The Effect of Inward Foreign Direct Investment and Information and Communication Technology on Economic Growth in Indonesia
DOI:
https://doi.org/10.7160/aol.2022.140106How to Cite
Abstract
Inward foreign direct investment indirectly or directly affect economic growth through various means. For instance, the direct effect might be attributed to production factors, while information and communication technology changes are linked to the indirect effect. This study aimed to examine the impact of direct and indirect inward foreign investment and information and communication technology on Indonesian economic growth. The data was collected from the annual time series from 1994 to 2019. Furthermore, an autoregressive distributed lag model was used to analyze the data and provide accurate conclusions. The results showed that short-term and long-term inward foreign direct investment and information and communication technology significantly affects Indonesian economic growth. In the long term, the direct and indirect effects of inward foreign direct investment are negative and positive, respectively. However, the long-term effect of information and communication technology on economic growth is positive.References
Abdouli, M. and Hammami, S. (2017) "Investigating the causality links between environmental quality, foreign direct investment and economic growth in MENA countries", International Business Review, Vol. 26, No. 2, pp. 264-278. ISSN 0969-5931. DOI: https://doi.org/10.1016/j.ibusrev.2016.07.004
Adam, P, Rianse, U, Cahyono, E. and Rahim, M. (2015) "Modeling of the dynamics relationship between world crude oil prices and the stock market in Indonesia", International Journal of Energy Economics and Policy, Vol. 5, No. 2, pp. 550-557. ISSN 2146-4553.
Adam, S. (2009) "Foreign Direct investment, domestic investment, and economic growth in Sub-Saharan Africa", Journal of Policy Modeling, Vol. 31, pp. 939–949. ISSN 0161-8938. DOI: https://doi.org/10.1016/j.jpolmod.2009.03.003
Adedoyin, F. F., Bekun, F. V., Driha, O. M. and Balsalobre-Lorente, D. (2020) "The effects of air transportation, energy, ICT and FDI on economic growth in the industry 4.0 era: Evidence from the United States", Technological Forecasting & Social Change, Vol. 60, 120297. ISSN 0161-8938. DOI: https://doi.org/10.1016/j.techfore.2020.120297
Alfaro, L., Chanda, A., Kalemli-Ozcan, S. and Sayek,S. (2004) "FDI and economic growth: The role of local financial markets", Journal of International Economics, Vol. 64, No. 1, pp. 89-112. ISSN 0022-1996. DOI: https://doi.org/10.1016/S0022-1996(03)00081-3
Alvarado, R., I iguez, M. and Ponce, P. (2017) "Foreign direct investment and economic growth in Latin America", Economic Analysis and Policy, Vol. 56, pp. 176-187. ISSN 0313-5926. DOI: https://doi.org/10.1016/j.eap.2017.09.006
Amaghionyeodiwe, L. and Annansingh-Jamieson, F. (2017) "An investigation into the impact of mobile technologies on economic growth and employment in the Caribbean", Athens Journal of Business & Economics, Vol. 3, No. 3, pp. 263-278. ISSN 2241-794X. DOI: https://doi.org/10.30958/ajbe.3.3.3
Anwar, S. and Sun, S. (2011) "Financial development, foreign investment and economic growth in Malaysia", Journal of Asian Economics, Vol. 22, pp. 335-342. ISSN 1049-0078. DOI: https://doi.org/10.1016/j.asieco.2011.04.001
Arabi, A. M. K. and Allah, B. A. W. (2017) "The impact of information and communication technology (ICT) development on economic growth in Sudan: An application of ARDL bounds testing approach", Archives of Business Research, Vol. 5, No. 3, pp. 155-164. ISSN 2054-7404. DOI: https://doi.org/10.14738/abr.53.2886
Arvin, M. B., Pradhan, R. P. and Nair, M. (2021) "Uncovering interlinks among ICT connectivity and penetration, trade openness, foreign direct investment, and economic growth: The case of the G-20 countries", Telematics and Informatics, Vol. 60. ISSN 0736-5853. DOI: https://doi.org/10.1016/j.tele.2021.101567
Asongu, S. A. and Odhiambo, N. M. (2019) "Foreign direct investment, information technology and economic growth dynamics in Sub-Saharan Africa", Telecommunications Policy, Vol. 44, No. 1. ISSN 0308-5961. DOI: https://doi.org/10.2139/ssrn.3417047
Aurangzeb, Z. and Stengos, T. (2014) "The role of Foreign Direct Investment (FDI) in a dualistic growth framework: A smooth coefficient semi-parametric approach", Borsa Istanbul Review, Vol. 14, No. 3, pp. 133-144. ISSN 2214-8450. DOI: https://doi.org/10.1016/j.bir.2014.06.004
Brown. R. L., Durbin. and Evans, J. M. (1975) "Techniques for Testing the Consistency of Regression Relations Over Time", Journal of the Royal Statistical Society. Series B (Methodological), Vol. 37, No. 2, pp. 149-192. ISSN 1369-7412. DOI: https://doi.org/10.1111/j.2517-6161.1975.tb01532.x
Dhrifi, A. (2015) "Foreign direct investment, technological innovation and economic growth: empirical evidence using simultaneous equations model", International Review of Economics, Vol. 62, pp. 381-400. ISSN 18634613. DOI: https://doi.org/10.1007/s12232-015-0230-3
Dickey, D. A. and Fuller, W. A. (1979) "Distribution of the estimators for autoregressive time series with a unit root", Journal of the American statistical Assosiation, Vol. 74, pp. 427-443. ISSN 0162-1459 DOI: https://doi.org/10.2307/2286348
Dimelis, S. P. and Papaioannou, S. K. (2010) "FDI and ICT effects onproductivity growth: A comparative analysis of developing and developed countries", European Journal of Development Research, Vol. 22, No. 1, pp. 79-96. ISSN 0162-1459. DOI: https://doi.org/10.1057/ejdr.2009.45
Dritsaki, C. and Stikakis, E. (2014) "Foreign direct investments, exports, and economic growth in Croatia: A time series analysis", Procedia Economics and Finance, Vol. 14, pp. 181-190. ISSN 2212-5671. DOI: https://doi.org/10.1016/S2212-5671(14)00701-1
D’souza, D. J. and Joshi, H. G. (2018) "ICT Intervention in the Socio-Economic Development of Udupi Jasmine", AGRIS on-line Papers in Economics and Informatics, Vol. 10, No. 4, pp. 17-25. ISSN 1804-1930. DOI: https://doi.org/10.7160/aol.2018.100402
Dutt, A. K. (1997) "The pattern of direct foreign investment and economic growth", World Development, Vol. 25, No. 11, pp. 1925-1936. ISSN 0305-750X. DOI: https://doi.org/10.1016/S0305-750X(97)00081-8
Edward, J. A., Romero, A. A. and Madjd-Sadjadi, Z. (2016) "Foreign direct investment, economic growth, and volatility: a useful model for policymakers", Empirical Economics, Vol. 51, pp. 681-705. ISSN 03777332. DOI: https://doi.org/10.1007/s00181-015-1022-z
Farhadi, M., Ismail, R. and Fooladi, M. (2012) "Information and communication technology use and economic growth", PLoS ONE, Vol. 17, No. 11, pp. 1-7. ISSN 19326203. DOI: https://doi.org/10.1371/journal.pone.0048903
Garc a, M. J. (2019) "The impact of information and communication technologies on economic growth in Mexico", International Journal of Business and Social Research, Vol. 9, No. 2, pp. 11-22. ISSN 2164-2540.
Habibi, F. and Zabardast, M. A. (2020) "Digitalization, education and economic growth: A comparative analysis of Middle East and OECD countries", Technology in Society, Vol. 63. ISSN 0160-791X. DOI: https://doi.org/10.1016/j.techsoc.2020.101370
Heij, C., De-Boer, P., Franses, P. H., Kloek, T. and Van-Dijk, H. K. (2004) "Econometric method with applications in business and economics", New York: Oxford University Press. ISBN-13 978-0199268016.
Herzer, D., Klasen, S. and Nowak-Lehmann, F. (2008) "In search of FDI-led growth in developing countries: The way forward", Economic Modelling, Vol. 25, No. 5, pp. 793-810. ISSN 0264-9993. DOI: https://doi.org/10.1016/j.econmod.2007.11.005
Ketteni, E., Kottaridi, C. and Mamunea, T. P. (2014) "Information and communication technology and foreign direct investment: interactions and contributions to economic growth", Empirical Economics, Vol. 48, pp. 1525-1539. ISSN 0264-9993.
Kramer, W. J., Jerkins, B. and Katz, R. S. (2007) "The Role of the Information and Communications Technology Sector in Expanding Economic Opportunity (Rep. No. 22)”, Cambridge, Massachusetts: Harvard Kennedy School. [Online]. Available: https://sites.hks.harvard.edu/m-rcbg/CSRI/ publications/report_22_EO%20ICT%20Final.pdf [Accessed: 15 April 2018].
Latif, Z., Mengke, Y., Danish., Ximei, L., Pathan, Z. H., Salam, S. and Jianqiu, Z. (2018) "The dynamics of ICT, foreign direct investment, globalization and economic growth: Panel estimation robust to heterogeneity and cross-sectional dependence", Telematics and Informatics, Vol. 35, No. 2, pp. 318-328. ISSN 0736-5853. DOI: https://doi.org/10.1016/j.tele.2017.12.006
Lee, J. W. and Xuan, Y. (2019) "Effects of technology and innovation management and total factor productivity on the economic growth of China", Journal of Asian Finance, Economics and Business, Vol. 6, No. 2, pp. 63-73. ISSN 2288-4637. DOI: https://doi.org/10.13106/jafeb.2019.vol6.no2.63
Makiela, M. and Quattara, B. (2018) "Foreign direct investment and economic growth: Exploring the transmission channels", Economic Modelling, Vol. 72, pp. 296-305. ISSN 02649993. DOI: https://doi.org/10.1016/j.econmod.2018.02.007
Makun, K. and Devi, S. (2019) "The effect of information and Communication technology on economic output: An empirical study of the Republic of Fiji Islands", International Journal of Development Issues, Vol. 18, No. 2, pp. 229-242. ISSN 14468956. DOI: https://doi.org/10.1108/IJDI-09-2018-0137
Millia, H., Adam, P., Saenong, Z., Balaka, M. Y., Pasrun, Y. P., Saidi, L. O. and Rumbia, W. A. (2020) "The influence of crude oil prices volatility, the internet and exchange rate on the number of foreign tourist arrivals in Indonesia", International Journal of Energy Economics and Policy, Vol. 10, No. 6, pp. 280-287. ISSN 2146-4553. DOI: https://doi.org/10.32479/ijeep.10083
Moura, R. and Forte, R. (2013) "The effects of foreign direct investment on the host country economic growth - theory and empirical evidence", Singapore Economic Review, Vol. 58, No. 3. ISSN 0217-5908. DOI: https://doi.org/10.1142/S0217590813500173
Nair, M., Pradhan, R. P. and Arvin. M. B. (2020) "Endogenous dynamics between R&D, ICT and economic growth: Empirical evidence from the OECD countries", Technology in Society, Vol. 62. ISSN 0160-791X. DOI: https://doi.org/10.1016/j.techsoc.2020.101315
Nguen, L. P. and Pham, V. H. T. (2020) "Trade of ICT products, government, and economic growth: Evidence from East Asia-Pacific Region", Journal of Asian Finance, Economics and Business, Vol. 7, No. 8, pp. 175-183. ISSN 22884637. DOI: https://doi.org/10.13106/jafeb.2020.vol7.no8.175
Novita, M. and Nachrowi, N. D. (2005) "Dynamic analysis of stock price index and exchange rate using vector autoregression (VAR) empirical study in JSX 2001-2004", Economic and Finance in Indonesia, Vol. 53, No. 3, pp. 263-278. ISSN 0125-155X.
Ozturk, I. and Acaravci, A. (2010) "The causal relationship between energy consumption and GDP in Albania, Bulgaria, Hungary and Romania: Evidence from ARDL bound testing approach", Applied Energy, Vol. 87, No. 6, pp. 1938-1943. ISSN 0306-2619. DOI: https://doi.org/10.1016/j.apenergy.2009.10.010
Pesaran, M. H. and Shin, Y. (1999) "An autoregressive distributed-lag modeling approach to cointegration analysis", In S. Strom (eds) "Econometrics and Economic Theory in the 20th Century", The Ragnar Frisch Centennial Symposium (pp. 371-413). Cambridge: Cambridge University Press. ISBN-13 978-0521633239. DOI: https://doi.org/10.1017/CCOL521633230.011
Pesaran, M. H., Shin, Y. and Smith, R .J. (2001) "Bounds testing approaches to the analysis of level relationships", Journal of Applied Econometrics, Vol. 162, No. 3, pp. 89-326. ISSN 0883-7252. DOI: https://doi.org/10.1002/jae.616
Phillips, P. C. B. and Perron, P. (1998) "Testing for a unit root in time series regression", Biometrika, Vol. 75, No. 2,. pp. 335-346. ISSN 0006-3444. DOI: https://doi.org/10.1093/biomet/75.2.335
Rahman, A. (2015) "Impact of foreign direct investment on economic growth: Empirical evidence from Bangladesh", International Journal of Economics and Finance, Vol. 7, No. 2, pp. 178-185. ISSN 1916-971X. DOI: https://doi.org/10.5539/ijef.v7n2p178
Rosnawintang, R., Tajuddin, T., Adam, P., Pasrun, Y. P. and Saidi, L. O. (2021) "Effects of crude oil prices volatility, the internet and inflation on economic growth in ASEAN-5 countries: A panel autoregressive distributed lag approach", International Journal of Energy Economics and Policy, Vol. 11, No. 1, pp. 15-21. ISSN 21464553. DOI: https://doi.org/10.32479/ijeep.10395
Saidi, L. O., Millia, H., Adam, P., Pasrun, Y. P. and Arsad Sani, L. O. (2020) "Effect of internet, money supply and volatility on economic growth in Indonesia", International Journal of Advanced Science and Technology, Vol. 29, No. 3, pp. 5299 - 5310. ISSN 2005-4238.
Sam, C. Y., McNown, R. and Goh, S. K. (2019) "An augmented autoregressive distributed lag bounds test for cointegration", Economic Modelling, Vol. 80, pp. 130-141. ISSN 02649993. DOI: https://doi.org/10.1016/j.econmod.2018.11.001
Solomon, E. M. and Klyton, A. (2020) "The impact of digital technology usage on economic growth in Africa", Utilities Policy, Vol. 67. ISSN 0957-1787. DOI: https://doi.org/10.1016/j.jup.2020.101104
Susilo, D. (2018) "The impact of foreign direct investment on economic growth (a causal study in the United States)", BISE: Jurnal Pendidikan Bisnis dan Ekonomi, Vol. 4, No. 1, pp. 50-63. ISSN 2579-728X. DOI: https://doi.org/10.20961/bise.v4i1.21422
Temiz, D. and G kmen, A. (20132014) "FDI inflow as an international business operation by MNCs and economic growth: An empirical study on Turkey", International Business Review, Vol. 23, No. 1, pp. 145-154.. ISSN 0969-5931. DOI: https://doi.org/10.1016/j.ibusrev.2013.03.003
Tripathi, M. and Inani, S. K. (2020) "Does information and communications technology affect economic growth? Empirical evidence from SAARC countries", Information Technology for Development, Vol. 26, No. 4, pp. 1-15. ISSN 0268-1102. DOI: https://doi.org/10.1080/02681102.2020.1785827
