The Effect of Inward Foreign Direct Investment and Information and Communication Technology on Economic Growth in Indonesia

Heppi MilliaPasrun AdamAbd Azis MuthalibTajuddinYuwanda Purnamasari Pasrun

DOI 10.7160/aol.2022.140106
No 1/2022, March
pp. 69-79

Millia, H., Adam, P, Muhatlib, A. A., Tajuddin and Pasrun, Y. P. (2022) "The Effect of Inward Foreign Direct Investment and Information and Communication Technology on Economic Growth in Indonesia", AGRIS on-line Papers in Economics and Informatics, Vol. 14, No. 1, pp. 69-79. ISSN 1804-1930. DOI 10.7160/aol.2022.140106.

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.

Keywords

Inward foreign direct investment, information and communication technology, economic growth, ARDL model.

References

  1. 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 10.1016/j.ibusrev.2016.07.004.
  2. 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.
  3. 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 10.1016/j.jpolmod.2009.03.003.
  4. 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 10.1016/j.techfore.2020.120297.
  5. 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 10.1016/S0022-1996(03)00081-3.
  6. 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 10.1016/j.eap.2017.09.006.
  7. 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 10.30958/ajbe.3.3.3.
  8. 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 10.1016/j.asieco.2011.04.001.
  9. 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 10.14738/abr.53.2886.
  10. 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 10.1016/j.tele.2021.101567.
  11. 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 10.2139/ssrn.3417047.
  12. 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 10.1016/j.bir.2014.06.004.
  13. 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 10.1111/j.2517-6161.1975.tb01532.x.
  14. 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 10.1007/s12232-015-0230-3.
  15. 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 10.2307/2286348.
  16. 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 10.1057/ejdr.2009.45.
  17. 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 10.1016/S2212-5671(14)00701-1.
  18. 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 10.7160/aol.2018.100402.
  19. 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 10.1016/S0305-750X(97)00081-8.
  20. 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 10.1007/s00181-015-1022-z.
  21. 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 10.1371/journal.pone.0048903.
  22. 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.
  23. 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 10.1016/j.techsoc.2020.101370.
  24. 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.
  25. 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 10.1016/j.econmod.2007.11.005.
  26. 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. DOI 0.1007/s00181-014-0839-1.
  27. 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].
  28. 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 10.1016/j.tele.2017.12.006.
  29. 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 10.13106/jafeb.2019.vol6.no2.63.
  30. 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 10.1016/j.econmod.2018.02.007.
  31. 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 10.1108/IJDI-09-2018-0137.
  32. 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 10.32479/ijeep.10083.
  33. 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 10.1142/S0217590813500173.
  34. 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 10.1016/j.techsoc.2020.101315.
  35. 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 10.13106/jafeb.2020.vol7.no8.175.
  36. 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.
  37. 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 10.1016/j.apenergy.2009.10.010.
  38. 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 10.1017/CCOL521633230.011.
  39. 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 10.1002/jae.616.
  40. 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 10.1093/biomet/75.2.335.
  41. 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 10.5539/ijef.v7n2p178.
  42. 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 10.32479/ijeep.10395.
  43. 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.
  44. 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 10.1016/j.econmod.2018.11.001.
  45. 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 10.1016/j.jup.2020.101104.
  46. 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 10.20961/bise.v4i1.21422.
  47. 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 10.1016/j.ibusrev.2013.03.003.
  48. 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 10.1080/02681102.2020.1785827.

Full paper

  Full paper (.pdf, 525.17 KB).