Analyzing Factors Driving Economic Growth in Indonesia Using the Autoregressive Distributed Lag (ARDL) Model

Abstract

Purpose: This research aims to determine the effect of foreign direct investment (FDI), inflation, and employment on Indonesia's economic progress from 1990 to 2021. Theoretical framework: The theoretical literature on the influence of foreign direct investment on economic growth offers two distinct approaches. On the basis of the preceding theoretical explanation, it can be determined that inflation is a continuous increase in the price of goods and services over a given period, not just for a single item. Design/methodology/approach: This study uses the ARDL (Autoregressive Distributed Lag) model. Various model and method have been carried out for empirical studies of economic development; analysis Vector Auto Regression Findings: According to the findings, inflation has a considerable and negative impact on Indonesia's long-term economic growth. At lags 2 and 3, FDI has a big advantageous influence on the Indonesian economy but has a significant negative impact in the long run. Over time, employment has no substantial and negative impact on economic growth. Research, Practical & Social implications: According to this study, the Indonesian government should continue controlling inflation and establishing a more conducive investment climate to boost economic growth. Originality/value: This study reveals that the inflation component has a large and negative impact on Indonesia's economic growth over the long term. Long-term inflation increases can support economic growth in Indonesia.