INTRODUCTION

Background
Agriculture as a strategic sector plays an important role in the
development of Indonesian economy. The share of this sector of the
Indonesian Gross Domestic Product (GDP) reached US$ 126.3 million or
14.9 percent (MOA, 2012). In terms of labor absorption, the agriculture
sector absorbs the most among the sectors, which is 39.3 percent or
42.12 million of labor from the total labor force of 117.37 million (CSA,
2012). The percentage of the population working in agriculture is third
in the world rank, after China at 66% and India at 53.2% (IMF, 2012).
The agriculture sector is potentially developing as the main source for
increasing peoples welfare and the countrys development. The
agriculture sector becomes the primary sector in Indonesia. For these
reasons it will generally have a significant impact on Indonesias
economy, particularly in the rural economy, if Indonesia is hit by the
world economic crisis. This sector is divided into eight subsections,
which are food crop, plantation, animal husbandry, forestry, hunted
and captured wild animals, sea fishery and land fishery. Each
Subsectors contribution to the Indonesian GDP can be seen in the
table below.
1. 1.

Table 1.1. Agriculture Subsectors contribution to GDP at Constant Price

(base year 2000) (%)
Field
2007
2008
2009
2010*
2011*
Agriculture,
animal
13.7
14.5
15.3
15.3
14.7
husbandry, forestry, fishery
a. Food Crop
6.7
7.1
7.5
7.5
7.1
b. Plantation
2.1
2.1
2.0
2.1
2.1
c. Animal Husbandry
1.6
1.7
1.9
1.9
1.7
d. Forestry
0.9
0.8
0.8
0.8
0.7
e. Fishery
2.5
2.8
3.2
3.1
3.1
Source : Indonesias Central Statistical Agency, 2012.
* Prediction

Based on the table, the share of agriculture in the Indonesian

GDP has fluctuated year to year, from 2007 to 2009, the share
increased 1.6 percent, and remained the same for the next year. In
2011 the share has decreased to 14.7 percent. The largest share
comes from the food crop subsector. Horticulture is part of the food
crop subsector besides rice, corn, cassava, potato, and beans. Fruits,
vegetables, herbs and ornamental plants are important commodities
in Indonesias economy. The amount of horticultures share of the
Indonesian GDP increased from 2008 to 2009, fruits have the largest
share. Horticulture is one of the superior commodities that is potential
to develop. As a tropical country, Indonesia produced various

horticulture commodities which have competitive advantages and high

value in the international market.

Table 1.2. Horticultures Value to GDP at Constant Price (base year

Commodity
PDB Value (Billion Rupiah)
2005
2006
2007
2008
Fruits
31.7
35.5
42.3
47.1
Vegetables
22.6
24.7
25.5
28.2
Herb
2.8
3.8
4.1
3.8
Ornamental Plant
4.6
4.7
4.7
5.1
Amount Total
61.8
68.6
76.7
84.2

2000)
2009
48.4
30.5
3.8
5.4
88.33

Source : Directorate of Horticulture, Ministry of Agriculture 2010

The global economic crisis, which occurred in 2008, began with a

financial crisis caused by a US subprime mortgage problem. This
problem started with a housing bubble, where banks gave housing
credits to households that actually have a low financial capacity. Then
these credits had been securitized to attract investors. When the large
amount of credits came with the default, banks faced a problem with
their liquidity. Lehman Brothers as a major American Bank invested
their investors money in the property sector, which reached US$ 60
billion and collapsed in September, 15 2008. The collapse was followed
by huge losses of American and European banks mortgages related to
securities and investments in the property sector. Massive bail outs
and fiscal stimulus were launched by US and European governments to
prevent a wide impact of the crisis on the economy. The global crisis
continued with the eurozone crisis that started during 2011, with the
shock in countries that joined with a single currency. The continued
crisis has lowered global growth. According to the data from World
Economic Outlook 2012 released by IMF, global growth is projected to
drop from about 4 percent in 2011 to about 3 percent in 2012. The
economic contraction occurred in several advanced economies,
therefore the prediction is, that in the US the growth of 3 percent in
2010 will drop to 2 percent in 2012, the eurozone growth at 1.9 percent
in 2010 will drop to minus 0.3 percent in 2012.
The contraction in advanced economies, mainly in the US and EU
countries, will effect to the emerging market through two channels,
through the investment channel and the export channel (Siregar and
Masyitho, 2008). The crisis did not only reduce production in
experienced countries, but also in emerging countries that made the
advanced economy as a primary market of their exports product. As a
small open economy, Indonesia is also hit by the global crisis.
According to the report from CSA, there are indications of a trade
balance deficit caused by declines of Indonesias export. In June 2012,
the trade deficit reached US $1.33 billion, lowered by 8.7 percent

compared with May export the same year (CSA, 2012). This trade
deficit will harm Indonesias economy if the government does not set
the policy to stabilize economy.

1.2

Problem Formulation

The lowering economic growth in advanced economic will

impact to trade relation with developing countries. Based on data from
the Indonesian ministry of trade, Indonesian export in the year 2012
decreased -2.52 percent compared to the previous year. The declining
in export of non oil and gas commodity reached -2.9 percent. The total
balance of Indonesian trade can be seen in the table below :
Table 1.3. Indonesian Export Value from 2007 to 2012 (US $
Million)

Total
2007
2008
2009
2010
2011
January - July 2011
January - July 2012
Change 2008-2009
Change 2011-2012

114,100.9
137,020.4
116,510.0
157,779.1
203,496.6
116034.5
113112.8
-14.97
-2.52

Oil and Gas

22,088.6
29,126.3
19,018.3
28,039.6
41,477.0
23,384.0
23,147.3
-34.7
-1.01

Non Oil and Gas

92,012.3
107,894.2
97,491.7
129,739.5
162,019.6
92,650.5
89,965.5
-9.6
-2.9

Source : Ministry of Trade, 2012

From the table above, we can see that when crisis occur, the
Indonesian export decreased. For example in year 2008 to 2009, when
financial crisis begins in USA, the declining of an export reach -14.97
percent. The increasing of Indonesian export occurred in the period
2010 to 2011, from US $ 157,779.1 million to US $ 203,496.6 million,
when the world start to recover from crisis. But, in year 2012, the
country in eurozone experiencing crisis. The economic contraction
effect to Indonesian balance of trade. The value of Indonesian export
to several destination countries hit by the crisis can be seen in the
table below
Table 1.4. Indonesian Export Value in Several Countries from
2007 to 2012 (US $ Million)

Year

USA

NTHRD

GER

ITALY

SPAIN

BELGIUM

FRANCE

2007
2008

11,311.3

2,749.5

2,316

1,380.0

12,531.1

3,881.2

2,465

1,864.3

10,470

2,902.9

2,326

1,651.1

13,326

3,682.1

2,983

2,370.0

1,332.2

802.9

1,348.8

938.5

1,048.3

870.2

1,188.5

1,122.8

15,684.2

5,076.3

3,304

3,168.3

1,368.2

1,284.6

7.41

12.45

9.43

20.95

8.54

-0.73

11.84

17.69

37.86

10.75

33.68

4.26

15.12

14.41

9.68

3.13

2.04

1.96

1.50

0.84

0.79

7,901

2,553.9

1,747

1,739.1

687.8

671.9

7,451.8

2,264.4

1,561

1,035.6

659.8

568.5

-5.69

-11.33

10.67

-40.45

-14.90

-4.07

-15.39

9.70

2.95

2.03

1.35

1.40

0.86

0.74

2009
2010
2011
Trend %
07-11
Change
% 11/10
Share
Jan-Jun
11-12
Jan-Jun
11-12
Change
11/12
Share

1.906,
2
1.665,
3
1.830,
5
2.328,
7
2.427,
9

1,263.
6
1,075.
3

For several commodities, such as Horticulture, exports decline

contributes to higher trade deficit because it's followed by increasing
in import. The value of horticulture export increasing in recent three
years, it can be seen in the table below

Table 1.5. Indonesian Horticulture Export year 2009-2011 (US $)

2009

2010

2011

100,165,459

90,138,276

96,190,941

261,192,781

297,906,046

435,628,679

11,680,368

14,638,583

22,288,335

1,252,968,263

1,428,830,464

1,676,470,803

1,626,006,871
Total
Source: (UNComtrade, 2011)

1,831,513,369

2,230,578,758

Commodity
Vegetables
Fruits
Ornamental Plant
Herbs

Horticulture in Indonesia has potential to develop because it has

unique taste such as mangosteen, pineapple, herbs (ginger and

curcuma), and ornamental plant. Indonesia also has competed in the

production, the period of production is longer than any others its
competitor. Ironically, the increasing in export followed by high import.
The domestic market are fulfilled by imports product, especially for
fruit and vegetable. Based on data from UNComtrade, in year 2011,
balance of trade in Indonesia Horticulture product is negative. Fruit and
vegetable import reached 1.5 billion US$, the value of export only
reaches 531.8 million US$. Based on the description above, the
research questions appeared that will be raised in this research area:
1. How is the trend of Indonesian Horticulture export?
2. What is the effect of global financial crisis to Indonesian
Horticulture export?

1.3

Objectives

This research focused on review of Horticulture export to several

countries and then examine the effects of lowered economic growth in
country that hit by the crisis to Indonesian Horticulture exports. Based
on the research questions occurred, the objectives of this study are to :
1. Describe the trend of Indonesian Horticulture export,
2. Analyze the effect of global financial crisis to Indonesian
Horticulture export.

1.4

Benefits

This research is expected to give benefit to the writer and

another party who has interest in management and development in
Indonesian nature resource, especially for Horticulture commodities.
Other benefits are :
1. The source of an additional information, advice, and review of
government in order to arrange right policies that concerned in
export commodities, especially in Horticulture export.
2.

To write, this research expected to be an application of theory

that acquired in university

3. Source of additional information for further research in the

future.

II. LITERATURE REVIEW

2.1.

Previous Research on Effect of Global Economic Crisis

Previous research related to the effects of global economic crisis to
commodities trade have been carried out with different types of data and
commodities. Some research has been carried out by Bai, United State
Department of Agriculture (USDA) Firdaus, and Gunawardana.
Bai (2012) performed research to analyze the effect of global
economic crisis in ten exports destination country in Chineses
exports. The global crisis statistically significant to declining of Chinese
export, another variable that significant to Chineses export is the real
GDP growth rate in the export destination country. Other dependent
variables such as population, economics distance are statistically
insignificant. Panel data used in this research from 2007-2010, with 10
main export destination countries such as US, Hong Kong, Japan, Korea
Republic, Germany, Netherlands, UK, Singapore, India, and Italy.
United State Department of Agriculture USDA (2011) conducts
research to examine the depreciation of euro currency to United States
agricultural export. The Partial Equilibrium Agricultural Trade Simulation
model (PEATsim) is used. The exogenous change in real GDP and
exchange rate are used to represent the impact of euro crisis to trade
flows. The result shows that the declining in euro exchange rate results
in slower growth in EU income, this is causing the EU domestic market
changes. EU meat consumption and feeding rates decline. The low
euro scenario in this research showed the complexity of the effect of
macro variables on U.S. agricultural trade. The result of higher GDP
levels caused the greater demand for livestock products and food and
feed grains.
The research conducted by Firdaus (2010) stated that the global
crisis had a significant effect on Indonesian agribusiness export. The
crisis significantly depressed the commodity price. The value of some
7

main agricultural export decreased from 2008 to 2009. The effect of

the crisis for some commodities such as CPO, rubber, and coffee was
negative and statistically significant. Panel data model found that the
export price is the main determinant of Indonesian export. Economic
distance was negative and statistically significant only in CPO and
rubber models. His research showed the value of R-sq 77.48 percent
which means the independent variable can explain the change of
Indonesian agribusiness export value reached 77.48 percent, while the
rest about 22.52 percent explained by other factor outside the model.
Panel data used in this research from 2005-2009, with 15 main export
destination countries such as US, Japan, China, Singapore, Korea,
Canada, Germany, Brazil, French, Spain, Netherland, Italy, India,
Turkey, and South Africa.
According to Gunawardana (2005), under the influence of the
Asian financial crisis, Australians export to the other nine Asian
countries has the positive correlation with the nine countries real GDP
and GDP per population, and the negative correlation with the real
exchange rate.

2.2.

Previous Research on Horticultural Commodities

Indonesia potentially to develop horticulture commodities. Horticulture
that growth in Indonesia are various and unique. Pineapple is one example,
pineapple is a commodity that has competed in international market. Indonesia
counted to ten largest exporter in the world. The research conducted by
Suprehatin (2006) aimed to analyze fresh pineapples competitiveness based on its
market share and its trend, this research also determined the factor that influences
fresh pineapples competitiveness of Indonesian export destination countries.
Panel data regression result showed the factor that influenced export are export
volume, per capita GDP of export destination countries, and pineapples
domestic production. The export volume and domestic production have a
positive sign, while per capita GDP has negative significance.
Beside pineapple, others commodities that has competitiveness in international
market is mangosteen. This fruit becomes one of superior commodities for
tropical fruit export, research that's conducted by Setyo (2009) discusses
Indonesian mangosteen trade flow. From the results of linear regression of the
gravity model, the value of R-sq uare 53.6 percent indicated that the
independent variables can explained by the dependent variable in the model,
while the remaining 46.4 percent is explained by other factors outside the model.
The factors that influence the volume of mangosteen exports is a country's GDP
of exports destination, the population in the export destination, distance to export
8

destination countries from Indonesia, the use of the mangosteen as offerings in

the destination country, and the implementation of quarantine policy by the
destination country. The factor that statistically significantly are the use of the
mangosteen as offerings and quarantine policy in ten percent interval of
confidence. Distance variable statistically significant in thirty percent intervals of
confidence. This research show that the quality of Indonesian mangosteen are still
in low quality.
Generally, research on horticultural commodities carried by Agri (2011)
which aimed to analyze the competitiveness of Indonesian exports of some
horticultural commodities in the international market. The result shows that most
Indonesian horticultural product has low competitiveness in the world market
compared to its competitors. To measure the competitiveness RCA method is
used. There are several commodities that have strong competitiveness in the
international market are guava, mango, and mangosteen.
Research about horticultural commodities such as vegetables and fruits
conducted by Atici and Guloglu (2006) which analyzed the factors that influence
fresh and processed fruit and vegetable trade in Turkey. The panel data of 13
countries members of the European Union from 1995 to 2001 are used. The
independent variables that build models are GDP, population, distance,
population of Turkish citizens in the EU and non-Mediterranean countries. The
results showed that GDP, EU's population, and population of Turkish citizens in
the EU and non-Mediterranean countries are a significant factor that influenced
fruit and vegetable exports of Turkey.

2.3.

Relevance To Previous Research

Based on previous research that has been conducted, it helped the writer
to build research model. The similarity with previous studies, the tool of analysis
used is gravity model and panel data. Different from previous studies, this study
has differences in the commodity and period of data (2006-2011). Further
explanation about the effect of the variables in gravity model will be conducted
based on the literature used by the author.

III. FRAMEWORK
3.1.

Theoretical Framework
9

3.1.1 Horticulture
Horticulture derived from the Latin, Hortus has meaning garden, Colere
has meaning cultivativation (especially microorganisms) in an artificial medium.
Horticulture is the science, technology and business involved in intensive plant
cultivation for human use. It is practiced from the individual level in a garden up
to the activities of a multinational corporation. It is very diverse in its activities,
incorporating plants for food (fruits, vegetables, mushrooms, culinary herbs) and
non-food crops (flowers, trees and shrubs, turf-grass, hops, grapes, medicinal
herbs). It also includes related services in plant conservation, landscape
restoration, landscape and garden design/construction/maintenance, horticultural
therapy, and much more. This range of food, medicinal, environmental, and social
products and services are all fundamental to developing and maintaining human
health and well-being (Doyle, 2012)
3.1.2. International Trade
International trade is a trade that carried by a people of a country with the
people in another country on the basis of mutual agreement. People can be
defined between the individual (individual to individual), between the individual
and the government of a country, or between governments. International trade in
a limited sense is a group of problems that appeared in connection with the
commodities exchange between countries. International monetary and financial
problem also following when international trade conducted. Duri,ng this term,
international trade is a group of international economic problems. Mercantilism
teaches that the only way to be a rich country and powerful is doing export as
much as possible, and its possible import (export surplus). But, it is impossible
because not every country can simultaneously generate exportable surplus
whereas the amount of gold and silver is fixed at a given time, then the country
will only get a benefit without sacrificed other countries. As Adam Smith stated,
the theory of absolute advantage suggests that each country will get benefit from
international trade because is specializing in the production of goods and export
of goods if the country has an absolute advantage and import goods if the country
does not have an absolute disadvantage.

10

David Ricardo refined Smiths theory

to the theory of comparative

advantage (The Law of Comparative Advantage), the theory stated that even if a
country has no absolute advantage in producing two types of goods than any other
country, the beneficial trade can still occur, as long as the ratio of prices between
countries are different than there is no trade relation.
Heckscher and Ohlin explained that comparative advantage arises from
differences in endowment factor, this theory emphasizes the interplay between the
different proportions of the countrys production factors, and differences of the
usage proportion on producing a wide range of items (Factor-proportion theory).
3.1.

2.1
Partial Equilibrium Analysis
Partial Equilibrium Analysis uses supply and demand curve for specific

commodities. This is different with general equilibrium, which more complex and
involving two or more commodities and using offer curves. In the picture below,
relative price form of a trade between the country based on partial equilibrium
analysis. Curve Dx and Sx in panel A and C, each represent supply and demand
curve commodity X in country 1 and country 2. Horizontal axes in all panel
measure quantities of x, vertical axes represent relative price commodity X
(PX/Py), in other word one unit of the commodity Y must be sacrificed to produce
one additional unit of commodity X.
Panel A showed if international trade occurred, country 1 producing and
consuming commodity X in point A with relative price at P1, country 2 producing
and consuming commodity X in point A with relative price at P3. If the trade
occurred between country, relative price of commodity X will be at rang P1 and
P3. If the settled price above P1 (for example P2), country 1 will produce
commodity X more than domestic demand, the excess production will be sold
(BE) to country 2. If the relative price of commodity X lower than P3 from
country 2, the demand will higher than domestic production. This is pushed
country 2 to import (BE) commodity X from country 1 (panel C). From the
descriptions below, P2 is an equilibrium of relative price after international trade
occurred.

11

Panel B
Panel A
C
Px/Py
Px/Py X
Px/Py
International
Trade Relation Panel
Commodity
X
Market in Country 1 for
commodity
Market in country 2 for Commodity X
Sx
P3

A
Ekspor

P2

Sx

B*

E
A

Impor

E*

Dx

P1

P3

A*

Dx
0

Figure 3.1. Equilibrium of Relative Price after International Trade Occurred From Partial
Equilibrium Analysis
Source : Salvatore, Ekonomi Internasional, Edisi Kelima, Jilid 1, 1997.

Panel A showed that excess demand occurred in country 1 for commodity

X, (Px/Py higher than P1), exports supply curve (S curve) in panel B shifted. In
other side, country 2 (panel C) experiencing excess demand for commodity X
(Px/Py lower than P3), this is causing demand for impor for commodity (demand
curve shift in panel B). Panel B showed in price level 2, amount of import to
commodity X that come from country will equal with export quantity that offered
by country 1.
It can be inferred that P2 is a equilibrium relative price after international
trade occurred in both country. Whereas if Px/Py higher than P2, there is excess
supply for commodity X that impacted to its relative price so the price will back
to P2. On the contrary, if Px/Py lower than P2, excess demand will occur for
commodity X, then will cause the increasing in P x/Py so the price will back to
price level P2.
3.1.3. Gravity Model
Gravity model widely used on empirical analyses of influencing factors in
the export or bilateral trade research (Liu, Huo, and Chen in Bai 2012). The trade
gravity model is coming drom the classical gravity model of Newton. Newton's
theory of gravity states that the gravitational attraction between two objects is a
function of the mass of each object and inversely relates to distances square. This
principle has been used for a number of different contexts, some describes the

12

interactions of the dimensions of space, such as mobility of population or mobility

of goods and services (trade). Gravity model began to be used as a tool to
analyzed social and economic interaction after the research conducted by Carey
and Ravenstein in the 19th century (quoted from Liyod, et al., 1977 in Soelaksono
2010). Carey and Ravenstaein conduct research on the origin of migrants who
come

to

the

big

cities

in

America.

The research show that the number of migrant coming into a city influenced by
the number of resident in destination city, the number of resident in origin city,
and distance between the city of origin to the city of destination. This means that
the number of migrants entering the city is not random, but it is influenced by
certain factors, as those mentioned above. Here is the formulation of Newton's
theory of gravity in physics :
Fij = G x Mi x Mj
Dij
"Interaction between two objects is proportional of their masses and inversely
relates to distances square. If, the formula applied in international trade :
F: Volume of transactions between the two countries (trade flows)
M: economy size
D: economics distance
G: Constants
Where the g constants being a part of 0. In its application, , this model composed
by three main variables, which always present in every gravity model for bilateral
trade flows, namely:
a) Variables that have a total potential demand of importing countries
b) Variables that indicates of the total potential supply of exporting country
c) Variables that support or obstruct flows of trade between exporting
countries and importing countries (Sinaga in Napitupulu, 2007).

3.1.3.1. Gross Domestic Product

Gross Domestic Product represent income per capita in one country, or
peoples purchasing parity on goods. Theoretically, higher income will impact to

13

higher consumption level, both in quality and quantity. Mankiw (2002) explain
about Keynes theory about national income in closed economy. According to
Keynes, national income (Y) consists of consumption (C), investment (I), and
government expenditure (G). National income represented by Gross Domestic
Product (GDP). GDP as a indicator of countrys economy performance. GDP
count to measure economy activities in certain period. It can be seen from two
side, there are :
1. GDP is a total value of peoples revenue
2. GDP is a total output that produced by a country.
GDP equation in a country that applying closed economy are :
Y = C+I+G.............. (1)
If a country applying open economy, other component are counted in
GDPs counting (trade). The equation are :
Y = C+I+G+NX.. (2)
Whereas NX is a net export. Amount of international also determined the value of
GDP. Picture below explain the increasing in GDP in importing country to
international trades equilibrium. The increasing of GDP assumed as a total
increasing in peoples revenue. So, the demand for commodity A also increased
(demand curve shifted from Dz ke Dz ceteris paribus). Excess demand occurred in
importing country, BE become BE. The increasing of impor will change the
equilibrium in world market become E because the shifting in ED curve to ED.
Equlibrium in point E** will followed by prices increasing to A, this is will push
exporting country to add its export. Totally, the increasing in GDP in importing
country will be change trade equilibrium and push

exporting country to

increasing amount of product.

Exporting country (Z commodity)

Pz

Pz

P3

Importing
World market
Pz countrys market commodity Z

A
Export

P2
P1

ES
B**
B*

E
A

P3

Sz

E*

A*
Dz

Sz
A
A

E**

B
Import

E*

ED

E E
DzDz

14

ure 3.2. Effect of Increasing in GDPs importing country to international trade equilibrium Source : Napitu

3.1.3.2. Exchange
.3. Exchange rate depreciation
inRate
exporting country to international trade
Source : Mankiw, Makroeconomic
Theory,
Edition 2002.
Exchange rate policy
linkFifth
to devaluation
of domestic exchange rate to
international exchange rate. International trade influenced by several factor such
as exports price elasticity, imports price elasticity, and product competitiveness
in international market. If exports price elasticity higher than imports price
elasticity, devaluation will be advantageous, in the opposite way, devaluation will
be profitless (Sukartawi, 1993). Exchange rate is a important factor that influence
international trade flow. The value of one countrys currency to United State
dollar will determine value and amount of countrys export. Picture below show if
currency of exporting country (rupiah) experiencing depreciation (e1 move to e2,
panel A) to US dollar causing the commodities price cheaper in international
market, so

the competitiveness will be higher than before. Higher

competitiveness means higher demand for Indonesian product (higher output

level on panel B). The higher of output will following by increasing in export
(panel C).

15

3.1.3.3. Distance
Distance is a geographical factor that influence a commodity flow of trade.
Distance

become an important variable in gravity model. The distance will

determine transportation cost that impacted to products price. Transportation cost

are determined by oil price, the higher of oil price, the higher of transportation
cost.

16

Pz ($)

Country 2

Sz

13
Sz

Country 1

11
9

Export

Import

Dz

5
3
Dz

100

70 50 30

30 50 70

100

Figure 3.4. Partial Analysis of Transportation cost

Source: Salvatore, Ekonomi Internasional Edisi Kelima, Jilid 1, 1997.

From figure above, we can see the influence of distance/transportation cost

to the international commodity flow of trade. If there is no international trade, a
country will produce Z for 50 unit with equilibrium price $ 5 , in second country
will produce 50 unit with equilibrium price $ 11. If international trade occurred,
country 1 will sell commodity Z to country 2 if higher price occurred in country 1,
in the opposite way country two will import commodity Z from country 1 if lower
price occurred in country 2. If trade are not influenced by distance (transportation
cost), the price will be set up at $ 8 and the quantity at 60 unit. If the
transportation cost is counted, there will be extra price for commodity Z. The cost
could lowering next production and declining of volume.
3.1.3.4. Dummy Variable
Dummy is used to determined relation between qualitatively independent
variable (Hanke et al,2003 in Setyo, 2009)
3.1.4. Panel Data
Panel data is a unification of cross section and time series data, the
number of observed variable is much more. This model has high complexity
because it has much parameter, this also give benefit to. To handle panel data
model, special technique are needed ( Nachrowi dan Usman,2006).
17

According to Nachrowi dan Usman (2006), there are several technique

that used to estimating the parameter in panel data model such as :
a. Pooled Least Square
Ordinary Least Square (OLS) can be used in panel data regression. The
unification of cross section and

time series data must be conduct before

regression are done. The data that has been united are estimated with OLS below :
Yit = + Xit j + it
Where:
Yit = dependent variable in period t for cross section unit i
= intercept between individu in cross section i
Xit = independent variable in period t for cross section unit i
j = parameter for independent variable
eit = error term in period t for cross section unit i
b. Fixed Effect
The existence of variable that not counted as a variable in equation, there
is possibility to appear unconsistent intercept. In other word, that intercept may
change depend on time and individu. This is become the basic of fixed effect
model. The fixed effect model as a follow :
Yit = i + j xjit + eit
Where :
yit = dependent variable in period t for cross section unit i
i = the difference between intercept among cross section unit i
xjit = independent variable j in period t for cross section unit i
j = parameter for variable j
eit = error term in period t for cross section unit i
c. Random Effect
The differences between individu on fix effect model are represent in
intercept. In random effect the differences is represent with error term. This
technique are counting that error term has correlation along time series and cross
section data. The equation for random effect are :
Yit = 1t + i + j xjit + eit

18

Where :
yit = dependent variable in period t for cross section unit i
1i = 1 + it , the value of intercept different with individu in cross section unit I
because random error (it) between individu
xjit = independent variable j in period t for cross section unit i
j = parameter for variable j
eit = error term in period t for cross section unit i

3.2.

Operational Framework
Crisis not only impact to

the experiencing country, but also to the

developing countries that have trade relations with countries that hit by the crisis.
The crisis led to a slower in economic growth, the economic slowdown is closely
related to the declining in demand for commodities that produced in developing
countries. Agricultural commodities became a primary export product in
developing countries.
One of the part of agriculture sub-sectors that became the primary of
Indonesia's exports are horticulture subsector. Horticulture in Indonesia has a
substantial contribution to the economy and have a competitiveness in several
export destination countries. Indonesian Horticulture commodities varies in type,
and has unique in its taste.
The countries that become export destination of horticultures export have
different characteristics from one to another. The difference can be seen from two
perspectives. First, it can be seen from economics side in which the factors that
influence the export are GDP of exports destination countries, population of
exports destination country, exchange rate of exports destination country, and
exports price. Second, non-economics side, the variable is economic distance.
The effect of the global crisis is represent by dummy variable. Dummy variable
explained about the effect of the global crisis on Indonesian horticulture trade
flows. The operational framework can be seen in figure below .

Global Financial Crisis

19

Lower economic growth (minus)

Lower demand for commodities
from developing country
Developing countrys trade balance

Exports declining
Exports Destination
Country

Indonesia
Factors that influence horticulture
trade flow :
1. GDP of exports destination
countries,
2. Population of exports
destination country,
3. Exchange rate of exports
destination country
4. Economics distance
5. Global Financial Crisis

Exports trend

Descriptive analyzes
Panel Data Regression
(gravity model)

Policy recommendation in
order to increasing
holticultures export
Figure 3.5. Operational Framework

3.3

Hypothesis

20

1.

GDP of exports destination country positively effect to flow of trade

2.

Indonesian Horticulture export.

Population in exports destination country positively effect to flow of

trade Indonesian Horticulture export.

3. Distance to exports destination country negatively effect to flow of trade
4.

Indonesian Horticulture export.

Countrys export destination exchange rate compare to USA Dollar

5.

positively effect to flow of trade Indonesian Horticulture export.

Dummy that represent global economic crisis negatively effect to flow of
trade Indonesian Horticulture export.

IV. METHODOLOGY

21

4.1.

Data Type and Source

Data type that will used in this research is secondary data. The period

of data from year

2007-2011.

Horticulture commmodity that used in this

research are ornamental plan, vegetables, herbs, and fruits. Exports destination
country are choosed based on the sustainability of demand for export that
occurred during the observation period. The country that observed can be seen in
table below :
Tabel 4.1. Indonesias Export Destination
Commodity
Destination
Ornamental
USA, China, Canada, Germany, France, Spain,
Plant
Netherland, Belgium, Japan
USA, China, Germany, Netherland, Belgium, United
Vegetables
Kingdom, Japan
USA, China, Germany, Netherland, Spain, Italy,
Herbs
Japan
USA, China, Germany, Netherland, Spain, Italy,
Fruits
Japan

HS
06
07
09
08

Source: UNComtrade, 2012

The data will use in this research are exports value of Horticulture
product, plantation commodities, nominal GDP with constans year 2000 in every
country, exchange rate exports destination country with united state dollar,
population of exports destination country,

distance between Indonesia and

exports destination country . The data source are : Central Statistical Agency,
Ministry of Agriculture, Directorate of Hlticulture, UNcomtrade, and other
resources that related to the research.
4.2

Analysis Methods
The data analyzed by descriptive and quantitative method. Descriptive

analysis are used to explain the trend of exports volume Indonesian holtiiculture
product.

The effect of global crisis quantitatively analyzed by panel data

regression gravity model. Secondary data will be processed Microsoft Excel

and Eviews 6.

4.3

Model Formulation

22

The variable that used to examined the effect of global crisis in this
research are :

Gross Domestic Product (GDP) exports destination country,

population country of export destination ,

distance between Indonesia and

country of export destination, exchange rate, and dummy before and after crisis.
The general form of the regression equation gravity model that used for each
commodity are:
Xijt = i + 1Yjt + 2Njt + 4Dij + 5ERj + 6Dt + t
estimation of parameter sign expectation is :
1, 2, 5> 0 and 3, 4, 6 <0
Where:
i

= exporter country (Indonesia)

= time period of sample data (2007-2011)

= export destination country

Xijt

= The export value from Indonesia to country j in the time t (US$)

Yjt

= GDP of export destination country in time t (US$)

Njt

= Population of export country j in time t

Dij

= Economic distance between Indonesia and country j (Oil Price x Mile)

ERj

= Exchange rate export destination country (US$)

Dy

= The dummy variable (with financial crisis or not, Dt=1, period of

financial crisis, Dt=0, otherwise)

t

= Random error

4.4

Model Fit Test

Based on the theory, in panel data analyzed, there are several type of

approaches they are : Pooled Least Square, Fixed Effect, and Random Effects.
Data processing that resulting best model must conduct with multiple step and
must be tested with several proscedure. This testing proscedure are:
4.4.1. Chow Test
Chow Test is a test to choose between Pooled Least Square and Fixed
Effect. The hypothesis are :
H0: Pooled Least Square Model
H1: Fixed Effect Model

23

Basic rejection of the null hypothesis is using Fstatistic as formulated follow:

CHOW =

( RRSSURSS )/( N1)

URSS /( NTN K )

Where:
RRSS : Restricted Residual Sum Square (PLS Residual Sum Square)
USSR :Unrestricted Residual Sum Square (Sum Square Residual Fixed)
N

: Number of data Cross Section

: Number of Data Time Series

: The number of explanatory variables

The test following the distribution Fstatistic FN-1,

NT-NK.

If the value CHOW

Statistics (fstat) result greater than F table, it is sufficient to the reject the null
hypothesis, we used the Fixed Effects Model, and vice versa if CHOW Statistics
(fstat) is smaller than Ftabel so we used Pooled Least Square model.
4.4.2. Hausman Test
Hausman test is a statistic test as basic to choose between Random and
Fixed Effect model.
H0: Random Effect Model
H1: Fixed Effect Model
As a basic to reject of the null hypothesis, we used Hausman statistics and
compared with chi-square.
4.4.3. Breusch-Pagan LM Test
The Breusch-Pagan LM Test is a test to choose selection between random
effect and pooled least square. The hypotheses are:
H0: Pooled Least Square
H1: Random Effect
The rejection of H0 by using LM Test statistics based on chi-square
distribution.

Generally, the test of panel data estimation models required a

strategy. Strategies must done to examine:

1. Fixed vs. Random Effect Effect (Hausman Test)
2. Pooled Least Square vs Fixed Effect (Chow Test)

24

The Framework to select a model used are:

1. If (b) is not significant then we using Pooled Least Square.
2. If (b) is significant, but (a) is not significant then use the Random Effect

Model.
3. If both are significant then using the Fixed Effects Model.
4.5.

Statistical Test
The aim of statistical test is to determine the models used in the study

whether good or not in explaining the diversity on an issue, there are some
statistical testing criteria, namely t test, F test, and the adjusted coefficient of
determination (R-Sq adj).
4.5.1. t test
The aim of T-test is aims to determine whether coefficient of regression
significant or not at a certain level (the level given by researcher). T test was
conduct

to see whether the explanatory variables or independent variables

individually have a significant effect to the dependent variables in the model.

Hypothesis
H0: i = 0
H1: i 0
Statistical test :

t value

i
S i

tTable = t (n-k),
where,
S (i) = standard deviation parameters for bi
i
= coefficient ith suspected
n
= Number of observations
k
= number of parameters
Test Criteria
When: tvalue > ttable, then reject H0
tvalue <ttable, then accept H0
Conclusion
If the H0 is rejected, there is enough evidence to reject H 0 where the tested
variables significantly affect the dependent variable. Vice versa, if H 0 accepted,
means there is enough evidence to reject H0.
4.5.2. F Test

25

This test is performed to determine whether the explanatory variables

simultaneously significant or not affect the dependent variable (Nachrowi and
Usman, 2002). Hypothesis :
H0: 1 = 2 = 3 = 4 = k = 0
H1: at least one slope is not equal to zero
Statistical Test
Fvalue =

(e2 / (k-1))
((1-e2) / (n-k))

Where:
e2
= The number of squares regression
(1-e2)
= sum of the squared residual
N
= number of samples
K
= number of parameters
Testing Criteria
When: Fvalue> Ftable, then reject H0
Fvalue< Ftable, then accept H0
Conclusion
If H0 rejected, there is enough evidence to reject H0 otherwise means all
independent variables affect the dependent variable, and vice versa when H 0
accepted.
4.5.3. The coefficient of determination (R2)
The coefficient of determination (R2) is a measurement of the variability in
the dependent variable that can be explain the variation in the regression model or
indicate the amount of the contribution of the explanatory variables on the
response variable. The value of R2 ranges between zero and one (0 <R2 <1), where
the greater the value of the coefficient or closer to one, the model explain better
the variability of the dependent variable, and vice versa. If the value of the
coefficient of determination is low or close zero (0), the model is less able to
explain the variability of the dependent variable. The formula for the R2 can be
seen below :
R2 = RSS/ TSS
Where:
RSS: Residual Sum Square
TSS: Total SumSquare

26

In addition there are other measures R2, R2 adjusted which is a value that
has been adjusted for the number of independent variables and the number of
observations. R2-adjusted formula is :
R2-adjusted = 1 (Yi -)2/ (n-1)
Where :
(Yi -Y)2/ (n-k)
R2-adjusted = adjusted coefficient of determination
k
= number of independent variables
n
= number of observations
4.6.

Assumptions Test
Basic assumptions are needed in a multiple regression equation, these

assumptions are autocorrelation, multicollinearity, and heteroscedasticity.

4.6.1. Autocorrelation Test
Autocorrelation is the existence of a correlation between member of
observations, sorted by time (time series data) or space (cross section). This test is
used to see whether there is a linear relationship

or error from time series

observations. Durbin Watson test (DW) is conducted to determine there is

autocorrelation that can be seen from

the output using Eviews. The

autocorrelation can be seen the value of Durbin Watson in the table below :

Table 4.5. Autocorrelation Identification

Durbin Watsons Value
Description
4 - dl < DW < 4
Negative correlation
4 - du < DW < 4 dl
Correlation could not determined
2 < DW < 4 du
No correlation
du < DW < 2
No correlation
dl < DW < du
Correlation could not determined
0 < DW < dl
Positive correlation
Source: Juanda, 2009
4.6.2. Multicolinearity test
Multicollinearity is a linear relationship between the independent variables
that construct models in the multiple regression equation. Some indications of a
regression equation that containing multicollinearity can be seen in the estimation
output in eviews where R2 values obtained from high (between 0.7 and 1) but
there is less signifiicant variable, or the cefficient sign not appropriate with the
theory. There are several ways to eliminate multicolinearity such as :
27

1.
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[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[
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[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[]===============================
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3.
4.
5.
6.
7.

===[[ bnn
Using extraneous or prior information
Combining a cross sectional and time series data
Leaving variables that highly correlated
Transforming the data
Obtain additional or new data.

Multicollinearity can eliminate by using General Least Square (Cross

Section Weight) on panel data that processed by Eviews.
4.6.3. Heteroscedasticity test
One of the assumptions of regression model is residual error (t) are
equal or homogen, this assumption called homoscedaticity. If residual error are
not constant, it is call heteroscedasticity. To detect this problem, General Least
Square are used. Comparing value of

sum square resid on weighted statistic

with sum square resid on unweighted statistic. If sum square resid on weighted
statistic

less than sum square resid on

unweighted statistic

so there is a

heteroscedasticity. To handle heteroscedasticity is done by estimating General

Least Square (GLS) with white heteroscedasticity.

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