The Nexus of Export, FDI, Financial Development and Economic Growth in North Sumatra, Indonesia

Jongkers Tampubolon(1*), Tongam Sihol Nababan(2), Aaron Loh(3),

(1) University of HKBP Nommensen
(2) University of HKBP Nommensen
(3) Assumption University
(*) Corresponding Author

Abstract


This study investigated the relationship between exports, foreign direct investment (FDI), financial development and economic growth in North Sumatra, Indonesia. Using autoregressive distributed lag (ARDL) bound test to cointegration, this study confirms the pattern of relationships between economic growth, exports, FDI and financial sector development as follows: (i) FDI does not contribute to the economy of North Sumatra because it does not affect economic growth, exports, and financial development and vice versa, (ii) the causality relationship between economic growth and exports is one way in the pattern of a growth-led export hypothesis (GLEH), and (iii) the causality relationship between financial development and economic growth follows the finance-led growth /supply-leading hypothesis. These findings suggest that the local governments should pay more attention to financial development's crucial role by facilitating the financial sector to expand the banking network and support rural credit banks.


Keywords


FDI and Economic Growth; Financial Development and Economic Growth; North Sumatra Economic.

Full Text:

PDF

References


Acaravci, A. & Ozturk, I. (2012). Foreign Direct Investment, Exports and Economic Growth: Empirical Evidence From New EU Countries. Romanian Journal of Economic Forecasting, Vol. 1 (2): 52-67.

Ahmad, F., Draz, M.U., & Yang, S-C. (2018). Causality Nexus of Exports, FDI and Economic Growth of the AEEAN5 Economies: evidence from panel data analysis. The Journal of International Trade & Economic Development, Vo. 27 (6): 685 – 700 (https://doi.org/10.1080/09638199.2018.1426035).

Astuti, P.W. (2018). The Causality Variables of Financial Sector Deepening to Economic Growth in Indonesia 1986 – 2015. Economic Development Analysis Journal, Vol. 7(3): 314-321.

Baroroh, U. (2012). Analisis Sektor Keuangan Terhadap Pertumbuhan Ekonomi Regional di Wilayah Jawa: Pendekatan Model Levine. Jurnal Etikonomi, Vol. 11(2): 180-197.

Belloumi, M. (2014). The relationship between trade, FDI and economic growth in Tunisia: An application of the autoregressive distributed lag model. Economic Systems, Vol. 38: 269-287.

Busse, M. & Koeniger, J. (2015). Trade and economic growth: A re-examination of the empirical evidence. Economics Bulletin, Vol. 35 (4): 2862-2876.

Codoret, E., Rondeau, F. & Tran, X. (2014). Trade and Growth Relationship: Continent Matters. The European Study Group, ETSG (https://www.etsg.org/ETSG2014/Papers/100.pdf).

Dritsaki, D. & Stamatiou, P. (2019). Investigating the Impact of Market Openness on Economic Growth for Poland: An Autoregressive Distributed Lag Bounds Testing Approach to Cointegration. International Journal of Economic and Financial Issues, Vol. 9 (6): 123-131.

Duarte, L.R.V., Kedong, Y. & Xuemei, L. (2017). The Relationship between FDI, Economic Growth and Financial Development in Cabo Verde. International Journal of Economics and Finance, Vol. 9(5): 132-142.

Febiyansah, P.T. (2017). Indonesia’s FDI-Exports-GDP Growth Nexus: Trade or Investment-driven? Bulletin of Monetary Economic and Banking, Vol. 19(4): 469-488.

Furuoka, F. (2018). A new causality test for the analysis of the export-growth nexus. MPRA Paper No. 91467 (https://mpra.ub.uni-muenchen.de/91467/).

Gujarati, D. (2012). Econometrics by Example. (New York: Palgrave Macmillan).

Huchet-Bourdon, M., Le Mouël, C. & Vijil, M. (2018). The relationship between trade openness and economic growth: Some new sights on the openness measurement issue. The World Economy, Vol. 41 (1): 59-76.

Mahadika, I.N., Kalayci, S. & Altun, N. (2017). Relationship between GDP, Foreign Direct Investment and Export Volume: Evidence from Indonesia. International Journal of Trade, Economics and Finance, Vol. 8(1): 51-54.

Menyah, K., Nazlioglu, S. & Wolde-Rufael, Y. (2014). Financial development, trade openness and economic growth in African countries: New insight from a panel causality approach. Economic Modelling, Vol. 37: 386-394.

Rahmaddi, R. & Ichihashi, M. (2013). The Role of Foreign Direct Investment in Indonesia’s Export. Bulletin of Indonesian Economic Studies, Vol 49 (3): 329 – 354.

Salebu, J.B. (2014). Pengaruh Penanaman Modal Asing Terhadap Pertumbuhan Ekonomi di Indonesia: Analisis Data Panel Periode 1994-2013. Jurnal BPPK, Vol. 7(2): 135-152.

Samargandi, N., Fidrmuc, J. & Ghosh, S. (2014). Is the Relationship Between Financial Development and Economic Growth Monotonic? Evidence from a sample of middle-income countries. World Development, Vol. 68: 66-81.

Seskab R.I. (2019). Gov’t to Cut Business Permits Process to Boost FDI (https://setkab.go.id/ en/govt-to-cut-business-permits-process-to-boost-fdi/).

Shahbaz, M. & Rahman, M.M. (2012). The Dynamic of Financial Development, Foreign Direct Investment and Economic Growth: Cointegration and Causality Analysis in Pakistan. SAGE Journal, Vol. 13(2): 201-2019 (https://doi.org/10.1177/ 097215091201300202).

Shahbaz, M., Rehman, I. & Taneem, M.A. (2014). Re-visiting Financial Development and Economic Growth Nexus: The Role of Capitalization in Bangladesh. MPRA Paper No. 57500 (http://mpra.ub.uni-muenchen.de/5700).

Sirag, A., Ahmed, S.S. & Ali, H.S. (2018). Financial Development, FDI and Economic Growth: evidence from Sudan. International Journal of Social Economic, Vol. 45(8): 1236-1249.

Supartoyo, Y.H., Juanda, B., Firdaus, M. & Effendi, J. (2018). Pengaruh Sektor Keuangan Bank Perkreditan Rakyat Terhadap Perekonomian Regional Wilayah Sulawesi. Kajian Ekonomi dan Keuangan, Vol. 2(1): 14-38.

Tampubolon, J. & Nababan, T.S. (2018). International Trade and North-Sumatra’s Local Economy. JEJAK –Journal of Economics and Policy, Vol. 11 (2): 323-337.

Tampubolon, J. (2018). Promoting agro-based export as engine of local economy in North-Sumatra, Indonesia. IOP Conf. Series: Earth and Environmental Science 205 (doi:10.1088/1755-1315/205/1/012001).

Tiwari, A. & Mutascu, M.I. (2011). Economic Growth and FDI in Asia: A Panel-Data Approach. Economic Analysis and Policy, Vol. 41(2): 173-187.




DOI: http://dx.doi.org/10.33019/ijbe.v5i1.328

Article Metrics

Abstract view : 108 times
PDF - 35 times

Refbacks

  • There are currently no refbacks.


Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.