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

Author

Listed:
  • Atina Saraswati

    (Universitas Indonesia)

  • Djoni Hartono

    (Universitas Indonesia
    Universitas Indonesia)

  • Witri Indriyani

    (Universitas Indonesia)

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.

Suggested Citation

  • Atina Saraswati & Djoni Hartono & Witri Indriyani, 2022. "The impact of FDI on energy intensity: a spatial econometric analysis of Indonesian provinces," Journal of Environmental Studies and Sciences, Springer;Association of Environmental Studies and Sciences, vol. 12(4), pages 853-869, December.
    • Handle: RePEc:spr:jenvss:v:12:y:2022:i:4:d:10.1007_s13412-022-00775-9
    DOI: 10.1007/s13412-022-00775-9
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    More about this item

    Keywords

    Energy intensity; Energy policy; Foreign direct investment; Spatial econometrics; Spillover effect;
    All these keywords.

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • P28 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Natural Resources; Environment
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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