The Effect of Foreign Direct Investment and Economic Development on Renewable Energy in Indonesia
Abstract
The study aims to explore the indicators of foreign direct investment (FDI) and their impact on economic development, with a specific focus on renewable energy in Indonesia. It is well-known that FDI plays a significant role in the development of developing countries, and Indonesia, being one of them, still faces challenges in meeting the energy needs of its citizens. The empirical analysis utilizes the Multiple Regression approach with data spanning from 1981 to 2021. The results indicate a cointegration relationship between model parameters and cross-sectional dependence. Additionally, the study finds that FDI and inflation have a negative impact on renewable energy, while population and GDP have a positive and significant effect. Furthermore, economic growth and fossil fuel consumption also positively influence renewable energy consumption. In the long term, the estimation results suggest that FDI and financial development have a simultaneous effect on energy consumption, which aligns with economic growth but not necessarily with renewable energy consumption. This implies that while FDI and financial development contribute to overall energy consumption as the economy grows, they may not directly impact the adoption of renewable energy sources. Based on the research findings, policymakers in Indonesia are encouraged to focus on sustainable development and consider policy transformations that facilitate the transition from fossil fuels to renewable energy sources.
Keywords: FDI, GDP, inflation, population, renewable energy, multiple regression
References
[1] Wiersema MF, Bowen HP. Corporate diversification: The impact of foreign competition, industry globalization, and product diversification. Strategic Management Journal. 2008;29(2):115–132.
[2] Chung S. Environmental regulation and foreign direct investment: Evidence from South Korea. Journal of Development Economics. 2014;108:222–236.
[3] Amaliah I, Riani W, Aspiranti T. “A comprehensive model of reducing poverty,” 4th Social and Humanities Research Symposium (SoRes 2021), 2022. https://doi.org/10.2991/assehr.k.220407.010.
[4] Amaliah I, Aspiranti T, Nurhayati N, Mafruhat AY, Nu’man AH, Shaharuddin A. Macroeconomic coordination:As an approach for poverty reduction. Polish Journal of Management Studies. 2021;23(2):42–56.
[5] Doytch N, Narayan S. Does FDI influence renewable energy consumption? An analysis of sectoral FDI impact on renewable and non-renewable industrial energy consumption. Energy Economics. 2016;54:291–301.
[6] De Vita G, Li C, Luo Y. The inward FDI - Energy intensity nexus in OECD countries: A sectoral R&D threshold analysis. Journal of Environmental Management. 2021 Jun;287(February):112290.
[7] Sunyoto Y, Ghozali I, Purwanto A. Analysis of auditor performance by using covariance based structural equation modeling: A study of public accounting firms in Indonesia. European Research Studies Journal. 2017;20(3):524–537.
[8] Koenker R, Ng P. Inequality constrained quantile regression. Sankhya. 2005;67(2):418–440.
[9] Lau LS, Choong CK, Eng YK. Investigation of the environmental Kuznets curve for carbon emissions in Malaysia: Do foreign direct investment and trade matter? Energy Policy. 2014;68:490–497.
[10] Dang HN, Vu VT, Ngo XT, Hoang HT. Study the impact of growth, firm size, capital structure, and profitability on enterprise value: Evidence of enterprises in Vietnam. Journal of Corporate Accounting & Finance. 2019;30(1):144–160.
[11] Sasana H, Aminata J. Energy subsidy, energy consumption, economic growth, and carbon dioxide emission: indonesian case studies. International Journal of Energy Economics and Policy. 2019;9(2):117–122.
[12] Pham NM, Huynh TL, Nasir MA. Environmental consequences of population, affluence and technological progress for European countries: A Malthusian view. Journal of Environmental Management. 2020 Apr;260:110143.
[13] York R, Rosa EA, Dietz T. STIRPAT, IPAT and ImPACT: Analytic tools for unpacking the driving forces of environmental impacts. Ecological Economics. 2003;46(3):351–365. Lampiran Data Analisis