Energy Use, Trade Openness, and Exchange Rate Impact on Foreign Direct Investment in Indonesia



We conducted an inquiry on the short run and long run impact of energy use, trade openness, and exchange rate on foreign direct investment in Indonesia from 1981 to 2015. Energy use is one of the key variables because host countries cannot easily anticipate short-term energy shortage, whereas foreign investors interpret such shortage as an indicator of progress and readiness of the manufacturing sector. We use the error correction model to explain the interrelationship between predictors and their effect on foreign direct investment. Results show that short run trade openness significantly affects foreign direct investment. By contrast, long-term energy use and trade openness variables have a positive and significant influence, whereas exchange rate has a negative linkage.

Keywords: foreign direct investment, energy used, trade openness, exchange rate,
error correction model

JEL Classifications: F21, F31, Q43


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Author Biography

Horas Djulius, Universitas Pasundan

Horas Djulius is an Associate Professor of Faculty Economics and Business, Universitas Pasundan. He teaches regional economic planning, research methodology and managerial economics in both undergraduate and postgraduate programs.  His research interests' focus on foreign direct investment, knowledge spillover and human development as has been started from his Ph.D. Dissertation on 2005. Â 




How to Cite

Djulius, H. (2017). Energy Use, Trade Openness, and Exchange Rate Impact on Foreign Direct Investment in Indonesia. International Journal of Energy Economics and Policy, 7(5), 166–170. Retrieved from