INDONESIA’S FDI – EXPORTS – GDP GROWTH NEXUS: TRADE OR INVESTMENT - DRIVEN?
Keywords:
Export, Foreign Direct Investment, Growth
Abstract
This paper examines the relationship between foreign direct investment inflow, export and economic growth in Indonesia in a dynamic framework. We uses vector error correction model to estimate the causal relationship between FDI, exports and GDP. The findings in Indonesia’s case verify the proposition that FDI plays an important role which, in turn, together with joint FDI-exports can promote economic growth in the immediate short run and improve the competitiveness for Indonesia’s commodity exports. Nonetheless, the absence and existence of economic growth effects to FDI and exports respectively indicate that Indonesia still has several domestic economic constraints. It denotes that Indonesia’s economic structure is still transforming and far from adequate. Indonesia needs bold policies in order to accelerate
its economic growth and further integrate trade chains for reducing domestic economic restrictions and improving Indonesia’s degree of competitiveness.
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References
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Narayan, PK & Smyth, R. (2004). Temporal Causality and The Dynamics of Exports, Human
Capital and Real Income in China. International Journal of Applied Economics. 1 (1), 24-45.
Ng, S & Perron, P. (2001). Lag Length Selection and The Construction of Unit Root Tests with
Good Size and Power. Journal of Econometrica. 69 (6), 1519-1554.
Ngoc, PM. (2008). The Roles of Capital and Technological Progress in Vietnam’s Economic
Growth. Journal of Economic Studies. 35 (2), 200-219.
Oladipo, OS. (2013). Does Foreign Direct Investment Cause Long Run Economic Growth?
Evidence from The Latin American and the Caribbean Countries. International Economics
and Economic Policy. 10 (4), 569-5
or inward FDI?. Journal of Economic Studies. 37 (3), 267-287.
Attari, MIJ; Kamal, Y & Attaria, SN (2011). The Causal Link Between Foreign Direct Investment
(FDI) and Economic Growth In Pakistan Economy. The Journal of Commerce. 3 (4), 61-68.
Bahmani-Oskooee, M & Economidou, C. (2009). Export led Growth vs. Growth led Exports:
LDCs Experience. The Journal of Developing Areas. 42 (2), 179-209.
Balassa, B. (1978). Exports and Economic Growth. Journal of Development Economics. 5, 181
-189.
Chakraborty, C & Basu, P. (2002). Foreign Direct Investment And Growth in India: a Co-
Integration Approach. Applied Economics. 34 (9), 1061-1073.
Dickey, DA & Fuller, WA. (1979). Distribution of The Estimators for Autoregressive Time Series
With A Unit-Root. Journal of the American Statistical Association. 74 (366), 427-431.
Doyle, E. (2001). Export-Output Causality and The Role of Exports in Irish Growth: 1950-1997.
International Economic Journal. 15 (3), 31-54.
Elliott, G; Rothenberg, TJ and Stock, JH. (1996). Efficient Tests For an Autoregressive Unit Root.
Journal of Econometrica. 64 (4), 813-836.
Engle, RF & Granger, CWJ. (1987). Co-integration and Error Correction: Representation,
Estimation, and Testing. Journal of Econometrica. 55 (2), 251-276.
Felipe, J. (2003). Is Export-led Growth Passe? Implications for Developing Asia. ERD Working
Paper Series. 48. Asian Development Bank.
Gagnon, JE. (2008). Growth-led Exports: Implications for The Cross-country Effects of Shocks to
Potential Output. International Finance Discussion Papers. 822. The Federal Reserve. USA.
Giles, JA & Williams, CL. (2000a). Export-led Growth: A Survey of The Empirical Literature and
Some Non-Causality Results. Journal of International Trade and Economic Development.
9 (3), 261-337.
Giles, JA & Williams, CL. (2000b). Export-led Growth: A Survey of The Empirical Literature and
Some Non-Causality Results. Journal of International Trade and Economic Development.
9 (4), 445-470.
Gharana, KKG & Adhikari, DR. (2011). Econometric Investigation of Relationships among Export,
FDI and Growth in China: an application of Todayamamoto-Dolado-Lutkephol Granger
Causality Test. Journal of International Business Research. 10 (2), 31-50.
Gossel, SJ & Biekpe, N. (2013). Economic Growth, Trade and Capital Flows: a Causal Analysis of
Post-liberalised South Africa. The Journal of International Trade and Economic Development:
An International and Comparative Review, (http://dx.doi.org/10.1080/09638199.2013.78
6118)
Granger, CWJ. (2010). Some Thoughts on The Development of Cointegration. Journal of
Econometrics. 158, 3-6.
Granger, CWJ. (1988). Some Recent Developments in The Concept of Causality. Journal of
Econometrics. 39, 199-211.
Granger, CWJ & Newbold, P. (1974). Spurious Regressions in Econometrics. Journal of
Econometrics. 2, 111-120.
Johansen, S. (1991). Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian.
Econometrica. 59 (6), 1551-1580.
Johansen, S. (1988). Statistical Analysis of Co-integration Vectors. Journal of Economic Dynamics
and Control. 12, 231-254.
Kinda, T. (2010). Investment Climate and FCI in Developing Countries: Firm-level Evidence.
World Development. 38. (4), 498–513.
Kohpaiboon, A. (2003). Foreign Trade Regimes and The FDI–Growth Nexus: A Case Study of
Thailand. The Journal of Development Studies. 40 (2), 55-69.
Kondeker M & Kalirajan, K. (2010). Determinants of Foreign Direct Investment in Low-income
and Lower-middle Income Countries: A Comparative Analysis. ASARC Working Paper Series.
13. The Australian National University. Australia South Asia Research Centre, Australia.
Li, X & Liu, X. (2005). Foreign Direct Investment and Economic Growth: An Increasingly
Endogenous Relationship. World Development. 33 (3), 393-407.
Makki, SS & Somwaru. (2004). Impact of Foreign Direct Investment and Trade on Economic
Growth: Evidence from Developing Countries. American Journal of Agricultural Economics.
86 (3), 795-801
Nabende, AB; Ford, JL; Santoso, B & Sen, S. (2003). The Interaction between FDI, Output and
The Spillover Variables: Co-Integration and VAR Analyses for APEC, 1965-1999. Applied
Economics Letters. 10 (3), 165-172.
Narayan, PK & Smyth, R. (2004). Temporal Causality and The Dynamics of Exports, Human
Capital and Real Income in China. International Journal of Applied Economics. 1 (1), 24-45.
Ng, S & Perron, P. (2001). Lag Length Selection and The Construction of Unit Root Tests with
Good Size and Power. Journal of Econometrica. 69 (6), 1519-1554.
Ngoc, PM. (2008). The Roles of Capital and Technological Progress in Vietnam’s Economic
Growth. Journal of Economic Studies. 35 (2), 200-219.
Oladipo, OS. (2013). Does Foreign Direct Investment Cause Long Run Economic Growth?
Evidence from The Latin American and the Caribbean Countries. International Economics
and Economic Policy. 10 (4), 569-5
Published
2017-07-07
How to Cite
Febiyansah, P. (2017). INDONESIA’S FDI – EXPORTS – GDP GROWTH NEXUS: TRADE OR INVESTMENT - DRIVEN?. Buletin Ekonomi Moneter Dan Perbankan, 19(4), 469-488. https://doi.org/10.21098/bemp.v19i4.696
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Buletin Ekonomi Moneter dan Perbankan / Bulletin of Monetary Economics and Banking is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
