Exports, FDI, and Inflation in Indonesia: A Dynamic Relationship

English

Abstract

The purpose of this study was to examine exports and FDI's impact on inflation in
Indonesia through testing and analysis. The information utilised in this analysis was
collected from the World Bank from 1997 to 2020. In this analysis, we employ Vector
AutoReggressive (VAR) to examine the relationships between exports, FDI, and
inflation. This research found that previous Indonesian exports influenced FDI in a
favourable way. However, there is a positive correlation between rising exports and rising
inflation. High inflation in the past contributed to the current inflation. The rise in exports
that transpired was aided by inflation. However, rising prices would have a chilling effect
for FDI. Thus, policymakers need to devise a plan to circumvent inflation regulation. In
addition, a strategic plan is implemented to increase exports and FDI. The Indonesian
government, however, confronts difficulties in expanding FDI and exports without
spiking inflation.