THE ROLE OF INFORMATION AND COMMUNICATION TECHNOLOGY ON SERVICE TRADE:
GRAVITY MODEL APPROACH
DYAH TITIS K. WARDANI FAIZA HUSNAYENI NAHAR
HAIRUNNAS
UNIVERSITAS MUHAMMADIYAH YOGYAKARTA
INTRODUCTION
BACKGROUND
ASEAN INTEGRATION IN SERVICE
“Free flow of trade in services is one of the important elements in realizing ASEAN Economic Community, where there will be substantially no restriction to ASEAN services suppliers in providing services and in establishing companies across national borders within the region, subject to domestic regulations.” (ASEAN Economic Community Blueprint, November 2007)
Services are increasingly important components of economic output in any country. While
agriculture and manufacturing remain very important, services continue to gain importance and
share in any country’s Gross Domestic Product (GDP).
BACKGROUND
THE ROLE OF TECHNOLOGY: INFORMATION AND COMMUNICATION TECHNOLOGY (ICT)
Technology plays an important role in international trade and commerce since international trade is one of the sources of growth. Salvatore (2004) said that international trade is as one of the engines of growth.
With rapid advances in Information and Communication Technology (ICT) since the 1990s, as well as increased efficiency for transport of goods and people across national boundaries, the variety of sectors and volume of services provided across national boundaries are rising fast. More and more people are traveling abroad to consume tourism, education and medical services, as well as to supply services ranging from construction to software development.
Likewise, more and more business transactions and delivery of services projects such as
engineering design and financial market consultancy are undertaken through electronic
channel such as internet and other telecommunication network.
GRAVITY MODEL THEORY
The gravity model basically adopts Newton's law of gravity, that is, every particle in the universe will experience an attractive force with one another
�=� �1�2
� ² Keterangan:
F : Attractive force between two objects (M)
m1 : Mass of object 1 (kg) m2 : Mass of object 2 (kg)
r : Distance between two objects (m) g : Gravity constant
Tinbergen (1962) used the analogy of the law of gravity equation from Newton to analyze the flow of international trade.
Iij = G
I : Gravity between places
Pi : Number of population origin country
: Destination
G : Coefficient of proportionality
According to Tobler (2004), the gravity model can explained in scale
Pj : Number of population partner countries
1. What is the effect of standard gravity variables such as distance, GDP of Indonesiai. GDP of partnersj on service trade between Indonesia and ASEAN countries, 2005-2017?
2. To what extent is the effect of telephone cellular access on service trade between Indonesia and ASEAN countries, 2005- 2017?
Research Questions (?)
1. To analyze the effect of ICT and other determinant factors that affect on service trade ASEAN from 2005 to 2017.
2. Commodities are service products
3. Independent variables such as Distance, GDP of Indonesia, GDP of partners (9 ASEAN Countries) and telephone cellular access.
Research Limitation
1. To examine the effect of standard gravity variables such as Distance, GDP of Indonesiai. GDP of partnersj on service trade between Indonesia and ASEAN countries, 2005-2017?
2. To examine the effect of Telephone cellular access on service trade between Indonesia and ASEAN countries, 2005- 2017?
Research Objectives
Why the observation starts from 2005?
The subsequent decision at the 11th ASEAN Summit in December 2005 to accelerate the liberalisation of trade in services by 2015, re-affirms the seriousness of ASEAN to further integrate its services sector
and deepen its economic integration process
GDP Indonesia
GDP Partners
Service Trade Indonesia to ASEAN
+
+
Telephone cellular access
+
Distance -
RESEARCH FRAMEWORK
RESEARCH
METHODOLOGY
1 1
2 2
3 3
4 4
OBSERVATION
Service Export Indonesia to ASEAN-9 from
2005 to 2017
DATA
DATA SOURCE
DATA ANALYSIS METHOD
Analysis is using random effect model
This research using panel data are obtained from UN-Comtrade,
World Bank, www.distancefrom to.net, and www.itu.int
This research using secondary data
RESULTS AND DISCUSSION
Multicollinearity Test Heteroscedasticity with White Test
Chi2(1) 1.37
Pro > Chi2 0.2551
Variabel VIF
Ln GDP Indonesia 1.33 Ln GDP partners 1.69
Ln Distance 2.34
Telephone cellular access
2.20
Mean VIF 1.84
VIF less than 5 or 10, then regression result is free from multicollinearity (Montgomery, 2001)
Probability more than 0.05, then regression result is free from heteroscedasticity
ANALISIS PEMILIHAN MODEL
Chow Test
Effect Test Prob
.
F(5,229) 4.39
Prob > F 0,0030
Hausman Test
chi² (6) 1.23
Prob > chi² 0.8740
Lagrange Multiplier Test
chibar² (01) 10.16
Prob > chibar² 0.0007
Hasil Estimasi
Independent Variables
Model
Common Effect
Fixed Effect
Random Effect
Constant 14.0301 14.0301 9.8519
Standard Error 9.8596 9.8596 0.9990
P-Value 0.158 0.158 0.324
Ln GDP Indo 1.0199 1.0199 0.8882
Standard Error 0.3612 0.3612 0.3768
P-Value 0.006 0.006 0.018
Ln GDP partners 1.3321 1.3321 1.3604
Standard Error 0.0437 0.0437 0.0919
P-Value 0.000 0.000 0.000
Ln Distance -.9353 -.9353 -0.9305
Standard error 0.0987 0.0994 0.1970
P-Value 0.000 0.000 0.000
Telephone Cell 0.0063 0.0063 0.0048
Standard Error .0019 0.001 0.0022
P-Value 0.013 0.000 0.034
CONCLUSION
1. Gross Domestic Product (GDP) both Indonesia (the country of origin) and its ASEAN trading partners have positive and significant effect on Indonesia's service exports to ASEAN. The greater GDP of a country represent economic of scale and for country partners these represent product market. Therefore, to increase export, a country that has higher GDP is directed to trade with a country that have higher GDP.
2. Distance between Indonesia its ASEAN trading partners has a negative and significant effect on Indonesia's service exports to ASEAN. This in line with the Gravity model theory.
Since the higher distance, the higher cost of transportation and shipping cost. Even though ICT development in progress nowadays, distance still matter for trade costs.
3. Telephone cellular access has positive and significant effect on Indonesia's service exports to ASEAN. By the development of ICT, such as communication access i.e.
telephone cellular access, this may reduce the trade cost. For instance, trader do not need
to have face to face interaction, merely they only have correspondence through telephone
cellular and this may reduce trade costs, therefore this efficiency may increase trade
volume (export).
RECOMMENDATION
1.The Indonesian government is recommend to trade with a country that has higher GDP, since the higher GDP, the higher trade (export).
2. Since the higher distance, the higher cost of transportation and shipping cost. Therefore, the Indonesian government have to make transportation and shipping cost more efficient to reduce trade costs.
3. The Indonesian government should develop ICT in term of trade, such as telephone cellular access. This role can be handled by PT Telkom Indonesia. For instance to strengthen networking and infrastructure of telecommunication. To build more Base
Transceiver Station (BTS) located in trade partners countries in ASEAN, for example Telin Singapore established by Telkom Indonesia is officially established in 2007 and is the first Telkom footprint in international business.
4. The Indonesian government need to continue the implementation of Information and
Communication Joint Committee Indonesia-Singapore. As 3rd Information and
Communication Joint Committee is held in Yogyakarta in 2012.
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