Analysis of the Influence of Gross Fixed Capital Formation, Exports of Goods and Services, Foreign Direct Investment, and Total Factor Productivity on per Capita Income in an Effort to Avoid the Middle-Income Trap in Indonesia

Abstract

Indonesia's economic growth in recent decades has reached significant levels, but the challenge of avoiding the Middle Income Trap remains a major concern. This study aims to analyze the effect of Gross Fixed Capital Formation, exports of goods and services, Foreign Direct Investment, and Total Factor Productivity on per capita income in Indonesia. The method of analysis uses time series data from 1985-2022 with VECM to examine long-run and short-run relationships. The data used in this study are secondary data derived from the World Bank and APO. The results show that in the long run, FDI and exports of goods and services have a positive and significant effect on GNP per capita. FDI has a positive and insignificant effect on GNP per capita. TFP has a negative and insignificant effect on GNP per capita. In the short term, PMTB has a negative and insignificant effect (in the previous 1 year) and a positive and insignificant effect on GNP per capita. Exports of goods and services have a negative and insignificant effect (in the previous 1 year) and a negative and significant effect (in the previous 2 years) on GNP per capita. FDI has a negative and insignificant effect (in the previous 1 year) and a positive and insignificant effect (in the previous 2 years) on GNP per capita. And TFP has a positive and significant effect on GNP per capita.