MINI RESEARCH REPORT

ECONOMIC GROWTH IN INDONESIA

Arranged to fulfill one of the Business English assignments

Lecturer : Gary Choms GT Sibarani, SE, S.Pd, M.Sc, Ak, CA.

ARRANGED BY
GROUP 5 :
NAMA NIM
Lily Handayani 7183540003
Puspa Mahardhika 7183540001
Elsa Yunita Tarigan 7183540007

ECONOMICS SCIENCE B

ECONOMICS SCIENCE STUDY PROGRAM

FACULTY OF ECONOMICS
STATE UNIVERSITY OF MEDAN
FEBRUARY 2019
 FORE WORD
Thank you, we pray to God Almighty for his blessings and blessings, the author can
complete the mini research report on Indonesian Economic Growth.
The preparation of this mini research report the author realizes that the smooth writing of
the mini research report is thanks to the help and motivation of various parties. Therefore the author
would like to express his gratitude to those who have helped in the smooth writing of this mini
research report.
In writing this mini research report, the author has tried to present the best. The author
hopes that this mini research report can provide information and have value benefits for all parties.

Medan, 24 April 2019

Author

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 TABLE OF CONTENTS

FORE WORD ................................................................................................................... 2

TABLE OF CONTENTS .................................................................................................. 3
CHAPTER I PRELIMINARY .......................................................................................... 4
1.1. Background....................................................................................................... 4
1.2. Problem Formulation ........................................................................................ 4
1.3. Purpose Of Paper .............................................................................................. 4
1.4. Use Of Paper..................................................................................................... 4
CHAPTER II THEORETICAL BASIS ............................................................................ 5
Theoretical Basis .................................................................................................... 5
CHAPTER III DISCUSSION ........................................................................................... 8
Research Results .................................................................................................... 8
CHAPTER IV CLOSING ............................................................................................... 12
Conclusion ........................................................................................................... 12
REFERENCES ............................................................................................................... 13

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 CHAPTER I
PRELIMINARY
1.1 BACKGROUND
Economic development is not a harmonious or gradual process, but is a spontaneous and
discontinuous change, namely disturbances to the existing balance. Economic development is
caused by changes especially in industrial and trade fields. Production means combining existing
materials and labor or that can be achieved to produce goods with other methods (innovation).
Innovations can take the form of five things:
a) Express or introduce new items, or new quality items that are not yet known by consumers
b) Introducing a new production method
c) Discovery of new economic sources
d) Running a new organization in the industry

The possibility of innovation is necessary, but it is not enough to encourage economic

development. Thus for economic development, the implementation of innovations is still needed
in this case by entrepreneurs. Neo-classical emphasizes the use of savings for investment. On the
contrary, according to Schumpeter, subsequent developments are not gradual, but contain large
uncertainties and risks, so they cannot be calculated first and there will be doubts in developing
their business. According to Schumpeter, the motives of entrepreneurs are to raise profits or living
standards to win in competition and obtain a monopoly position. The key to Schumpeter's theory
is for economic development. The most important factor is entrepreneurship.

1.2 Problem Formulation

Based on the background of the problem above, the author formulates a background problem,
"What is the picture of the Indonesian economy?"

1.3 Purpose of Paper

In line with the formulation of the problem above, the author formulates a paper writing objective,
"For a picture of the Indonesian economy?"

1.4 Use of Papers

1. Theoretically
a) as a rationale in the process of developing economic science.
b) as a reference in understanding Indonesia's economic development.

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 CHAOTER II
THEORETICAL BASIS
2.1 THEORIES OF THE GROWTH OF THE CLASSIC ECONOMIC EXPERT
In the history of the economic thought of the writers in the second part of the 18th century
and the beginning of the 20th century it was commonly classified as Classical. Classics are divided
into two groups: (i) which are called classics only - and are economists who put forward their
analysis before 1870, and (ii) Neo-Classical who are economists who put forward their analysis
after that year. Including the first group are Adam Smith, David Ricardo, Robert Malthus, and
John Stuart Mill. While the second group is Carl Menger Wicksel. Of the two classical economic
groups, Neo-Classical is an expert who devotes much attention to the characteristics of community
activities in the pensek term and very little to analyze the problem of economic growth. From this
view they further argue that economic development, even though it runs smoothly and regularly.

Classical economists, in analyzing development problems, especially want to know about

the causes of economic development in the long run and the pattern of the growth process. In
discussing these two issues they have a view that is somewhat different from one another.

Adam Smith's view

Adam Smith turned out to be not only famous as a pioneer of economics and the economist
who first put forward the importance of laissez-faire policy, but was also the first economist to pay
much attention to development issues, as can be seen from his book title, An Inquiry into the
Nature and Causes of the Wealth of Nations. Regarding the factors that determine development,
Smith argues that population development will encourage economic development. Increased
population will expand the market and market expansion will increase the level of specialization
in the economy. As a result of specialization that occurs, the level of economic activity will
increase.
Regarding the pattern of the process of economic growth, Smith said that if development
has taken place, then the process will continue to take place cumulatively. If the market develops,
the division of labor and specialization will occur, and the latter will lead to increased productivity.
The increase in national income caused by these developments and these developments and the
development of the population from time to time, which occur together with increases in national
income, will expand the market and create more savings. Then economic development will take
place again and thus from time to time per capita income will continue to increase.

Views of Ricardo and Mill

Smith's view of the pattern of the development process which is very optimistic above is
very contrary to the opinions of Ricardo and Malthus, who have a more pessimistic view of the
end of the development process in the long term. These two Classical economists argue that in the
long run the economy will reach a stationary state or a situation where economic development

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does not occur at all. According to Smith, who has not been aware of more diminishing yield laws,
population development will encourage economic development because he will expand the
market. Whereas according to Ricardo and Malthus, the development of a population that runs
rapidly will increase the population to be doubled within a generation, will reduce the level of
development to a lower level. According to Ricardo, the pattern of economic growth processes is
as follows:
1. At the beginning the number of people is low and the natural wealth is relatively large.

2. After this stage, because the amount of labor employed increases, wages will rise and this
increase in wages will encourage population growth.
3. After this stage, the wage rate will decrease and eventually will be at a minimum level

2.2 HARROD-DOMAR THEORY: REQUIREMENTS TO REACH STEADY GROWTH

The theory basically analyzes the problem as well as the conditions of what or what
conditions must be created in the economy to ensure that from year to year the ability to produce
which always increases as a result of investment in the previous year will always be fully used.

The Role of Investment in the Economy

In the opinion of the Classical, capital formation is an expenditure that will menanbah the
ability of a community to increase production. The opposite situation is found in Keynes's analysts,
that is, he ignores altogether the role of capital formation as expenditure which will enhance the
ability of the company sector to produce goods needed by the community. Harrod-Donar's theory
takes into account both functions of capital formation in economic activities. In accordance with
the opinion of Keynes, Harrod-Domar's theory also considers that the increase in the ability to
educate this will not in itself create additional production and increase national income.

Initialization - Examination Used

The Harrod-Domar Theory uses several examples:

1. At the beginning of the economy it has reached a high level of full employment and capital
goods available in society are fully used.
2. The economy consists of two sectors, namely, the household sector and the corporate sector.

3. The amount of community savings is proportional to the size of national income, and this
condition means that the financial function starts at zero.

4. The bias of saving a large amount remains, and so is the ratio between capital and the amount
of production.

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 Requirements for Achieving Steady Growth
Investments carried out by the community in a certain time are used for two purposes: to
control capital goods that cannot be used again and to increase the amount of capital goods
available in the community. In comparing the amount of increase in production with the investment
made, two types of values will be obtained. The first value is a comparison between all additional
production created in a given year by a number of investments. The second value of the comparison
between the amount of production and investment is done. The increase in the ability of capital
goods to produce goods does not automatically create increased production and increase in national
income. There will be a gap between investment made and investment needed to ensure the
achievement of the full level of capital goods. Thus other views of Harrod-Domar's theory can be
formulated as follows:

1. If the investment is lower than it should be, then the economy will experience depression, and
vice versa

2. If the actual investment made is greater than the planting required to ensure the achievement of
full capacity in the use of available capital goods.

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 CHAPTER III
DISSCUSION
3.1 Economic Growth
According to Prof. Simon Kuznets, defines economic growth as "a long-term increase in
the ability of a country to provide more and more types of economic goods to its population. This
ability grows in accordance with technological progress, and institutional and idiological
adjustments that are needed. This definition has 3 (three) components: first, a nation's economic
growth can be seen from the continually increasing supply of goods, second, advanced technology
is a factor in economic growth which determines the degree of growth in the ability to supply
various kinds of goods to the population; third, the use of technology widely and efficiently
requires adjustments in the institutional and idiological fields so that the innovations produced by
human science can be utilized appropriately (Jhingan, 2000: 57).

Economic growth is a process of increasing per capita output in the long term, where the
emphasis is on three things, namely process, per capita output and long term. Economic growth is
a "process" not an economic picture at a time. Here we see the dynamic aspects of an economy,
namely seeing how an economy develops or changes over time. The pressure is on change or
development itself.

Economic growth is also related to the increase in "per capita output". In this sense the
theory must include theories about GDP growth and theories about population growth. Because
only if these two aspects are explained, can the development of per capita output be explained.
Then the third aspect is economic growth in a long-term perspective, namely if for a long period
of time the output per capita shows an increasing tendency (Boediono, 1992: 1-2).

3.2 Overview of the Indonesian Economy in 2010 - 2017

National economic growth calculated through GNP (Gross National Product) can also be used as
an indicator of the pace of the national economy which in this case concerns the effectiveness of
the level of investment in and out of the country. During the decade of 10 years last (2010 - 2017
period) there are fluctuating changes.

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3.3 Factors that determine economic growth
Why can an economy develop rapidly, but sometimes it doesn't develop? Likewise with
the economic growth of a country, sometimes it moves quickly, but sometimes moves slowly. This
is because there are factors that influence it. The following are the factors that influence economic
growth.
1) Capital Goods

Capital goods are various types of goods used to produce output (goods and services). For
example: factory machinery, carpentry equipment, and so on. Capital goods have an important role
in increasing the efficiency of economic growth. Without the tools used to produce goods and
services, people will find it difficult to meet their daily needs. The addition of capital goods is done
through investment, so the higher the investment, the greater the amount of capital goods. The
more the amount of capital goods, the goods and services produced will also increase. Increasing
production of goods and services indicates the economy is experiencing growth.
2) Technology

In addition to capital goods, technology also influences economic growth. Economic

progress in various countries was mainly caused by technological advances. In developing
countries, appropriate technology is needed so that humans can make optimal use of what is in
themselves and their environment, and to suppress the use of natural or energy resources in the
production process. Technological advances have had a number of positive impacts on economic
growth which have led to faster economic growth.

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The following are some of the effects of technological progress on economic growth.
1) Enhancing the efficiency of the production of goods and services.
2) Creating inventions of new items that have never been produced before.
3) Improve the quality of the goods produced.
3) Labor

Until now, especially in developing countries, labor is still the dominant production factor.
Many people will increase the number of workers. This addition of labor allows a country to
increase the amount of production. Thus it will affect economic growth. If the workforce is
supported by better quality (education) labor, it will further increase labor productivity itself. Thus,
the increase will increase the number of items produced.
4) Natural Resources

Natural resources are all things provided by nature, such as land, climate, forest products,
mining products, and others that can be utilized by humans in their efforts to achieve prosperity.
Natural resources will make it easier for businesses to develop the economy of a country.

According to Jhingan that the availability of abundant natural resources is not enough for
economic growth, the most important thing is how to make the best use of these natural resources.
Thus the available natural resources that are utilized optimally will help in the process of economic
growth.

Although natural wealth has an important role, this does not mean that economic
development is very dependent on the amount of natural wealth of a country. Economic
developments in the Netherlands, Japan, and South Korea prove that even though they do not have
significant natural resources, the economic development of these countries is growing rapidly.
5) Management

The economy in a country will develop rapidly if managed properly. This management
system is called management. Like the Indonesian nation, it has the potential of diverse and
abundant natural resources and a large population, if the existing potential is managed well then it
can encourage economic growth.
6) Entrepreneurship

Entrepreneurship (entrepreneurship) is someone who is able and brave to take risks in

making an effort to make a profit. The role of entrepreneurs in advancing the economy has been
proven from time to time. Entrepreneurs in investing will expand employment opportunities,
increase national output, and increase state revenues in the form of taxes.
7) Information

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 One of the conditions for a market to function as a tool for efficient allocation of economic
resources is the existence of perfect and balanced information. Information greatly supports
economic growth because economic actors can make decisions based on accurate and fast
information.

Can Steady Growth Be Realized?

The most important hypothesis that explains the causes of the perpetual stagnation in a
highly developed economy was also found by Hansen. He argues that the level of investment which
is always below the savings level at the maximum level of capital goods capacity arises as a result
of several factors:
1. The effectiveness of capital saving innovation
2. Add a very slow population
3. Decreased "forniner spirit, which is the desire to develop new regions and natural wealth.

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 CHAPTER III
CONCLUSION
Economic growth is a process of increasing per capita output in the long term, where the
emphasis is on three things, namely process, per capita output and long term. Economic growth is
a "process" not an economic picture at a time. Here we see the dynamic aspects of an economy,
namely seeing how an economy develops or changes over time. The emphasis is on change or
development itself.

According to Harrod-Domar, each economy can set aside a certain proportion of its
national income if only to replace damaged capital goods. However, to grow the economy, new
investments are needed as an additional capital stock. This relationship is known as the capital-
output ratio (COR).

The following is an example of an Economic Development paper in the past ... to do an

update you can post the latest data in the available table to provide the latest data.
before and after we say thank you

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 BIBLIOGRAPHY
Sukirno, Sadono.Economy of development: Process, Problems, and Policy Basics, Jakarta:
Kencana, 2007.
Todaro, Michael P. Third World Economic Development, Jakarta: Erlangga, 2000.

Suryana. Economic Development Problems and Approaches, Jakarta: Salemba Empat,

2000.
http://arwan-tabutty.blogspot.com/2013/08/teori-teori-pembangunan-ekonomi.html

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