Beyond trade value : essential drivers of Indonesia’s coffee exports in the global market - a system GMM approach

Abstract

Despite being one of the world’s largest coffee producers, Indonesia has experienced relatively stagnant export volumes, raising questions about the determinants of its competitiveness in global markets. This study examines Indonesian coffee exports using a dynamic gravity model estimated with the system Generalized Method of Moments (GMM) on panel data from 25 major trading partners during 2005–2024. By incorporating lagged exports, the model captures persistence in trade flows while addressing endogeneity, unobserved heterogeneity, and dynamic adjustment, limitations often overlooked in static gravity models. The results reveal strong export persistence, indicating that past export performance significantly shapes current exports. Partner-country GDP and trade openness increase exports, whereas economic distance and exchange rate appreciation reduce them. Indonesia’s CPI has a positive effect, while Indonesia’s GDP per capita, partner-country population, and foreign direct investment are not statistically significant. These findings underscore the importance of market size, trade costs, macroeconomic stability, and long-term trade relationships in sustaining coffee export performance. The study contributes to the international trade literature by highlighting the value of dynamic modeling for commodity export analysis. Policy priorities include preserving established markets, entering high-growth destinations, improving logistics efficiency, maintaining exchange rate stability, deepening trade openness, and promoting higher value-added coffee products.