Can internally generated FDI impact export performance? The study on Indonesia in the years 1980-2018

Abstract

Objective: As part of a developing country, Indonesia is concerned with issues related to investment inflows and trade liberalization. The objective of this study is to examine whether or not inward foreign direct investment (FDI) influence to export performance in Indonesia over the time period 1980-2018. Research Design & Methods: We apply Augmented Dickey-Fuller and Phillip-Perron unit root test to check the stationarity. The autoregressive distributed lag (ARDL)-bound test is applied to check co-integration existence. Findings: Results present that the variables are stationary at first differences I(1). The ARDL bound testing co-integration approach confirms that there is long-run relationship between considered variables. The findings also indicate the significant positive impacts of FDI on exports in long run and in the short run. The result of the Granger causality test confirms that there is a unidirectional causal relationship existing between the variables where export has a Granger cause to FDI. Results of stability test suggest that there is structural stability in the residuals of the equation of exports. Contribution & Value Added: FDI does not work uniformly in all sectors, and policymakers should understand the difference and identify their sector-wise policies relating with FDI. The law and order should also be maintained, which is the essential part to attract foreign investors. At this stage, we can also set the direction of future research, that is, the sector-wise study should be done on the relationship between FDI and exports.