Fluctuations of Oil Prices and Gross Domestic Product in Indonesia

Abstract

The main aim of the study was to find out the impact of fluctuations of oil prices on the economic progress measured using GDP of Indonesia. The research design was quantitative as the data collect is in numeric form. The data is collected from the secondary sources including World Bank and Fred St. Louis. A total of 10 years data was collected ranging from 2009 to 2018 based on monthly frequency. The analysis was conducted using ADF testing for stationarity, descriptive statistics and Autoregressive Distributed Lag (ARDL) model is conducted in order to find the impact of fluctuations of oil prices on the Indonesian economic progress. It was found from the preliminary assessment that data of GDP index had unit root, therefore, ARDL model was opted. It was found that oil price volatility affected the economic progress of Indonesia positively in the short-run. It was also evaluated that GDP is significantly dependent on its lagged values. The research underpinned the case of Indonesia therefore this research is limited to the geographical bounds of Indonesia. Therefore, no other country has been assessed in this study and this provides direction for future research where other developing countries, for instance, Thailand, Malaysia, Pakistan or China. Provided this, the research in future can be further enhanced by incorporating control variables like exchange rate, inflation, interest rate.