International Trade and North-Sumatra’s Local Economy

Jongkers Tampubolon, Tongam Sihol Nababan


North Sumatra is one of the provinces in Indonesia with high levels of economic openness. On average, since 2000, the contribution of export value to the Regional GDP reached 40 % and import value of 28%. Using Granger causality method, the study aims to investigate causal relations between international trade and North Sumatra’s local economy especially the impact of exports and imports on Regional GDP, Regional GDP per capita, employment and poverty reduction. The empirical results of present study discovered that (i) the exports and imports respectively have positive and significant impact on regional GDP, regional GDP per capita, employment and poverty reduction, (ii) there is a bi-directional causality between imports and regional GDP, where GDP growth rate would boost imports over-proportionally, (iii) both exports and imports are dominated by intermediate goods as the raw materials for further processing industry, (iv) export structure which is dominated by the agricultural-based intermediate good is proverty-reduction through factor market in the upstream sector making the rural peoples benefited from the exports.


North Sumatra; Granger causality and cointegration; trade and regional economic development; trade and employment; trade and poverty alleviation

Full Text:



Abosedra, S. & Tang, C.F. (2018). Are exports a reliable source of economic growth in MENA countries ? New evidence from the rolling Granger causality method. Empirical Economics, 54 (1), pp. 1 – 11.

Agosin, M.R., Alvarez, R. & Bravo-Ortega, C. (2012). Determinants of Export Diversification Around The World: 1962-2000. The World Economy, 35(3), pp. 295-315.

Anderson, K., Martin, W. & van der Mensbrugghe, D. (2005). Global Impact of the Doha Scenarios on Poverty in Hertel, T.W. & Winters, L.A. (eds): Poverty and the WTO – Impacts of the Doha Development Agenda. The World Bank and Palgrave McMillan. pp. 497-524. 10.1596/978-0-8213-6314-0

Asteriou, D. & Hall, S.G. (2016). Applied Econometrics – A modern approach. Third edition. NY: Palgrave Macmillan, pp. 273 – 411.

Badrun (2010). Milestones – Through PIR Palm Oil Building the Country (Pillar of Changes – Through out Nucleus Estate Smallholder of Palm Oil to Build the Nation). Directorate General of Plantation, Agriculural Ministry of Republic Indonesia.

Berg, A. & Kruger, A. (2003). Trade, Growth, and Poverty: A Selective Survey. IMF Working Paper WP/03/30.

Bhagwati, J. & Srinivasan, T.N. (2002). Trade and Pover¬ty in the Poor Countries. American Econo-mics Review, 92(2), pp. 180-183. DOI: 10.1257/ 000282802320189212

Bosupeng, M. (2015). The Export-led Growth Hypothesis: New Evidence and Implications. MPRA Paper No. 77917. Available at

BPS (Central Bureau of Statistics – Statistic Agency). (annually). North Sumatera in Figures Medan: Statistic Agency of North Sumatera

BPS.(annually). Foreign Trade Statistics North Sumatra: Export/Import (Foreign Trade BPS (Statistic Agency of North Sumatra Province), various years: North Sumatra in Figur. Medan.

BPS.(2013). Report on Agricultural Census 2013 Medan: Statistic Agency of North Sumatera

Busse, M. & Königer, J. (2012). Trade and Economic Growth: A Re-examination of the Empirical evidence. HWWWI Research Paper No. 123. Hamburg. Available at sol3/ papers.cfm?abstract_id=2009939

Dritsakis, N. & Stamatiu, P. (2017). Foreign Direct Investment, Exports, Unemployment and Economic Growth in the New EU Member – A Panel Data Approach. EkonomiaInternazionale/ International Economics, 70 (4), pp. 443-468. Available at https://www. profile/Pavlos_Stamatiou/publication/317662277_Foreign_Direct_Investments_Exports_Unemployment_and_Economic_Growth_in_the_New_EU_Members_-_A_Panel_Data_Approach/ links/5a01c86a0f7e9bfd745f5c96/Foreign-Direct-Investments-Exports-Unemployment-and-Economic-Growth-in-the-New-EU-Members-A-Panel-Data-Approach.pdf

Dutt, P., Mitra, D. & Ranjan, P. (2009). International Trade and Unemployment: Theory and cross-national evidence. Journal of International Economics, 78 (1), pp. 32-44. 10.1016/ j.jinteco.2009.02.005

Engel, R.F. & Granger, C.W.J. (1987). Co-Integration and Error Correction: Representation, Estimation and Testing. Econometrica, 55 (2), pp. 251 – 276. DOI: 10.2307/1913236

Felbermayr, G., Prat, J. & Shemerer, H-J., 2011: Globalization and labor market outcome: wage bargaining, search friction, and firm hetero-geneity. Journal of Economic Theory, 146 (1), pp. 39-73.

Giles, J.A. & Williams, C.L. (2000). Export-led Growth: A Survey of the Empirical Literature and some Non-causality Results. Journal of International Trade and Economic Development, 9, pp. 261 – 337. 096381900750056867

Granger, C.W.J. (1969). Investigating Causal Relations by Econometrics Model and Cross-spectral Methods. Econometrica, 37 (3), pp. 424 – 438. DOI: 10.2307/ 1912791

Grossman, G.M. & Helpman, E. (1994). Endegenous Innovation in the Theory of Growth. The Journal of Economic Perspective, 8 (1), pp. 23 – 44. DOI: 10.1257/jep.8.1.23

Guo, K. & N’Diaye, P. (2009). Is China’s Export Oriented Growth Sustainable ? IMF Working Paper WP/09/172. Available at 10355-9781451873191/10355-9781451873191/10355-9781451873191_A001.xml?redirect=true

Hertel, T. & Reimer, J. (2005). Predicting the Poverty Impact of Trade Reform. Journal of International Trade and Economic Development, 14 (4), pp. 377-405. Available at https://www.gtap.agecon.

Hertel, T.W. & Winters, L.A. (2005). Poverty Impacts of WTO Agreement: Synthesis and Overview Hertel, T.W. & Winters, L.A. (eds): Poverty and the WTO – Impacts of the Doha Development Agenda. The World Bank and Palgrave McMillan. pp. 3-30. 10.1596/978-0-8213-6314-0

Huchet-Bourdon, M., Le Mouël, C. & Vijil, M. (2018). The relationship between trade openness and economic growth: Some new sights on the openness measurement issue. The World Economy, 41 (1), pp. 59-76. twec.12586

Ivanovic, M. (2005). The Effects of A Prospective Multilateral Trade Reform on Poverty in Developing Countries inHertel, T.W., and Winters, L.A. (eds): Poverty and the WTO – Impacts of the Doha Development Agenda. The World Bank and Palgrave McMillan. pp. 405-426.

Kristjanpoller, W., Olson, J.E. & Salazar, R.I. (2016). Does the commodities boom support the export-led growth hypothesis ? Evidence from Latin America Countries. Latin America Economic Review, 25 (6), pp. 1-13. s40503-016-0036-z

Krugman, P.R. & Obstfeld, M. (2012). International Economics: Theory and Policy 9th edition (Pearson Series in Economics). Prentice-Hall, Englewood Cliffs, New Jersey.

Michaely, M. (1977). Export and Growth: An Empirical Investigation. Journal of Development Economics, 4 (1), pp. 49 – 53. 90006-2

Romer, P.M. (1990). Endogenous Technological Change. The Journal of Political Economy, 94 (5), pp. 1002-1037.

Salvatore, D. (2013). International Economics 11th edition. Weley, NY.

Sriyana, J. (2018). Reducing Regional Poverty Rate in Central Java. JEJAK Journal of Economics and Policy 11 (1), pp. 1-11. jejak.v11i1.13272

Subiyakto, H., & Algifari, A. (2016). Cointegration and Causality Test Among Export, Import, and Foreign Exchange. JEJAK: Jurnal Ekonomi Dan Kebijakan, 9(1), pp. 82-96. doi: 10.15294/jejak.v9i1.7188

Topcu, M. & Payne, J.E. (2018). Further evidence on the trade – energy consumption nexus in OECD countries. Energy Policy, 117 (June), pp. 160 – 165.

Vollrath, T.L. & Johnston, P.V. (1991). The Influence of the Commodity Composition of Trade on Economic Growth. The Journal of Agricultural Economics Research, 43 (1), pp. 7-14. Available at 2/3Vollrath_43_1.pdf

Vos, R. (2007). What we do and don’t know about trade liberalization and poverty reduction. United Nations Department of Economic and Social Affair (UN/DESA), Working Paper No. 50. Available at development/ desa/policy/organigramme/wp50_2007.pdf

Wade, R.H. (2004). Is Globalization Reducing Poverty and Inequality ? World Development, 32 (4), pp. 567-589.

Winters, L.A. (2002). Trade Liberalization and Poverty: what are the links. World Economy, 25 (9), pp. 1339-1367. https://

Winters, L.A., McCulloch, N. & McKay, A. (2004). Trade Liberalization and Poverty: The Evidence so fat. Journal of Economic Literature XLII, pp. 72-115. DOI: 10.1257/002205104773558056

Yang, J. (2008). An Analysis of So-Called Export-led Growth. IMF Working Paper, WP/08/220. Available at https://www. abstract/IMF001/09523-9781451870787/09523-9781451870787/ 09523-9781451870787_A001.xml? redirect=true

Zang, W. & Baimbridge, M. (2012). Exports, Imports and Economic Growth in South Korea and Japan: a tale of two economies. Applied Economics, 44 (3) pp. 361-372. 00036846.2010.508722.



  • There are currently no refbacks.

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.