Trade and Foreign Direct Investment on Economic Growth in Indonesia: ARDL Approach

Abstract

The purpose of this research is to examine the short- and long-term effects of foreign investment and trade on economic development in Indonesia. This analysis makes use of yearly time series data spanning the years 1985 to 2020. This data is derived from secondary sources such as the World Bank. In this research, the dependent variable is the national gross domestic product, which serves as a proxy for economic growth. In this research, the independent variables are trade (T) and foreign direct investment (FDI), which serve as indices of economic activity. The findings of the research utilizing the ARDL technique indicate that although two factors, trade, and foreign direct investment, have little influence on economic development, in the long run, they do have a considerable effect in the short run. According to the ARDL results, trade and foreign direct investment are critical for Indonesia's economic growth, but in Indonesia, a trade sector dominated by imports causes this variable to have a significant negative relationship with economic growth, implying that the greater the proportion of trade, the lower economic growth in Indonesia.