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.
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Notes
Due to data availability, this study does not account for coal energy consumption.
Coal consumption data besides that used for electrical energy consumption is not available, as mentioned in the previous footnote, even though the manufacturing sector in Indonesia uses primarily coal energy. This may cause an underestimation of the effect of industrial share on energy efficiency. The authors acknowledge this as a limitation of the study.
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Acknowledgements
The authors sincerely thank the editor and two anonymous reviewers for their valuable comments to improve this paper.
Funding
This research was funded by Universitas Indonesia through a Pendampingan Publikasi Internasional Q2 (PPI Q2) grant with contract number NKB-17/UN2.RST/HKP.05.00/2021.
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Saraswati, A., Hartono, D. & Indriyani, W. The impact of FDI on energy intensity: a spatial econometric analysis of Indonesian provinces. J Environ Stud Sci 12, 853–869 (2022). https://doi.org/10.1007/s13412-022-00775-9
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DOI: https://doi.org/10.1007/s13412-022-00775-9