JURNALKU Volume 1 No. 3, September 2021 Page | 189 DETERMINANTS AND EFFICIENCY LEVEL OF CAPITAL GOODS IMPORTS IN INDONESIA: EXPLORING USING GRAVITY MODELS Sakti Prabowo 1) 1) bowo_saktie@gmail.com, Polytechnic of State Finance STAN, Indonesia Abstract The study aims to investigate the significant factors and efficiency of capital goods imports in Indonesia. This study applies the stochastic frontier gravity approach (SFGA) to explore Indonesia's capital goods import values. The results suggest that there are positive impacts of some factors on the capital goods imports, including the GDP and population of the trading partners, distance, and regional cooperation such as the Free Trade Agreement (FTA). However, some factors, including the exchange rate and some global crises have significant negative impacts on the capital goods imports. The positive effects of FTA on capital goods imports may contribute to a reduction in the behind-the-border constraints. Furthermore, the trade efficiency resulting from the model may suggest that there is still a gap between potential and actual trade affected by the country-specific constraints, implying the requirement to investigate the appropriate reforms in Indonesia to reduce such constraints. Keywords: Economic Growth, Capital Goods Imports, Country-Specific Constraints Abstrak Penelitian ini bertujuan untuk mengetahui faktor signifikan dan tingkat efisiensi impor barang modal di Indonesia. Penelitian ini menggunakan pendekatan stochastic frontier gravity (SFGA) untuk mengeksplorasi nilai impor barang modal Indonesia. Hasil penelitian menunjukkan terdapat dampak positif dari beberapa faktor terhadap impor barang modal, antara lain PDB dan populasi mitra dagang, jarak, dan kerjasama regional seperti Free Trade Agreement (FTA). Namun, beberapa faktor, seperti nilai tukar dan beberapa krisis global berdampak negatif signifikan terhadap impor barang modal. Efek positif FTA pada impor barang modal dapat berkontribusi pada pengurangan hambatan di belakang perbatasan. Selain itu, efisiensi perdagangan yang dihasilkan dari model tersebut dapat menunjukkan bahwa masih ada kesenjangan antara perdagangan potensial dan aktual yang dipengaruhi oleh kendala khusus negara, yang menyiratkan kebutuhan untuk menyelidiki reformasi yang tepat di Indonesia untuk mengurangi kendala tersebut. Kata kunci: Pertumbuhan Ekonomi, Impor Barang Modal, Kendala Perbatasan Negara INTRODUCTION In developing economies, capital goods imports may have crucial roles in enhancing economic growth. It is because capital products may embody technology, which may result in a dynamic gain from trade compared to other sectors. During the period 1990-2018, the capital goods imports in Indonesia show an increasing pattern. However, the economic growth is relatively stagnant. Therefore, it is crucial to identify whether the capital good import values have achieved their potential level or not to gain optimum economic growth. According to Kalirajan (2007), some factors, which may hamper the potential trade between economies are called country-specific constraints. These constraints may include the poor quality of institutions or trade policy. To overcome such constraints, having a regional trade agreement may help to reduce the trade constraints between countries. Currently, Indonesia joins some regional trade cooperation, such as the ASEAN-plus-one free trade area (FTA). Thus, this study will analyze the major factors, including country-specific constraints and regional cooperation, which determine the values of capital goods imports, and also the efficiency of the capital good imports of Indonesia. The method used to examine the purpose of the study is the stochastic frontier gravity model (SFGM). This study will consist of four parts. In the first section, this paper will present the literature review, including the roles of global trade and capital imports in enhancing economic performances. The second section will explain the method applied in the study. Next, the third part will present and the estimation results and discussion, and the last part will present the conclusion and suggestion based on the result analysis.