Determinants of Indonesia’s Economic Growth:Short-Run and Long-Run Analysis

Zhena Nofhatiaz Zahra; Dian Fitria Anggraini; Nazla Atikah Hikmatias; Farid Kausar

doi:10.15408/etk.v25i1.49619

Authors

Zhena Nofhatiaz Zahra IPB University
Dian Fitria Anggraini IPB University
Nazla Atikah Hikmatias IPB University https://orcid.org/0009-0008-2350-0338
Farid Kausar IPB University

DOI:

https://doi.org/10.15408/etk.v25i1.49619

Keywords:

capital investment, external trade, fiscal policy, inflation dynamics, macroeconomic performance

Abstract

Research Originality: The originality of this study lies in its integrated approach to analyzing Indonesia’s economic growth from a long-term structural perspective, capturing dynamic interactions among key macroeconomic variables within a cointegrated framework, and emphasizing the interconnected effects of policy reforms, external shocks, and macroeconomic forces.

Research Objectives: This research aims to analyze the short-run and long-run effects of government expenditure, gross fixed capital formation, foreign direct investment, exports, and inflation on Indonesia’s economic growth.

Research Method: The study uses annual time-series data from 1993 to 2024 (32 observations) and applies the ARDL model to analyze both short- and long-run dynamics.

Empirical Result: Short-run analysis shows that government spending, investment, and exports have positive effects on economic growth, while inflation has a negative effect, and foreign direct investment has no significant effect. Long-run analysis indicates that government spending and exports have positive effects, while all other factors have a negative impact on economic growth.

Implications: Policy implications highlight the need to strengthen institutional quality, enhance investment effectiveness, ensure targeted government spending, and maintain inflation control to support long-term macroeconomic stability.

JEL Classification: E62, F43, O11

Downloads

Download data is not yet available.

Author Biographies

Dian Fitria Anggraini, IPB University

Departement Agribusiness, IPB University, Indonesia
Nazla Atikah Hikmatias, IPB University

Department of Environmental and Resource Economics, IPB University, Indonesia
Farid Kausar, IPB University

Departement Agribusiness, IPB University, Indonesia

References

Adelakun, O. J., Ojo, O. O., & Mpungose, S. (2025). Empirical Re-Investigation into the Export-Led Growth Hypothesis (ELGH): Evidence from EAC and SADC Economies. Economies, 13(6), 175. https://doi.org/10.3390/economies13060175.

Alkhafagy, T., Abd, M., Nsaif, A. D., Alasadi, S. R., Al-Muttar, M. Y. O., Baher, R. K., Algaragolle, W. M., & Saeed, A. F. (2023). Does Financial Development and Financial Inclusion Matter for Economic Growth? Evidence from Iraq. Cuadernos de Economía, 46(131), 93–103. https://doi.org/10.32826/cude.v46i131.1110.

Amighini, A. A., McMillan, M. S., & Sanfilippo, M. (2017). FDI and Capital Formation in Developing Economies: New Evidence from Industry-Level Data. NBER Working Paper No. 23049.

Ansar, A., Flyvbjerg, B., Budzier, A., & Lunn, D. (2016). Does Infrastructure Investment Lead to Economic Growth or Economic Fragility? Evidence from China. Oxford Review of Economic Policy, 32(3), 360–390. https://doi.org/10.1093/oxrep/grw022.

Bonokeling, D. E., & Sholeh, M. (2022). The Effect of Investment, National Government Expenditure, Exports, and Imports on Indonesia’s Economic Growth. Jurnal Ekonomi Dan Pembangunan, 30(1), 56-59.

Buthelezi, E. M. (2023). Impact of Government Expenditure on Economic Growth in Different States in South Africa. Cogent Economics & Finance, 11(1), 2209959. https://doi.org/10.1080/23322039.2023.2209959.

Chingiz, D., Liu, J., & Malikov, M. (2025). The Role of Environmental Poverty in Shaping Green Growth in the One Belt One Road Countries. Sustainable Futures, 10, 100935. https://doi.org/10.1016/j.sftr.2025.100935.

Destiartono, M. E. (2025). The Relationship between Inflation and Economic Growth in Indonesia: A Time Series Approach. Asian Journal of Economics, Business and Accounting, 25(5), 382–393. https://doi.org/10.9734/ajeba/2025/v25i51809.

Emako, E., Nuru, S., & Menza, M. (2022). The Effect of Foreign Direct Investment on Economic Growth in Developing Countries. Transnational Corporations Review, 14(4), 382–401. https://doi.org/10.1080/19186444.2022.2146967.

Enders, W. (2004). Applied Econometric Time Series. New Jersey: John Wiley & Sons.

Fazaalloh, A. M. (2024). FDI and Economic Growth in Indonesia: A Provincial and Sectoral Analysis. Journal of Economic Structures, 13(1), 3. https://doi.org/10.1186/s40008-023-00323.

Jama, A. B., Mohd Daud, S. N., & Nayan, S. (2024). The Relationship between Government Expenditure and Economic Growth in ASEAN-5 Countries. Journal of Infrastructure, Policy and Development, 8(7), 4329. https://doi.org/10.24294/jipd.v8i7.4329.

Joo, B. A., & Shawl, S. (2023). Understanding the Relationship between Foreign Direct Investment and Economic Growth in BRICS: Panel ARDL Approach. VIKALPA: The Journal for Decision Makers, 48(2), 100–113. https://doi.org/10.1177/02560909231180078.

Kurniawan, B., Sunarya, S. R., Naofal, F., & Sudarjah, G. M. (2021). Export Price Index, Inflation, Unemployment, and Their Impact on National Income in Indonesia and Korea. Jurnal Riset Ilmu Ekonomi, 1(3), 120–130. https://doi.org/10.23969/jrie.v1i3.19.

Lorato, T., Beyene, T., & Tadesse, T. (2025). Unintended Structural Transformation and Growth in Ethiopia: An Autoregressive Distributed Lag (ARDL) Model Approach. Journal of Innovation and Entrepreneurship, 14(1). https://doi.org/10.1186/s13731-025-00498-5.

Mankiw, N. G. (2019). Macroeconomics (10th ed.). New York: Worth Publishers.

Marcal, I. A. F., Oentoro, Y. P., & Yasin, M. (2024). Economic growth As a Reflection of a Country’s Economic Development. Jurnal Manajemen dan Bisnis Ekonomi, 2(3), 1898. https://doi.org/10.54066/jmbe-itb.v2i3.1898.

Martadinata, M. A. (2022). The Effect of Population Growth, Labor, Investment, and Inflation on Economic Growth in Districts/Cities in Central Java Province (2015–2019). Diponegoro Journal of Economics, 11(1), 37–45.

Mohamud, A. A., & Abdulle, A. S. (2025). Assessing the Impact of Government Expenditure On Economic Growth: Evidence from Somalia. Discover Sustainability, 6, 944. https://doi.org/10.1007/s43621-025-01598-8.

Ndoricimpa, A. (2017). Threshold Effects of Inflation on Economic Growth in Africa: Evidence from a Dynamic Panel Threshold Regression Approach. African Development Bank Working Paper No. 249.

Nur Annisa, Jamal, A., & Syahnur, S. (2023). The Impact of Foreign Direct Investment, Private Investment, Government Expenditure, and Labor on Economic Growth in Indonesia. Jurnal Ekonomi Manajemen dan Sekretari, 8(1), 31–42. https://doi.org/10.35870/jemensri.v8i1.3035.

Nyoni, T., & Mutongi, C. (2019). Modeling the Long-Run Relationship between Inflation and Economic Growth in Zimbabwe: A Bivariate Cointegration Approach. MPRA Paper No. 93981.

Orhan, A., Emikönel, M., & Castanho, R. A. (2022). Export-Led Growth or Growth-Led Exports? Evidence from Turkey (1999–2021). Economies, 10(11), 269. https://doi.org/10.3390/economies10110269.

Owusu-Mensah, M., Manu, C. A., & Arhenful, P. (2023). Government Spending and Economic Growth Nexus: An Econometric Analysis. ESI Preprints. https://doi.org/10.19044/esipreprint.6.2023.p112.

Oyadeyi, O. O. (2024). Effect of Government Expenditure on Real Economic Growth in ECOWAS: Assessing The Moderating Role of Corruption and Conflict. Humanities and Social Sciences Communications, 11, 812. https://doi.org/10.1057/s41599-024-03285-x.

Panjaitan, R. P., Sukmono, R., Fuady, M. S., Salsabila, N., & Hadiantoro, F. (2026). Government Expenditures by Function and Economic Growth: Evidence from Indonesia. Ekuilibrium: Jurnal Ilmiah Bidang Ilmu Ekonomi, 21(1), 127–149. https://doi.org/10.24269/ekuilibrium.v21i1.2026.

Pokhrel, S., & Khadka, C. B. (2019). Long- and Short-Run Relationships among Macroeconomic Variables and Economic Growth in Nepal. Economic Journal of Development Issues, 27(2), 48-87.

Purnastuti, L., & Suprayitno, B. (2016). Does Human Capital Investment Matter for Growth? Evidence from Indonesia During Fiscal Decentralization. Regional Science Inquiry, 8(1), 39-49.

Putra, R. (2021). Determinants of Economic Growth and Their Impact on Welfare in East Java. Kajian Ekonomi & Keuangan, 5(3), 957. https://doi.org/10.31685/kek.V5.3.957.

Saragih, F. (2022). Economic Growth in Indonesia During COVID-19: Adam Smith Perspective. Journal of Economic Education, Business and Accounting (JEEBA), 1(1), 1–10.

Semenya, D., & Ogujiuba, K. (2024). Investment Effectiveness in Boosting Economic Growth in South Africa. Administrative Sciences, 14(8), 173. https://doi.org/10.3390/admsci14080173.

Shabira, H., & Amri, K. (2023). The Impact of Exports and Government Spending on Economic Growth. Jurnal Ekonomi Manajemen dan Sekretari, 8(1), 31–42. https://doi.org/10.35870/jemensri.v8i1.3035.

Susilawati, S., & Wibowo, M. G. (2025). The Effect of Inflation, Government Spending, and Exports on Economic Growth in Indonesia. Jurnal Magister Ekonomi Syariah, 3(2), 36-53. https://doi.org/10.14421/jmes.2024.032-03.

Syamputri, D., Khairunnisa, M., & Nurfajariyati, R. (2021). Applied Econometrics in Islamic Economic and Financial Research. Bandung: UPI Press.

Tabash, M. I., Farooq, U., Gherghina, Ș. C., Varma, M., & Aljughaiman, A. A. (2025). Public–Private Partnership Investment and Its Impact on Labor Markets and Poverty in BRICS Countries. Discover Sustainability, 6(1), 1494. https://doi.org/10.1007/s43621-025-01494-1.

Tammar, A. (2021). Government Spending and Economic Growth in Developing Countries: Panel Data Evidence. Theoretical and Applied Economics, 28(4), 169–178.

Wijayanti, T. C., & Darma, D. C. (2019). The Role of Investment and Government Expenditure on GRDP and Human Development in East Kalimantan. International Journal of Scientific & Technology Research, 8(9), 1232–1237.

Zhang, Q., & Zhang, Z. (2023). Investment and Economic Growth: A Dilemma in China. Journal of the Asia Pacific Economy, 30(1), 211–242. https://doi.org/10.1080/13547860.2023.2196886.

Zulkarnain, A., Rahman, A., & Sudirman, S. R. (2019). Government Spending and Economic Growth In Kolaka Regency. International Journal of Scientific & Technology Research, 8(10), 1511–1520.