THE RESPONSE OF ECONOMIC GROWTH TO LIQUIDITY (AN EMPIRICAL STUDY ON PAPUA AND WEST PAPUA, INDONESIA)

Abstract

This study aims to determine the response of regional economic growth to innovations on liquidity, saving-investment gap, trade openness, inflation and national growth rate. The basic approach of this study is constructed from the principles of open macroeconomy and financial intermediary system. This study used a quarterly data for the period of 2008 – 2019 and employed VAR/VECM/IRF/FEVD. The research novelty will be useful for the development of regional economics and for policy formulation in advancing the economy in the Papua region. Overall, this study found that the response of regional economic growth to innovation on liquidity, saving-investment gap, trade openness, inflation and national growth rate indicates a better synergy for Papua compared to West Papua. The result/novelty of this study is important as an input for the development of early warning system (EWS) and for reformulating the economic development policy and strategy, especially considering that the two provinces still have many underdeveloped districts.