Evaluating Indonesia’s Economic Adaptation to China’s Growth and Tariff Policies through VECM Estimation

Salva Putri Maulida; Tony Seno Aji

doi:10.55927/eajmr.v4i11.473

Authors

Salva Putri Maulida State University of Surabaya
Tony Seno Aji State University of Surabaya

DOI:

https://doi.org/10.55927/eajmr.v4i11.473

Keywords:

Indonesia–China trade relations, global shocks, Vector Error Correction Model (VECM), hegemonic stability theory, institutional economics

Abstract

This study analyses Indonesia’s export vulnerability to China under global shocks and U.S.–China hegemonic rivalry by evaluating the long-and short-run effects of China’s GDP, the Rupiah–Yuan exchange rate, import tariffs, and Chinese FDI from 1990 to 2023. Employing a Vector Error Correction Model (VECM), the results reveal a stable long-run cointegrating relationship in which China’s GDP significantly increases Indonesia’s exports, while Yuan appreciation, rising Chinese tariffs, and FDI inflows exert negative long-run effects due to Indonesia’s high import-input dependence and limited export-oriented investment absorption. Short-run dynamics are weak, yet the system adjusts gradually toward equilibrium. These findings indicate persistent asymmetric interdependence and structural exposure to external shocks. The study contributes by integrating geopolitical rivalry and institutional perspectives into an econometric framework, highlighting the need for policies that deepen domestic value chains, strengthen export-oriented FDI, and reduce concentration risk toward China.

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