Determinants of Indonesia’s Economic Growth in 1990–2023: An Error Correction Model (ECM) Approach

This study aims to analyze the determinants of Indonesia’s economic growth during the period 1990–2023 using the Error Correction Model (ECM) approach. The independent variables consist of Foreign Direct Investment (FDI), exports, imports, household consumption, Domestic Investment (PMDN), and government expenditure. The data are time-series in nature and were obtained from official national and international sources. The ECM method was employed as it is able to capture both short-run and long-run relationships as well as the adjustment mechanism toward equilibrium. The results indicate that simultaneously all independent variables significantly affect Indonesia’s economic growth. However, partially, FDI does not have a significant impact in either the short or long run. In contrast, exports, imports, consumption, PMDN, and government expenditure show positive and significant effects on economic growth in both the short and long run. This finding suggests that Indonesia’s economy remains strongly driven by domestic factors and productive international trade, while the role of FDI is still limited due to its concentration in sectors with low multiplier effects. These results provide important implications for Indonesia’s economic development policy. The government needs to encourage diversification of high value-added exports, optimize the role of productive imports, strengthen household purchasing power, and foster a more conducive environment for both domestic and foreign investment. Furthermore, government expenditure should be directed toward productive sectors such as infrastructure, education, and health in order to support sustainable economic growth.