Business Confidence in Indonesia: Which Macroeconomic Factors Have Long-Term Impact?

Authors

  • Irsan Hardi Economic Modeling and Data Analytics Unit, Graha Primera Saintifika, Aceh Besar 23371, Indonesia
  • Najabat Ali School of Business, Soochow University, Suzhou 215021, China
  • Niroj Duwal Computer Science Department, St. Xavier's College, Kathmandu 44600, Nepal
  • N. Chitra Devi VIT Business School, Vellore Institute of Technology, Chennai 632 014, India
  • Ulfa Mardayanti Bank Mustaqim Aceh, Banda Aceh 23245, Indonesia
  • Ghalieb Mutig Idroes Energy and Green Economics Unit, Graha Primera Saintifika, Aceh Besar 23371, Indonesia

DOI:

https://doi.org/10.60084/ijma.v2i1.203

Keywords:

Business confidence index, Economic growth, Government expenditure, Interest rates, Inflation, Exchange rates, Composite stock price index

Abstract

Business confidence refers to the level of optimism or pessimism that business owners have about the prospects of their companies and the overall economy. Thus, the focus of this study is to examine the long-term impact of various macroeconomic factors—economic growth, government expenditure, interest rates, inflation, exchange rates, and the composite stock price index—on the business confidence index in Indonesia by utilizing monthly data from January 2009 to December 2022. We employ Dynamic Ordinary Least Squares (DOLS) and Fully-Modified Ordinary Least Squares (FMOLS) as the main methods, with Canonical Cointegrating Regressions (CCR) as a robustness check method. The study also utilizes pairwise Granger causality tests for a comprehensive analysis. The findings indicate that all macroeconomic factors significantly impact the business confidence index in the long term across all methodologies. Specifically, economic growth, inflation, and the composite stock price index exert a positive impact, while government expenditure, interest rates, and exchange rates indicate a negative impact on the business confidence index. This evidence emphasizes the importance for businesses to diligently monitor macroeconomic trends and understand the patterns in these indicators so that companies can better anticipate changes in business sentiment. Taking a long-term perspective when making strategic decisions and investments is also advisable, recognizing that the influence of macroeconomic factors on business confidence may be more pronounced over time.

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Published

2024-06-19

How to Cite

Hardi, I., Ali, N., Duwal, N., Devi, N. C., Mardayanti, U., & Idroes, G. M. (2024). Business Confidence in Indonesia: Which Macroeconomic Factors Have Long-Term Impact?. Indatu Journal of Management and Accounting, 2(1), 40–54. https://doi.org/10.60084/ijma.v2i1.203

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