The impact of FDI on energy intensity: a spatial econometric analysis of Indonesian provinces

Atina Saraswati (), Djoni Hartono and Witri Indriyani ()
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Atina Saraswati: Universitas Indonesia
Witri Indriyani: Universitas Indonesia

Journal of Environmental Studies and Sciences, 2022, vol. 12, issue 4, No 14, 853-869

Abstract: Abstract The government of Indonesia (GoI) is committed to reducing its carbon emissions through a decline in its energy intensity while encouraging foreign direct investment (FDI) inflows to boost economic growth. Previous studies have demonstrated both positive and negative relationships between FDI inflows and energy intensity. Hence, this study investigates the impact of FDI on energy intensity in 33 Indonesian provinces from 2008 to 2015. Based on Moran’s I test, the regression revealed a significant spatial autocorrelation. The spatial Durbin model was employed to determine the direct effect of FDI on host provinces and the spillover effect on neighboring regions. The results demonstrated that FDI inflows positively and significantly impacted energy intensity in host regions and neighboring provinces. This result might be a consequence of inconsistent policies between promoting FDI and reducing energy intensity. Thus, FDI is still directed mainly to energy-intensive sectors, such as manufacturing and transportation.

Keywords: Energy intensity; Energy policy; Foreign direct investment; Spatial econometrics; Spillover effect (search for similar items in EconPapers)
JEL-codes: F18 O13 P28 Q4 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s13412-022-00775-9

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