Analysis of Import Dependency for Pharmaceutical Chemical Precursors (HS Code 29) and Its Correlation with the Volatility of the National Chemical Industry Price Index

Abstract

Indonesia's pharmaceutical and chemical industries remain vulnerable due to their dependence on imported Pharmaceutical Chemical Precursors (HS Code 29). This dependency increases exposure to global supply chain disruptions and exchange rate volatility, contributing to fluctuations in the National Chemical Industry Price Index (IHP). This study examines the relationship between HS 29 import dependency and IHP volatility using monthly time-series data from 2021–2024. The analysis applies the Augmented Dickey-Fuller test, Johansen cointegration, Vector Error Correction Model (VECM), Impulse Response Functions (IRF), Variance Decomposition (VD), and Granger causality tests. The results show that both variables are integrated at order one [I(1)] and share a significant long-term equilibrium relationship. A 1% increase in import dependency raises IHP by 0.82% in the long run. IRF analysis indicates a persistent positive response, peaking at 0.35% in month 8, while VD analysis reveals that import shocks explain 41% of IHP volatility by month 24. Granger causality confirms a unidirectional relationship from import dependency to IHP volatility. These findings emphasize the need for upstream petrochemical development, import substitution policies, and exchange rate hedging to strengthen industrial resilience.