The Influence of Export, Government Expenditure, and Labor Force

to Economic Growth in North Sumatera

Malem Ateta Br. Purba¹, Pospin Marbun

, Mahyuliza¹, Evi Syuriani Harahap¹ and Mayani Pratiwi

Pasaribu¹

Graduate Economics, Universitas Negeri Medan

²STIE IBMI Medan, Medan-Indonesia

Keywords: Economic Growth, Export, Government Expenditure, Labor Force

Abstract: Economic growth is one of the most important factors to measure the success of economic development.

The aim of economic development is to achieve high economic growth, maintain price stability, and

overcome unemployment problems, maintain balance of payments balance and distribute income more

equitably and evenly. The purpose of this study was to look at the effects ofm exports, government

spending, and the workforce that worked on economic growth in North Sumatra during the period 2003-

2017. This study uses secondary data obtained directly from Badan Pusat Statistik and department or agency

concerned. The analysis used descriptive quantitative analysis of Ordinary Least Square (OLS). In this study

using Eviews 9 as an estimation tool. The regression showed that the Export is not significant positive effect

on the economic growth, Government Expenditure is significantly positive effect on the economic growth,

and Labor Force is significantly positive effect on the economic growth. Then the relationship between the

Export, Government Expenditure, and the Labor Force with Economic Growth of 98.03% and 1.97% is

explained by other factors not mentioned in this model.

1 INTRODUCTION

Economic growth is one of the most important

factors to measure the success of economic

development. Economic growth shows the extent to

which economic activity is able to generate

additional income in a certain period (Sukirno:

2008).

Economic growth is the development of

economic activities that have an impact on

increasing the amount of production of goods and

services produced by the community, and

encourages the increasing prosperity of the

community. Increased economic growth is a top

priority for regional governments. In the success of

economic growth, employment opportunities,

reducing poverty, improving nutrition and health,

including education will improve.

Positive economic growth shows that people who

are in a country have been able to fulfill their basic

needs and have even been able to obtain welfare. In

contrast, declining economic growth shows that the

condition of people's welfare also declined in the

country.

The aim of economic development is to achieve

high economic growth, maintain price stability, and

overcome unemployment problems, maintain

balance of payments balance, and distribute income

more equitably and evenly. According to Todaro

(2000), development must be interpreted as a

multimensional process involving major changes in

social structure, familiar mental attitudes and

national institutions including acceleration

(acceleration of economic growth, reduction of

inequality and the eradication of absolute poverty).

According to Simon Kuznets, economic growth

is a long-term increase in the ability of a country to

provide more economic goods to its population.

Based on the open economy concept, where

economic growth is an aggregate of household

sector consumption, investment, government sector

expenditure, and foreign trade in the import-export

sector (Y = C + I + G + NX).

North Sumatra is one of the largest provinces in

Indonesia and has abundant potential resources.

Below is presented data on the comparison of North

Purba, M., Marbun, P., Mahyuliza, ., Harahap, E. and Pasaribu, M.

The Inﬂuence of Export, Government Expenditure, and Labor Force to Economic Growth in North Sumatera.

DOI: 10.5220/0009494604070412

In Proceedings of the 1st Unimed International Conference on Economics Education and Social Science (UNICEES 2018), pages 407-412

ISBN: 978-989-758-432-9

407

Sumatra's economic growth with Indonesia's

economic growth during the 2011-2017 period.

Table 1: Comparison of North Sumatra's economic

growth with Indonesia's economic growth

Years

North Sumatera

Economic Growth

(%)

Indonesian

Economic

Growth (%)

2011

6.63

6.44

2012

6.45

6.19

2013

6.07

5.56

2014

5.23

5.02

2015

5.10

4.79

2016

5.18

5.02

2017

5.12

5.10

From Table above, it can be seen that the

economic growth of North Sumatera has decreased

from year to year unless it is known that 2016 has

increased. The economic performance of North

Sumatera in 2016 when compared to 2015, grew by

5.18%. the increase was due to the fact that most

businesses also experienced good growth. However,

North Sumatera's economic growth is above the

average economic growth in Indonesia.

In 2016 North Sumatera's export volume reached

8.39 million tons with exports reaching US $ 7.77

billion. The main export commodity of North

Sumatra is vegetable oil and animal fats which

reached US $ 2.99 billion (38.48% of the export

value of US $ 7.77 billion)

North Sumatera is the fourth province with the

largest population in Indonesia after West Java, East

Java and Central Java. According to the results of

the census carried out in 2010 in May, the

population of North Sumatera reached 12,982,204

people with population coverage reaching 188

people per km². The population growth rate of North

Sumatra during the period of 2000-2010 reached

1.12% per year. The labor force participation rate in

North Sumatera shows fluctuations.

2 THEORICAL FRAMEWORK

Economic growth

Harrod-Domar”s theory in Dornbusch and Fisher

(2004) this economics theory analyzes the

relationship between growth level and inflation

level. The idea is that at a certain level of national

income is sufficient to absorb all workers, with wage

level in the next period would no longer sufficient to

absorb all the existing all workers. The occurs

because of the additional production capacity in the

initial period and available in the following period.

Thus required the additional funds to achieve the

absorption level of full employment in the next

periode, by calculating the relationship between

capital (capital stok = K), with the production result

(output = Y), or with a capital output ratio (COR).

Economic growth is one of the most important

indicators in carrying out an analysis of economic

development that occurs in a country. Economic

growth is one process where the production capacity

of an economy increases over time to produce

increasingly large levels of income (Todaro: 2006).

According to Lincolin Arsyad (2010), economic

growth is an increase in GDP / GNP regardless of

whether the increase is greater or smaller than the

population growth rate, or whether changes in

economic structure occur or not.

According to Sukirno, (2004), that economic

growth explains or measures the achievement of the

development of an economy, whereas in

macroeconomic analysis the level of economic

growth achieved by a country is measured by the

development of real national income achieved by a

country.

Export

In macroeconomic theory, the relationship between

exports with the level of economic growth or

national income is an identity equation because

exports are part of the national income level

(Oiconta, 2006). From the point of the expenditure,

exports are one of the most important factors in the

Gross National Product (GNP) so that with a change

in the value of exports, in income of te community

directly will also undergo changes. On the other

hand, higher a country”s exports would cause the

economy will be very sensitive to the fluctuations in

the international markets and the world economy

(Irham and Yogi, 2003).

Exports are an outflow of goods and services

from one country to the international market.

Exports occur because the need for certain goods or

services is sufficient in the country or because the

production of goods / services can be competitive

both in price and quality with similar products in the

international market.

According to Todaro (2006), exports are

international trade activities that provide stimuli to

foster domestic demand which causes the growth of

large industries, along with a stable political

structure and flexible social institutions. In other

words, exports reflect trade activities among nations

that can provide a boost in the dynamic growth of

international trade, so that a developing country is

likely to achieve economic progress as well as with

more developed countries.

Government Expenditures

According to Guritno (2001), government

expenditure is the value of spending carried out by

UNICEES 2018 - Unimed International Conference on Economics Education and Social Science

408

the government that is used for the benefit of the

community. Government expenditure reflects

government policy, where if the government has

written a policy to buy goods and services,

government expenditure reflects the costs that must

be spent by the government to implement the policy.

Government routine expenditures are

expenditures for the maintenance or administration

of daily government. Included in routine expenditure

are employee expenditure, goods expenditure,

autonomous regional subsidies, interest and other

debt repayments.

Development expenditure is an expenditure

intended to finance development programs, so that

the budget is always adjusted to funds mobilized.

These funds are then allocated to various fields in

accordance with the priorities planned in Repelita. In

addition to financing sectoral expenditures through

development departments or agencies, it also

finances regional special projects known as the

Inpres (Presidential Instruction) projects, both

carried out by the center and each region.

Labor Force

According to Todaro (2000), population growth and

labor force growth is traditionally regarded as one of

the positive factors that accelerate economic growth.

The grater amount of labor means will increase the

level of production, while the greater population

growth means a larger size of its domestic market.

Lewis in Todaro (2004) the homogeneous and

unskilled labor force is considered to be able to

move and shift from the traditional sector to the

modern sector smoothly and in limited quantities.

These circumstances, labor supply contains a high

elasticity. Increased demand for labor (from the

traditional sector) root in the expansion of modern

sector activities. Thus one of the factors that

influence the economic growth is labor.

Conceptual framework

Based on the above theoretical concepts, the

conceptual framework of the research can be

described, namely:

Figure 1: Conceptual Framework

Hypothesis

The hypothesis is a temporary answer to an existing

problem. This means that the existing hypothetical

does not mean the final answer, but becomes a

temporary conclusion that must be tested with data

that has a relationship, or by looking at the facts that

occur in the field.

The hypotheses in this study are:

a. Exports have a positive effect on North

Sumatra's economic growth

b. Government spending has a positive effect on

North Sumatra's economic growth

c. The labor force that works has a positive effect

on the economic growth of North Sumatra

3 RESEARCH METHOD

This study focuses on the economic growth of North

Sumatra Province. Where the independent variables

are exports, government expenditure, and labor

force. Whereas GDP at the constant price of 2010 is

the dependent variable.

The type of data used in this study is secondary

data in the form of quantitative time series, namely

data in the form of numbers and data sources

obtained through the report of the Central Sumatra

Provincial Statistics Agency (BPS), Bank Indonesia

and other supporting data obtained from journals,

books and previous research.

The operational limits of this research are carried

out by observing the effect of exports, government

spending and the labor force on economic growth in

North Sumatra. The data analysis method used in

this study is the Ordinary Least Square (OLS)

method. Where this method is used to obtain

estimates from a regression line by minimizing the

number of squares of errors for each observation of

the line (Kuncoro, 2007). This method is used in

analyzing the effect of independent variables on the

dependent variable with the following equation:

Y = α + β1X1 +β2X2 + β3X3 + e

Where :

α = constant

β1, β2, β3 = coefficient of each variable

X1 = export

X2 = government expenditure

X3 = labor force

e = error term

Export

Expenditure

Government

Labor Force

Economic

Growth

The Inﬂuence of Export, Government Expenditure, and Labor Force to Economic Growth in North Sumatera

409

4 ANALYSIS

1. Linear regression

From the results of multiple linear regression

analysis using the OLS method, an equation model

can be drawn for the effect of exports, government

expenditure, and the labor force on economic growth

in North Sumatra.

Table 2 : The Results of Linear Regression Analysis

Dependent Variable: PDRB

Method: Least Squares

Date: 11/24/18 Time: 19:52

Sample: 2003 2017

Included observations: 15

Variable

Coefficient

Std.

Error

Statistic

Prob.

35597.71

64772.97

0.546258

0.5173

EKSPOR

242.4329

240.2548

1.009066

0.3246

0.039310

0.015365

2.558381

0.0266

21.50248

2.062032

10.91277

0.0000

R-squared

0.980399

Mean dependent var

323022.8

Adjusted R-squared

0.972768

S.D. dependent var

82517.87

S.E. of regression

13617.13

Akaike info criterion

22.09922

Sum squared resid

2.04E+09

Schwarz criterion

22.28804

Log likelihood

161.7442

Hannan-Quinn criter.

22.09721

F-statistic

167.7021

Durbin-Watson stat

1.741370

Prob(F-statistic)

0.000000

Based on the data obtained from the results of the

research and the data that has been processed using

the Eviews 9 program, the regression results can be

obtained as follows:

Y = 35597.71 + 242.4329 X1 + 22.50248 X2 +

0.039310 X3

From the regression equation above, an

interpretation of the model can be made as follows:

a. The regression coefficient for the export variable

is 242.4329, so it can be said that the export variable

has a positive effect on economic growth in North

Sumatra. Judging from the probability value of

0.3246 where the probability value > α = 0.05, it can

be stated that the export variable does not

significantly influence economic growth in North

Sumatra.

b. Regression coefficients for government

expenditure variables are 22.50248, it can be said

that government expenditure variables have a

positive effect on economic growth in North

Sumatra. Judging from the probability value of

0.0000, because the probability value is < α = 0.05,

it can be stated that the variable government

expenditure has a significant effect on economic

growth in North Sumatra.

c. The regression coefficient for the labor force

variable (AK) is 0.039310, it can be stated that the

labor force variable has a positive effect on

UNICEES 2018 - Unimed International Conference on Economics Education and Social Science

410

economic growth in North Sumatra. Judging from

the probability value for this variable is 0.0266,

because the probability is < α = 0.05, it can be stated

that labor force variables significantly influence

economic growth in North Sumatra.

2. Determination Coefficient (R-Square / R²)

Table 3 : The Results of R-Square

R -Square

Adjusted R-Square

0.980399

0.972768

Based on the table above, the value of R² is

0.980399. this indicates that the independent

variables together were able to give an explanation

of the dependent variable at 98.03%. The 1.97% is

explained by other variables outside the model.

3. T-test (Partial Test)

Table 4: The Results of T-Test

Explanation

t-count

Sig.

Export

1.009066

0.3246

Government

Expenditure

10.91277

0.0000

Labor Force

2.558381

0.0266

4. F-Statistic Test (Overall Test)

This test looks at how much influence the variable

X1 (Export), X2 (Government Expenditures), and

X3 (Labor Force that works) together on variable Y

(Economic Growth North Sumatra).

Table 5: The Result of F-Statistic Test

F-count

Sig

167.7021

0000

Based on the results of the regression model analysis

above, it can be seen that F-count > F-table

(167.7021> 3.20), then Ho is rejected and Ha is

accepted. This means that together the variables of

Export, Government Expenditures and Labor Force

that work significantly influence the Economic

Growth of North Sumatra at α = 5%.

5 CONCLUSION

1. Export has a positive and insignificant effect on

economic growth in North Sumatra. Where every

increase of Rp. 1 billion total exports resulted in

an increase in economic growth of Rp. 242.4329

billion assuming ceteris paribus.

2. Government expenditure has a positive and

significant effect on economic growth in North

Sumatra. Where every increase of Rp. 1 billion

total government expenditure resulted in an

increase in economic growth of Rp. 22.50248

billion assuming ceteris paribus.

3. The labor force that works has a positive and

significant effect on economic growth in North

Sumatra. Where each increase of 1 laborforce

that work is resulting in an increase in economic

growth of Rp. 0.039310 billion assuming ceteris

paribus.

6 RECOMMENDATION

Seeing the condition of Indonesia's economic

growth, especially North Sumatra, so that it will

improve in the future, the authors provide the

following suggestions:

1. In increasing economic growth in North

Sumatra, macroeconomic indicators such as

exports, government expenditures and the labor

force must also improve.

2. In supporting export growth, government and

private financial institutions must be able to

channel loans to the right real sectors, especially

the agricultural sector, small and medium

industries, and other sectors that are export-

oriented.

3. In improving the quality of the labor force,

government and private institutions must be

able to provide training and experience to the

laborforce so that their production results are

more productive.

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