance for companies is an explanation of financial conditions through financial analysis tools to understand the condition of a business, especially in financial conditions which reflect the company's operating performance within a certain period (sianturi, 2020). in other words, operating performance shows the company's activities in obtaining https://creativecommons.org/licenses/by/4.0/ operating performance, market performance and sustainability performance before and after the covid-19 pandemic era in indonesia 109 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) profits for a period (indriani & firmansyah, 2021). therefore, the company's management tries to have good operating performance before and after the covid-19 pandemic to show that management has a good strategy and achievement in achieving the company's goals of maximizing company profits. however, the covid-19 pandemic affected various industrial sectors and the company's operating performance. the impact of the covid-19 pandemic on companies can be seen in how effective the company is in generating profits (ali et al., 2018). the company's financial condition regarding how well and effectively the company is can be known through a signal called operating performance. good or bad, the impact felt by the company due to the covid-19 pandemic is important for investors and potential investors to know so that they are not wrong in determining their investment direction. thus, the first hypothesis in this study is: h1: there are differences in operating performance before and after the covid-19 pandemic in signaling theory, it is explained that the information in the report must describe the company's condition being distributed (aprillya, 2019). however, managers often have certain motives for their interests due to differences in interests between management and external parties (indriani & firmansyah, 2021). this condition has resulted in distrust of investors and potential investors in the company's performance, thus making the company's market performance decline, especially in difficult conditions such as the covid-19 pandemic. the company's ability to maintain market performance in various conditions, such as during the covid-19 pandemic, shows its confidence in the market for its future performance (suwardika & mustanda, 2017). however, not a few investors take advantage of this condition as an opportunity to invest (sidik, 2021), so it is important to research different tests of market performance on consumer goods industrial sector companies before and after the covid-19 pandemic to find out which companies are generating profits and providing benefits in profits for investors. previous research that is relevant to research on differences in market performance under certain conditions has been carried out by aliwartaya & saryadi (2019), which discusses differences in market performance before and after the acquisition, stating that market performance reflects the company's prospects, whether good or bad according to investors' assessments. another study conducted by indriani & firmansyah (2021) raised research related to the different tests of market performance before and after the stock split. this study states that the company's belief in the company is a determining factor for its market performance, regardless of how conditions affect it. therefore, the role of managers in responding to the wishes of investors and potential investors to increase trust in the company is more needed to increase the company's market performance figures. the role of investors is very large in improving the company's market performance. the interest of investors and potential investors is equated with high demand, which results in high stock prices of a company, regardless of how the conditions occur, such as in the case of the covid-19 pandemic, which made the market performance of most sectors in the capital market decline. however, if the company is considered capable of providing optimal performance for the welfare of its stakeholders, then the market response will show a positive signal. thus, the second hypothesis in this study is: h2: there are differences in market performance before and after the covid-19 pandemic https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 2 (2022) 110 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) company information in financial, annual or sustainability reports will be used as a signal for external parties to determine their investment direction (gumanti, 2009). those who understand the meaning will respond well to a good signal, so the signal must be clear and relevant to properly convey the signal's intent. in other words, the selected signal must contain the power of information that can change the judgment of the company's external parties (gumanti, 2009). one form of signal the company conveys is a sustainability report as a form of corporate responsibility for economic, social and environmental conditions. the covid-19 pandemic has made many investors and potential investors underestimate the company's performance. therefore, the disclosure of sustainability performance is very much needed by external parties to find out what the company has done in carrying out its responsibilities towards social, economic and environmental conditions. investors and potential investors as stakeholders consider that the sustainability performance disclosed by the company in the sustainability report and the annual report is a form of concern and responsibility of the company to signal a positive signal to external parties (tarigan & semuel, 2014). the covid-19 pandemic affects all aspects of people's lives in the social, economic and environmental fields. they are disclosing sustainability performance as one that investors and potential investors will need as stakeholders to measure the commitment or seriousness of the company in its sustainability performance (d. a. safitri, 2015). the response of external parties to the disclosure of sustainability or sustainability performance shows that sustainability performance with a wide scope of disclosure in the economic, social and environmental fields will affect the market reaction. this is in line with the research of tarigan & semuel (2014), d. a. safitri (2015) and karyawati et al. (2017). the company responded well with a high public awareness of the importance of corporate responsibility in the economic, social and environmental fields. in responding to pressure from the community and other stakeholders to increase the number of sustainability performances, this is nothing but the influence of the company's response in overcoming obstacles caused by the covid-19 pandemic. the company's efforts to increase stakeholder trust by expanding the scope of its disclosures are factors behind the high sustainability performance during the covid-19 pandemic. thus, the third hypothesis in this study is: h3: there are differences in sustainability performance before and after the covid-19 pandemic 3. research methodology this study employs a quantitative method approach. the data used in this study is secondary data obtained from the company's financial, annual, and sustainability reports for 2019 to 2020. financial reports, annual reports and sustainability reports were obtained from the official website of the indonesian stock exchange (www. idx.co.id), the official idn financials website (www.idnfinancials.com) and the company's official website. company https://creativecommons.org/licenses/by/4.0/ operating performance, market performance and sustainability performance before and after the covid-19 pandemic era in indonesia 111 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) value data is obtained based on the number of shares multiplied by the stock market price obtained from the finance.yahoo.com page. the summary of the sampling procedure based on the purposive sampling method is as follows: table 1 research sample criteria number companies in the consumer goods industry sector as of march 2022 73 companies that ipo after january 1, 2019 (22) companies that do not provide complete financial statements, annual reports and sustainability reports during the study period (1) companies with data outliers (4) the number of companies used for this research 46 number of research years (2019-2020) 2 total sample observed 92 source: processed the dependent variables used in this study are operating performance, market performance and sustainability performance. in this study, the operating performance ratio is proxied by using returns on assets (roa) as a. firmansyah & sari indriani (2021), aliwartaya & saryadi (2019), d. a. safitri (2015). roait = net incomeit total assetsit where: roait : the operating performance of company i in year t net incomeit : net income of company i in year t total assetsit : total assets of the company i in year t in this study, the market performance ratio was proxied using tobin's q, referring to the research of d. a. safitri (2015), rizki & patuh (2016) and a. firmansyah & sari indriani (2021). tobin's q not only provides an overview of the fundamental aspects but also describes the extent to which the market assesses the company from various aspects from outsiders, including changes in business conditions (wibowo & faridza, 2014). tobin′s qit = (total market valueit + total bv of liabilitiesit) total bv of assetsit market value = market price per share × total outstanding shares where: tobin’s qit : the market performance of company i in year t mveit : market value equity (market value of all outstanding shares) of the company i in year t liabilityit : total book value of company i liabilities in year t total assetsit : total assets of the company i in year t this study measures sustainability disclosure with the sustainability report disclosure index (srdi) using 77 gri standards sustainability disclosure guideline indicators. the guidelines in the gri standard sustainability report with 77 indicators are divided into 4 https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 2 (2022) 112 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) series. the 100 series consists of 3 universal standards, namely: gri 101 (foundation), gri 102 (general disclosures), and gri 103 (management approach). series 200, 300, and 400 are related to specific topic standards, including economic, environmental, and social topics (fajrianto & mulawarman, 2021). in line with the research conducted (a. firmansyah & estutik, 2020), this study uses a scale of 0 to 4 (table 2) to present a quality score for each disclosure item in the company's annual report and sustainability report. table 2 quality scale of sustainability disclosure scale criteria 0 no disclosures 1 little disclosure or a brief mention 2 descriptive: presents policies and impacts on the company 3 quantitative: the impact on the company is clearly defined in terms of monetary or physical quantities 4 disclosure is very well done and complete source: processed previous researchers who have used srdi as a proxy to measure sustainability disclosure with a disclosure quality scale are (a. firmansyah & estutik, 2020) with the following formula: srdiit = total corporate sustainability disclosures total disclosure criteria according to gri the statistical procedure in this study went through a series of stages, namely: descriptive statistics, normality test statistics with the shapiro wilk test because df <50 is 46, and inferential statistics, comparative statistical tests or different tests, if the data used is normally distributed then a parametric statistical test will be carried out in the form of a different test paired sample t-test whereas if the data used is not normally distributed then a non-parametric statistical test will be carried out, namely the wilcoxon matched pair test (indriani & firmansyah, 2021). 4. result and discussion table 2 summarizes descriptive statistics of the variables used in this study before and after the covid-19 pandemic. table 3 research descriptive statistics before the covid-19 pandemic variable n mean med std. dev min. max. operational performance-roa 46 0,0797 0,0606 0,1231 -0,1133 0,6070 market performance-tobin's q 46 2,2191 1,2500 2,3428 0,43 11,88 sustainability performance-srdi 46 0,2524 0,2272 0,1346 0,0519 0,6623 sourced: processed table 4 research descriptive statistics after the covid-19 pandemic variable n mean med std. dev min. max. operational performance-roa 46 0,0809 0,0794 0,1693 -0,2485 0,5991 https://creativecommons.org/licenses/by/4.0/ operating performance, market performance and sustainability performance before and after the covid-19 pandemic era in indonesia 113 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) market performance-tobin's q 46 2,0978 1,3150 1,8639 0,50 8,04 sustainability performance-srdi 46 0,2905 0,2532 0,1652 0,0519 0,7922 source: processed roa variable from the pre-pandemic research sample has a mean value of 0.0797 and a standard deviation of 0.1231, indicating that the operating performance of the samples used does not vary. the size of the data distribution is seen from the minimum and maximum values of the overall observations, namely -1.113 and 0.6070, which mrat and mlbi occupy. there is a slight difference in the roa variable after the pandemic, with a mean and standard deviation of 0.0809 and 0.1693. meanwhile, regarding data distribution, the minimum and maximum values after the pandemic were 0.2485 and 0.5991, different from those before the mbto and inaf. tobin's q variable from the pre-pandemic research sample has a mean value of 2.2191 and a standard deviation of 2.3428. this figure indicates that market performance in the samples varies quite a bit. the mean value of tobin's q variable > 1 indicates that the sample used has a high average market performance. the size of the data distribution is seen from the minimum and maximum values of the overall observations, namely 0.48 and 11.88, which mrat and mlbi occupy, companies that also occupy the minimum and maximum values in operating performance before the pandemic. a decrease caused a difference in tobin's q variable after the pandemic had a mean and standard deviation of 2.0978 and 1.8639. meanwhile, the data distribution measures for the minimum and maximum values after the pandemic are 0.50 and 8.04, which the mbto and inaf occupy. the srdi variable from the pre-pandemic research sample has a mean value of 0.2524 and a standard deviation of 0.1346, and this figure indicates that the sustainability performance of the samples used does not vary. the mean value of the srdi variable < 1 indicates that the sample used has a low average disclosure of sustainability performance. the size of the data distribution is seen from the minimum and maximum values of the overall observations, namely 0.0519 and 0.6623, which pani and peha occupy. an increase in sustainability performance caused differences in the srdi variable after the pandemic, which had a mean and standard deviation of 0.2905 and 0.1652. meanwhile, regarding data distribution, the minimum and maximum values after the pandemic are 0.0519 and 0.7922, which pani and mlbi occupy. before conducting a further test analysis on the research sample, a normality test is first carried out to determine which method will be used in the inferential test statistic and whether it meets the requirements of a parametric or non-parametric test. table 5 normality test results before the covid-19 pandemic variable kolmogorov-smirnova shapiro-wilk statistic df sig. statistic df sig. operational performance-roa 0,167 46 0,003 0,820 46 0,000 market performance-tobin's q 0,223 46 0,000 0,659 46 0,000 sustainability performance-srdi 0,093 46 0,200* 0,945 46 0,030 source: processed https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 2 (2022) 114 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) table 6 normality test results after the covid-19 pandemic variable kolmogorov-smirnova shapiro-wilk statistic df sig. statistic df sig. operational performance-roa 0,116 46 0,144 0,928 46 0,007 market performance-tobin's q 0,219 46 0,000 0,745 46 0,000 sustainability performance-srdi 0,130 46 0,050 0,926 46 0,006 source: processed based on the overview of the normality test in 5 and table 6 above, the variables of operational performance-roa, market performance-tobin's q and sustainability performancesrdi both before and after the pandemic have a sig value on the shapiro-wilk test <0.05, so that the three variables in this study have abnormal data distribution. therefore, the different tests carried out did not meet the requirements of a parametric statistical test, so the applicable test was the non-parametric statistical test wilcoxon paired t-test (indriani & firmansyah, 2021). the summary of the results of hypothesis testing based on the wilcoxon paired t-test is in table 7. table 7 the summary of hypothesis test results z asymp. sig. (2-tailed) roa t+1 roa t-1 -0,290b 0,772 tobin's q t+1 tobin's q t-1 -0,978b 0,328 srdi t+1 srdi t-1 -3,834b 0,000 a. wilcoxon signed ranks test b. based on positive ranks. source: processed for additional analysis, this study also presents a ranks test for the three variables in this study, as follows: table 8 wilcoxon signed ranks test ranks n-roa n-tobin’s q n-srdi after before negative ranks 25a 24a 3a positive ranks 21b 22b 22b ties 0c 0c 21c total 46 46 46 a. after < before b. after > before c. after = before source: processed discussion of operational performance before and after the covid-19 pandemic through hypothesis testing that has been carried out, this study found that there was no difference in operating performance before and after the covid-19 pandemic. the absence of a https://creativecommons.org/licenses/by/4.0/ operating performance, market performance and sustainability performance before and after the covid-19 pandemic era in indonesia 115 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) difference between the post-pandemic and pre-covid-19 pandemic indicates that the covid19 pandemic has not brought about good or bad changes to companies operating in the consumer goods industry, given the increase in the mean roa as a proxy for operating performance. the results of the research on different tests of operating performance before and after the pandemic are in line with research conducted by amalia et al. (2021), amelya et al. (2021) and ilahude et al. (2021). research conducted by amalia et al. (2021), syafa'at (2021) and siswati (2021) use different proxies, namely the ratio of liquidity, solvency, activity and market value. this study uses the same proxy in measuring differences in operating performance before and after the pandemic as the study of amalia et al. (2021), ilahude et al. (2021) and lowardi & abdi (2021). however, there are differences in the characteristics of the research sample, the measurement techniques used and differences in the methods of data analysis. it is different from lowardi & abdi (2021), which stated that there were differences in operating performance before and after the covid-19 pandemic. still, this is because the data sample used is a company engaged in the property industry sector. in contrast to previous studies, the researcher used a sample of data from companies operating in the consumer goods industry sector, which is a sector that provides basic needs for the community. the consumer goods industry sector, one of the four defensive sectors, is the strongest factor behind the absence of differences in the consumer goods industrial sector before and after the covid-19 pandemic. defensive stocks have low risk and stable returns (f. a. utami, 2020). stocks from the defensive sector are believed to be stocks that have consistency in dividends and earnings because the number of requests that tend to be stable for the company's products is often referred to as stocks that are immune to economic conditions or non-cyclical stocks. apart from the stable operating cycle, other factors, such as the tendency of better defensive stock performance in responding to the recession, are the reasons for the survival of the consumer goods industry sector amid the covid-19 pandemic. the stable characteristics of the consumer goods industry sector, because it is the main pillar of producing the community's basic needs, play a large role in its operating performance (ramadhani, 2021). even though there is a decline due to crisis conditions such as the covid19 pandemic, this decline will quickly return to normal, considering that market conditions will always return to equilibrium (hatta, 2012). plus, the products produced in this sector are the basic needs of many people, so it is not difficult for companies in this sector to rise and improve to maintain their operating performance. one way for companies to demonstrate their ability to deal with crises is by disclosing the company's performance and giving a signal to outsiders such as investors, creditors, consumers, the government, or employees who act as parties who receive signals (spence, 1973). the signal conveyed by this company can also be interpreted as the company's management effort to provide relevant information to outsiders or investors to determine investment decisions or, in other words, to attract investors to invest (gumanti, 2009). a good signal shows a high value in its financial statements and must provide information under actual conditions, whether the company's performance is in good or bad condition (rokhlinasari, 2015). however, the company's habit of conveying good signals tends to be faster than bad news (syahputri, 2020). this tendency underlies the information https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 2 (2022) 116 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) asymmetry in financial statements where the company has more information than external parties (fahmi et al., 2019). operational performance shows a good value if the company's net income and total assets show good numbers in its financial statements. based on the results of the different tests, it was concluded that there were no significant differences in operating performance before and after the covid-19 pandemic in companies operating in the consumer goods industry, so with this conclusion, management is considered to have conveyed the right signal to stakeholders. thus, the company is still trying to maintain the company. although based on the results of descriptive statistical tests, the mean (before < after; 0.0797 < 0.0809) and standard deviation (before < after; 0.1231 < 0.1693) had increased, but the increase was not significant. the difference in the mean and standard deviation of roa before and after the pandemic does not make the operating performance of the sample companies experience a difference. this possibility occurs because the difference in the number of companies experiencing an increase and decrease in roa value is almost equal to the difference between only four companies. more companies are experiencing a decrease (25 companies) in roa value than companies experiencing an increase (21 companies). discussion of market performance before and after the covid-19 pandemic through hypothesis testing that has been carried out, this study concludes that there is no difference in market performance before and after the covid-19 pandemic. the absence of differences in market performance during the covid-19 pandemic for companies engaged in the consumer goods sector indicates that the covid-19 pandemic has not brought about good or bad changes despite a decrease in the average value of tobin's q. this test shows that external parties respond to signals caused by the covid-19 pandemic. the results of the research on different tests of market performance before and after certain conditions are in line with research conducted by ofeser & susbiyantoro (2021), indriani & firmansyah (2021) and aliwartaya & saryadi (2019), which stated that there was no difference in market performance under conditions certain, namely during stock splits or acquisitions. in contrast to research by setiawan & asbaniar (2021), syahputri (2020) and martini & djohan (2020) stated that there are differences in market performance before and after the covid-19 pandemic. the differences in the results of this study were caused by several things, namely differences in the characteristics of the research sample, the observation period, the proxies used to measure the company's operating performance, the measurement techniques used and differences in the methods of data analysis. martini & djohan (2020) employed a different proxy, namely the closing price with different sample characteristics. based on the results of this study, there is no difference in market performance using tobin's q proxy, which indicates no change in the value of the company's assets. the decrease in the mean value in the descriptive statistical test results was because more companies experienced a decrease in the value of tobin's q, namely as many as 24 companies, than companies that experienced an increase in the value of tobin's q calculation, namely as many as 22 companies, but this difference in overall value did not result in differences in market performance. after all, the numbers are almost equal. https://creativecommons.org/licenses/by/4.0/ operating performance, market performance and sustainability performance before and after the covid-19 pandemic era in indonesia 117 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) the real reason behind the absence of differences in market performance in the consumer goods industry sector is the defensive or crisis-resistant nature of the sector. the company's ability to withstand a decline in its performance during a crisis is one of the strengths of this sector. characteristics of companies with a variety of immediate needs products accompanied by management capabilities that can read the situation quickly, successfully survive the crisis and tend to experience an increase in market performance. although at the beginning of the covid-19 pandemic, the performance of the capital market experienced a shock, the impact was felt differently in each industrial sector (puspitasari, 2020). it is proven in the consumer goods industry sector in 2019, before the covid-19 pandemic, the stock price in this sector experienced the deepest correction to touch 20.11%; the decline in 2019 was worse when compared to the stock price index in 2018, which was corrected by 10.21% (prima & hidayat, 2020). however, this differs from the conditions after the covid-19 pandemic hit, where market performance increased throughout the year due to the increase in people's purchasing power in the face of the covid-19 pandemic. however, not all companies in this sector experienced an increase in their market performance, and several companies also experienced a decline in their market performance, such as kino, ggrm, ultj and wood. this decrease was due to the lack of product diversification (qolbi & rahmawati, 2020). the decline in the value of tobin's q after the pandemic in several sample companies was due to a decrease in the market value at the end of the year, which was the response of external parties to the covid-19 pandemic. however, this decline in company value was offset by the increase in the value of other companies in similar sectors. this is natural considering the crisis conditions due to the covid-19 pandemic. although there were some declines in the company's market performance in this sector, it is believed by the market that this figure will stabilize again and show its value again under the characteristics of the defensive sector. one of the obligations of the company to provide a true picture of the company is by disclosing the company's performance, by giving a signal or signal to outside parties such as investors, creditors, consumers, the government, or employees who act as parties who receive signals (spence, 1973). the signal conveyed by this company can also be interpreted as the company's management effort to provide relevant information to outsiders or investors to determine investment decisions or, in other words, to attract investors to invest (gumanti, 2009). a good signal will be a positive consideration for external parties in investing (aprillya, 2019). the worrying pandemic condition is a serious problem for many companies and is bad news for some investors. but not for other investors who take advantage of this condition as the right time to invest. it is proven that at the end of 2020, the average daily transaction on the indonesia stock exchange increased by 46% or seven times compared to 2017 (sidik, 2021). apart from the problem of signaling theory that causes asymmetric information, the results of this test show that investors and potential investors have confidence in management to survive and rise in the future (indriani & firmansyah, 2021). consumer goods, by their nature, are difficult to abandon because they are a basic need of the community, so, under any conditions, people will still buy and tend to increase the number of requests in line with the https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 2 (2022) 118 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) crisis that occurred due to the covid-19 pandemic. based on the results of the study, it can be concluded that investors and potential investors are considered capable of receiving and giving good signals from and to the company, as evidenced by the condition of market performance which did not experience a significant decline compared to conditions before the covid-19 pandemic (ofeser & susbiyantoro, 2021). discussion on sustainability performance before and after the covid-19 pandemic through hypothesis testing that has been carried out, this study concludes that there are differences in sustainability performance before and after the covid-19 pandemic. the difference in sustainability performance during the covid-19 pandemic for companies engaged in the consumer goods industry sector indicates that the covid-19 pandemic has provided a good chance in the company's commitment to reporting social, economic and environmental responsibilities. the results of this test also show that the company's management is trying to signal to stakeholders that the company is not standing still in the face of the pandemic by continuing to find solutions to all kinds of obstacles that arise due to the covid-19 pandemic. based on the results of the wilcoxon statistical test that has been carried out, it can be concluded that there are differences in sustainability performance before and after the covid19 pandemic. based on the results of the wilcoxon signed ranks sustainability performance test that there are only 3 of the 46 sample companies experienced a decrease in the sustainability report disclosure index (srdi), 22 of the 46 sample companies experienced an increase, and the remaining 21 of 46 other sample companies had the same value before the occurrence. covid-19 pandemic. this indicates that the company's commitment to delivering its sustainability performance has increased after the covid-19 pandemic, as seen from the mean value in the descriptive statistical analysis results, which increased from 0.2524 to 0.2905. the results of research on different tests of sustainability performance before and after this pandemic have never been carried out in previous studies. however, relevant research is still used by researchers as a reference, such as research conducted by akbar & humaedi (2020) and setyahuni & widiar (2022). the difference between this study and previous research lies in the tests carried out employing different tests on sustainability performance and the proxy used in the study, namely srdi concerning gri standards and the characteristics of the sample data used by companies in the consumer goods industry. this research using the srdi proxy with a scale of 1 to 4 has been carried out in a. firmansyah & estutik's research (2020). disclosure of sustainability performance is a moral responsibility and corporate commitment to social and environmental issues (hardiningsih et al., 2020). this is in line with the signaling theory expressed by gumanti (2009) that the signal must contain the power of information to change the assessment of external parties towards the company. disclosure of sustainability performance submitted through a sustainability report or integrated directly into the annual report is a signal that the company wants to convey that the company has a strong commitment to continue to involve the community as a responsibility to the environment so that this is intended to be able to influence stakeholder decisions on company value. improvements in sustainability performance during the covid-19 pandemic occurred due to several reasons. the company deliberately carried out this increase as a signal that the https://creativecommons.org/licenses/by/4.0/ operating performance, market performance and sustainability performance before and after the covid-19 pandemic era in indonesia 119 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) company has a high responsibility for economic, social and environmental conditions. the company realizes that the community or stakeholders are not only focused on profit alone but more than that. the triple bottom line is public concern for the environment and resources (widianto, 2011). this change in perspective is one of the reasons or motivations for companies to improve the company sustainability performance, which is reflected in the disclosure of sustainability (muallifin & priyadi, 2016). in line with the signaling theory expressed by aprillya (2019), a good signal will be material for positive consideration for external parties in investing. based on previous research by a. setiawan (2016), karyawati et al. (2017), muallifin & priyadi (2016), karina & setiadi (2020), and hardiningsih et al. (2020) in their research concluded that sustainability performance affects company value, so that increasing the company's sustainability performance figure after the covid-19 pandemic is the company's goal by giving a good signal to stakeholders about the company's economic, environmental and social responsibility during the pandemic covid-19. the increase in sustainability performance after the covid-19 pandemic was undeniably a response by management to carrying out its corporate obligations. one of the company's efforts in responding to the impact of the covid-19 pandemic in terms of sustainability performance is by recalculation or rearranging the company's strategy in terms of economic, social and environmental responsibility or corporate csr by diverting or optimizing csr towards handling covid-19 such as securing work safety. and employee health, distribution of personal protective equipment and medical equipment as well as other things to suppress the spread of covid-19 to improve the company's sustainability performance (akbar & humaedi, 2020). the company's efforts to fully support the government's efforts in tackling the impact of covid-19 are the background for the company's high sustainability performance. the increase in sustainability performance is expected to affect the company's good image to investors and potential investors that the company has a great commitment and responsibility to the economy, society and environment. it is expected that with the increase in sustainability performance, stakeholders can receive this positive signal properly related to the company's certainty in the future. 5. conclusion this study concludes that there is no significant difference in the company's operating performance before and after the covid-19 pandemic. the consumption sector companies in indonesia have not experienced a significant decline in their operating performance due to the impact of the covid-19 pandemic. companies in the consumer goods sector are the sectors that have survived the economic shocks caused by covid-19. in addition, there is no significant difference in market performance before and after the covid-19 pandemic. investors are suspected of assuming that consumer goods sector companies still have good performance because companies in this sector have not experienced too much decline in sales due to the covid-19 pandemic. furthermore, there are significant differences in sustainability performance before and after the covid-19 pandemic. the existence of the covid-19 pandemic condition encourages companies to improve the implementation of sustainability https://creativecommons.org/licenses/by/4.0/ afebi economic and finance review (aefr) volume 7, no 2 (2022) 120 published by afebi economic and finance review this is an open access article under the cc by license (https://creativecommons.org/licenses/by/4.0/) because the implementation of sustainability is thought to be one of the company's efforts in overcoming risk mitigation that will occur in the future. this study only employs data from one sector, so the results do not reflect the conditions for other sectors or all company sectors in indonesia. in addition, the presence of some outlier data decreased the number of samples used in this study. future research can be conducted on manufacturing, non-financial, and financial companies to produce a larger sample and more comprehensive test results. further research can be carried out using other proxies to determine the effect of the covid-19 pandemic on operating performance, market performance and company sustainability performance to compare the test results with this study. this study suggests that the financial services authority (ojk) should increase supervision over implementing sustainability disclosures by public companies. in addition, the authority needs to harmonize its sustainability disclosure policies with globally applicable disclosure standards. references agusmadi, marzuki, & r, m. s. 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