Does Tobacco Affect Economy?

Document Type : Research Articles


1 Faculty of Economics and Business, University of Indonesia, Depok, Indonesia.

2 Institute for International Strategy, Tokyo International University, Tokyo, Japan.

3 World Health Organization Indonesia, Jakarta, Indonesia.

4 Faculty of Economics and Business, Gadjah Mada University, Yogyakarta, Indonesia.

5 Faculty of Economics and Administration, University of Malaya, Kuala Lumpur, Malaysia.

6 Center for Islamic Economics and Business, Faculty of Economics and Business, University of Indonesia, Depok, Indonesia.


Objective: The still debatable contribution of tobacco to the economy demands further discussion as tobacco remains controversial commodity due to its adverse health impacts. This paper aims to investigate the relationship between tobacco and the economy using macroeconomics indicators such as unemployment, inflation, and GDP growth. As a comparison, we include the tobacco price bands in USA because the sector is one of dominant affecting the economy and the price in some main areas in America is incredibly competitive. Methods: This paper use tobacco data and Macroeconomics Indicators from Euromonitor International and World Bank Data. We extend linear regression models by controlling both the serial correlation and endogeneity bias problems. We also observe the properties in the ARMA(2,2) data generating process. Results: We document that tobacco tends to affect the USA’s future economy but not Indonesia. In our robustness check, we conduct a SUR analysis to control the contemporaneous correlations among Asian markets. We further document that tobacco variables tend not to affect the economy in the Asian markets. Conclusion: Our results show that the contribution of tobacco commodity to the economy is overstated. Therefore, the comprehensive and massive tobacco control implementations should be undertaken hence is relevant to put into actions.


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