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Article

The Impact of Industrialization, Trade Openness, Financial Development, and Energy Consumption on Economic Growth in Indonesia

by
Khalid Eltayeb Elfaki
1,2,
Rossanto Dwi Handoyo
1,* and
Kabiru Hannafi Ibrahim
3
1
Faculty of Economics and Business, Airlangga University, Surabaya 60286, Indonesia
2
Faculty of Commercial Studies, University of Gezira, Al Hilaliya 11114, Sudan
3
Faculty of Social and Management Sciences, Federal University, Birnin Kebbi 860101, Nigeria
*
Author to whom correspondence should be addressed.
Economies 2021, 9(4), 174; https://doi.org/10.3390/economies9040174
Submission received: 2 August 2021 / Revised: 26 September 2021 / Accepted: 29 October 2021 / Published: 10 November 2021

Abstract

This study aimed to scrutinize the impact of financial development, energy consumption, industrialization, and trade openness on economic growth in Indonesia over the period 1984–2018. To do so, the study employed the autoregressive distributed lag (ARDL) model to estimate the long-run and short-run nexus among the variables. Furthermore, fully modified ordinary least squares (FMOLS), dynamic least squares (DOLS), and canonical cointegrating regression (CCR) were used for a more robust examination of the empirical findings. The result of cointegration confirms the presence of cointegration among the variables. Findings from the ARDL indicate that industrialization, energy consumption, and financial development (measured by domestic credit) positively influence economic growth in the long run. However, financial development (measured by money supply) and trade openness demonstrate a negative effect on economic growth. The positive nexus among industrialization, financial development, energy consumption, and economic growth explains that these variables were stimulating growth in Indonesia. The error correction term indicates a 68% annual adjustment from any deviation in the previous period’s long-run equilibrium economic growth. These findings provide a strong testimony that industrialization and financial development are key to sustained long-run economic growth in Indonesia.
Keywords: financial development; energy consumption; industrialization; economic growth; trade openness; ARDL financial development; energy consumption; industrialization; economic growth; trade openness; ARDL

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MDPI and ACS Style

Elfaki, K.E.; Handoyo, R.D.; Ibrahim, K.H. The Impact of Industrialization, Trade Openness, Financial Development, and Energy Consumption on Economic Growth in Indonesia. Economies 2021, 9, 174. https://doi.org/10.3390/economies9040174

AMA Style

Elfaki KE, Handoyo RD, Ibrahim KH. The Impact of Industrialization, Trade Openness, Financial Development, and Energy Consumption on Economic Growth in Indonesia. Economies. 2021; 9(4):174. https://doi.org/10.3390/economies9040174

Chicago/Turabian Style

Elfaki, Khalid Eltayeb, Rossanto Dwi Handoyo, and Kabiru Hannafi Ibrahim. 2021. "The Impact of Industrialization, Trade Openness, Financial Development, and Energy Consumption on Economic Growth in Indonesia" Economies 9, no. 4: 174. https://doi.org/10.3390/economies9040174

APA Style

Elfaki, K. E., Handoyo, R. D., & Ibrahim, K. H. (2021). The Impact of Industrialization, Trade Openness, Financial Development, and Energy Consumption on Economic Growth in Indonesia. Economies, 9(4), 174. https://doi.org/10.3390/economies9040174

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