The Improvement in Indonesia's Real Resource Alance, 1986–89: Absorption,Switching and Growth Effects 1

This paper seeks to quantify the immediate determinants of the large improvement in Indonesia's real resource balance (balance of trade in goods and services at constant prices) over the period 1986–89. The paper uses a framework which distinguishes between tradable and non-tradable products to decompose the change in the real resource balance into the effects of changes in absorption, expenditure-switching, output-switching and economic growth. The results show that each of the three annual increases in the real resource balance between 1986 and 1989 was the outcome of positive growth and expenditure-switching effects dominating negative absorption and output-switching effects.