ANALYSIS OF THE IMPACT OF GROSS DOMESTIC PRODUCT, HOUSEHOLD CONSUMPTON, AND INVESTMENT ON ECONOMIC GROWTH IN INDONESIA 2020-2025

Abstract

Economic growth is a fundamental indicator for measuring the success of a country’s national development. However, the fluctuating economic dynamics during the 2020-2025 period necessitate an in-depth analysis of the determinant factors that influence it. Background Problems: The Indonesian economy experienced substantial fluctuations during 2020–2025, particularly following the COVID-19 pandemic, the global commodity price boom, economic normalization, and political and governmental transitions. Novelty: examining the dynamic and potentially bidirectional relationships among GDP, household consumption, investment, and economic growth in Indonesia using a VECM framework rather than relying solely on static linear regression. Research Methods: This study employed a quantitative, descriptive-associative. Quarterly data were prepared through interpolation and analyzed using Vector Error Correction Model (VECM). Finding/Results: The findings show that GDP has a positive and significant effect on economic growth in the short run, but a negative and significant effect in the long run. Household consumption has no significant effect in the short run but has a positive and significant effect in the long run, while investment has no significant effect in either the short or long run. Conclusion: The main implication is that macroeconomic policy should not rely on a simple one-directional or static relationship between aggregate economic variables. Policy should consider the interaction among GDP, household consumption, and investment, as well as the time required for economic adjustments. The key takeaway is that maintaining household purchasing power and managing the interaction among major components of the economy are important for sustaining Indonesia’s long-run economic growth.