ANALYZING FOOD IMPORT DEMAND IN INDONESIA: AN ARDL BOUNDS TESTING APPROACH

Abstract

Over the last few decades, Indonesia has seen an increase in its food imports and continues to see steady increases due to changing consumer taste and preferences. The current study analysed aggregate food import demand and its determinants using annual data and the ARDL bounds testing approach to cointegration for the period 1984-2020. The Augmented DickyFuller test was used to determine the order of integration of each variable which was found to be order 1 for all variables. The outcome of the unit root test suggested a possible cointegrating relationship between food imports and its determinants which was investigated using the ARDL bounds testing approach. The bounds test concluded that there exists a longrun equilibrium relationship between food imports and its determinants. In both time horizons relative prices, exchange rate and domestic production were found to negatively affect food imports while real income had a positive effect. Food imports for Indonesia was found to be price-inelastic in both time horizons. In addition, imported was found to be a luxury good with income elastic demand in both time horizons. Food import demand was found to be most responsive to changes in real income and domestic production during the study period. The adjustment parameters also suggest that around 92.4% of short- to long-run disequilibrium is corrected each year. Finally, the study suggested that policies to control excessive food import quantity in Indonesia can include setting import quota, giving subsidies to farmers, applying taxes to specific food items and devaluation of currency.

Keywords

• cointegration
• food import
• determinants
• error-correction model
• indonesia