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Energy Use, Trade Openness, and Exchange Rate Impact on Foreign Direct Investment in Indonesia

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  • Horas Djulius

    (Faculty of Economics and Business, Universitas Pasundan, Indonesia)

Abstract

We conducted an inquiry on the short run and long run impact of energy use, trade openness, and exchange rate on foreign direct investment in Indonesia from 1981 to 2015. Energy use is one of the key variables because host countries cannot easily anticipate short-term energy shortage, whereas foreign investors interpret such shortage as an indicator of progress and readiness of the manufacturing sector. We use the error correction model to explain the interrelationship between predictors and their effect on foreign direct investment. Results show that short run trade openness significantly affects foreign direct investment. By contrast, long-term energy use and trade openness variables have a positive and significant influence, whereas exchange rate has a negative linkage.

Suggested Citation

  • Horas Djulius, 2017. "Energy Use, Trade Openness, and Exchange Rate Impact on Foreign Direct Investment in Indonesia," International Journal of Energy Economics and Policy, Econjournals, vol. 7(5), pages 166-170.
    • Handle: RePEc:eco:journ2:2017-05-18
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    References listed on IDEAS

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    Cited by:

    1. Ai Ngoc Nhan Le & Ha Pham & Dung Thi Ngoc Pham & Khoa Dang Duong, 2023. "Political stability and foreign direct investment inflows in 25 Asia-Pacific countries: the moderating role of trade openness," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-9, December.
    2. Rabia Noor Enam & Muhammad Tahir & Huma Hasan Rizvi & Asim Rafique & Syed Muhammad Nabeel Mustafa, 2022. "A Sustainable Way to Generate Energy through Biomass Flash Pyrolysis in South Asia: A Green Energy Technology," International Journal of Energy Economics and Policy, Econjournals, vol. 12(5), pages 274-279, September.
    3. Ryan Wong & Aninda Dewayanti, 2024. "Indonesiaʼs energy transition: Dependency, subsidies and renewables," Asia and the Pacific Policy Studies, Wiley Blackwell, vol. 11(2), May.

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    More about this item

    Keywords

    foreign direct investment; energy used; trade openness; exchange rate; error correction model;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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