DIGITALIZATION AND INDONESIA'S MACROECONOMI RESILIENCE: AN EMPIRICAL VAR STUDY OF EXCHANGE RATE, INFLATION, FOREIGN DIRECT INVESTMENT AND DIGITAL ADOPTION
Abstract
This study examines the relationship between digitalization and Indonesia's macroeconomic resilience, utilizing Fixed Broadband Subscriptions (FBS) and FBS per 100 people as indicators. Based on endogenous growth theory, which emphasizes the role of technology as a driver of long-term growth, this study uses the Vector Error Correction Model (VECM) approach, developed from the VAR concept by Sims (1980), to address endogeneity issues and examine short- and long-term relationships between variables. The research procedures include stationarity, cointegration, Granger causality, Impulse Response Function (IRF), and Variance Decomposition (VD) tests. The estimation results show that digitalization significantly impacts the exchange rate, inflation, and Foreign Direct Investment (FDI). In the short term, increased FBS encourages exchange rate appreciation but tends to weaken with increasing imports of digital devices, while the adoption of FBS per capita has a more stable positive impact. Digitalization also suppresses inflation by increasing distribution and production efficiency, although its contribution is relatively small compared to FDI. The impact of digitalization on FDI is twofold: FBS expansion attracts initial investment, but the sustainability of capital flows is heavily influenced by the quality of the digital ecosystem, regulations, and workforce readiness. Overall, these findings confirm that inclusive digitalization is a strategic tool for strengthening Indonesia's economic resilience to external shocks and building a foundation for more sustainable growth.
References
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Enders, W. (2014). Applied Econometric Time Series, 4th Edition (4th editio). https://www.wiley.com/en-us/Applied+Econometric+Time+Series%2C+4th+Edition-p-9781118808566
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Ghura, D. (1997). Private Investment and Endogenous Growth: Evidence From Cameroon. International Monetary Fund, 167–186.
Glam, B. B. S., & Böke, S. S. (2017). Labor costs and foreign direct investment: A panel VAR approach. Economies, 5(4), 1–23. https://doi.org/10.3390/economies5040036
Group, W. B. (2024). Digital Progress and Trends Report 2023. In World Bank Group. https://www.bancomundial.org/es/news/press-release/2024/03/05/accelerated-by-covid-and-ai-global-digital-landscape-remains-uneven
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Johansen, S. (1991). Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models. Econometrica, 59(6), 1551–1580. https://doi.org/https://doi.org/10.2307/2938278
Kouam, J. C., & Asongu, S. (2023). The non-linear effects of fixed broadband on economic growth in Africa. Journal of Economic Studies, 50(5), 881–895. https://doi.org/10.1108/JES-03-2022-0159
Koutroumpis, P. (2009). The economic impact of broadband on growth: A simultaneous approach. Telecommunications Policy, 33(9), 471–485. https://doi.org/https://doi.org/10.1016/j.telpol.2009.07.004
Koutroumpis, P. (2019). The economic impact of broadband: Evidence from OECD countries. Technological Forecasting and Social Change, 148. https://doi.org/https://doi.org/10.1016/j.techfore.2019.119719
Lütkepohl, H. (1993). New Introduction to Multiple Time Series Analysis. https://link.springer.com/book/10.1007/978-3-540-27752-1
Niebel, T. (2018). ICT and economic growth – Comparing developing, emerging and developed countries. World Development, 104, 197–211. https://doi.org/10.1016/j.worlddev.2017.11.024
OECD. (2024). OECD broadband statistics update. Organisation for Economic Co-Operation and Development. https://www.oecd.org/en/about/news/press-releases/2024/03/broadband-statistics-update.html
Omol, E. J. (2024). Organizational digital transformation: from evolution to future trends. Digital Transformation and Society, 3(3), 240–256. https://doi.org/10.1108/DTS-08-2023-0061
Organization for Economic Cooperation and Development (OECD). (2021). Measuring telework in the COVID-19 pandemic. OECD Digital Economy Papers, 314. http://www.oecd.org/termsandconditions.
Pang, J., Zhang, Y., & Jiao, F. (2023). The Impact of the Digital Economy on Transformation and Upgrading of Industrial Structure : A Perspective Based on the “ Poverty Trap .” Sustainability, 15(15125), 1–20.
Purnama, Y. A. (2018). Fixed Broadband Penetration and Economic Growth : Evidence from panel data of ASEAN member countries. Journal of Telecommunications and the Digital Economy, 6(3), 1–16.
Qi, Y., & Chu, X. (2022). Development of the digital economy, transformation of the economic structure and leaping of the middle-income trap. China Political Economy, Emerald, 5(1), 14–39. https://doi.org/10.1108/cpe-09-2022-0012
Romer, P. M. (1986). Increasing Returns and Long-Run Growth. Journal of Political Economy, 94(5), 1002–1037. https://www.jstor.org/stable/1833190
Sims Christopher A. (1980). Macroeconomics and Reality Author(s): Angewandte Chemie International Edition, 6(11), 951–952., 48(1), 1–48.
Sudrajad, O. Y., Wiryono, S. K., Kitri, M. L., Rahadi, R. A., Saputra, J., & Adhinugroho, T. (2023). Does financial digitalization affect macroeconomic stability in Indonesia? An application of the autoregressive distributed lag (ARDL) model. International Journal of Advanced and Applied Sciences, 10(10), 46–54. https://doi.org/10.21833/ijaas.2023.10.005
Wahab, R. A. (2019). Comparative Analysis of Broadband Internet Development for Digital Economy in China and Indonesia. Jurnal Penelitian Pos Dan Informatika, 9(1), 63. https://doi.org/10.17933/jppi.2019.090106
Xi, W., & Wang, Y. (2023). Digital financial inclusion and quality of economic growth. Heliyon, 9(9), e19731. https://doi.org/10.1016/j.heliyon.2023.e19731
Yuan, M., Zhong, H., Hao, Z., Tang, D., & Atsi, E. R. (2025). The Influence of the Digital Economy on the Foreign Trade Competitiveness of Hunan Province in China. Sustainability (Switzerland), 17(1), 1–15. https://doi.org/10.3390/su17010002
Zhang, Q., Wu, P., Li, R., & Chen, A. (2024). Digital transformation and economic growth Efficiency improvement in the Digital media era: Digitalization of industry or Digital industrialization? International Review of Economis & Finance, 92, 667–677. https://doi.org/https://doi.org/10.1016/j.iref.2024.02.010
Aleca, O. E. (2025). The Role of Digital Infrastructure and Skills in Enhancing Labor Productivity : Insights from Industry 4 . 0 in the European Union.
Amelia, S., Umami, N. N., & Sulistiani, H. (2023). The Role of Technology in Economic and Business Transformation in the Digital Era. The 4th International Conference on Information Technology and Security, 4(1), 264–270. https://snatika.stiki.ac.id/IC-ITECHS/article/view/1082
Arbia, A., & Sobhi, K. (2024). Foreign direct investment, information and communication technology, and economic growth: The case of North African Countries. Scientific African, 24(March), e02234. https://doi.org/10.1016/j.sciaf.2024.e02234
Brunetti, F., Matt, D. T., Bonfanti, A., De Longhi, A., Pedrini, G., & Orzes, G. (2020). Digital transformation challenges: strategies emerging from a multi-stakeholder approach. TQM Journal, 32(4), 697–724. https://doi.org/10.1108/TQM-12-2019-0309
Bwalya, O., & Dhawale, C. (2024). Information Communication Technology’s Influence on Exchange Rate. Journal of Information Technology Research, 16(1), 1–28. https://doi.org/10.4018/jitr.349937
Chen, L., K.Ramli, M. S. (2023). Accelerating Digital Transformation in Indonesia: Technology, Market and Policy. In Fluid Mechanics.
Choi, C. (2003). Does the Internet stimulate inward foreign direct investment? Journal of Policy Modeling, 25(4), 319–326. https://doi.org/https://doi.org/10.1016/S0161-8938(02)00202-8
Copestake, A., Estefania-Flores, J., & Furceri, D. (2022). Digitalization and resilience. In IMF Working Papers. https://doi.org/10.1016/j.respol.2023.104948
Csonto, B., Huang, Y., & Tovar, C. E. (2019). Is Digitalization Driving Domestic Inflation?
Czernich, N., Falck, O., Kretschmer, T., & Woessmann, L. (2011). Broadband Infrastructure and Economic Growth. The Economic Journal, 121(552), 505–532. https://doi.org/Article Navigation Journal Article Broadband Infrastructure and Economic Growth Get access Arrow Nina Czernich , Oliver Falck , Tobias Kretschmer , Ludger Woessmann The Economic Journal, Volume 121, Issue 552, May 2011, Pages 505–532, https://doi.org/10.1111/j.1468-0297.2011.02420.x
Dickey, D. A., & Fuller, W. A. (1979). Distribution of the Estimators for Autoregressive Time Series With a Unit Root. Journal of the American Statistical Association, 74(366), 427–431. https://doi.org/https://doi.org/10.2307/2286348
Diouf, M. A., Perez, L. P., Simione, F. F., Viseth, A., & Yao, J. (2024). A Conceptual Policy Framework for Leveraging Digitalization to Support Diversification in Sub- Saharan Africa.
Elbahnasawy, N. G. (2014). E-Government, Internet Adoption, and Corruption: An Empirical Investigation. World Development, 57, 114–126. https://doi.org/10.1016/j.worlddev.2013.12.005
Elfaki, K. E., & Ahmed, E. M. (2024). Digital technology adoption and globalization innovation implications on Asian Pacific green sustainable economic growth. Journal of Open Innovation: Technology, Market, and Complexity, 10(1). https://doi.org/10.1016/j.joitmc.2024.100221
Elian, M. I., Bani-Mustafa, A., Sawalha, N., Alsaber, A. R., & Pan, J. (2025). Impact of Economic Growth and Exchange Rate Volatility on FDI Inflows: Cointegration and Causality Tests for the BRICS Countries. International Journal of Economics and Financial Issues , 15(1), 42–54. https://doi.org/10.32479/ijefi.17311
Emara, N., & Zecheru, D. (2024). Asymmetric threshold effects of digitization on inflation in emerging markets. Financial Innovation, 10(32), 1–32. https://doi.org/10.1186/s40854-023-00545-8
Enders, W. (2014). Applied Econometric Time Series, 4th Edition (4th editio). https://www.wiley.com/en-us/Applied+Econometric+Time+Series%2C+4th+Edition-p-9781118808566
Engle, R. F., & Granger, C. W. J. (1987). Co-Integration and Error Correction: Representation, Estimation, and Testing. Econometrica, 55(2), 251–276. https://doi.org/https://doi.org/10.2307/1913236
Enguang, B. (2023). Research on the Impact of Digital Economy on Foreign Direct Investment in China. Academic Journal of Business & Management, 5(27), 148–154. https://doi.org/10.25236/ajbm.2023.052724
Ghura, D. (1997). Private Investment and Endogenous Growth: Evidence From Cameroon. International Monetary Fund, 167–186.
Glam, B. B. S., & Böke, S. S. (2017). Labor costs and foreign direct investment: A panel VAR approach. Economies, 5(4), 1–23. https://doi.org/10.3390/economies5040036
Group, W. B. (2024). Digital Progress and Trends Report 2023. In World Bank Group. https://www.bancomundial.org/es/news/press-release/2024/03/05/accelerated-by-covid-and-ai-global-digital-landscape-remains-uneven
Hamilton, J. D. (1994). Time Series Analysis. Princeton University Press, 41 William St. Princeton, New Jersey 08540 In the United Kingdom: Princeton University Press, Chichester, West Sussex.
Hao, Y., Liu, W., & Liu, M. (2025). The Effect of Internet Infrastructure ’ s Impact on Foreign Investment Inequality : Based on Digital Divide Perspective. SAGE, June, 1–15. https://doi.org/10.1177/21582440251333183
Huang, X. (2023). Frontiers in Business, Economics and Management The Influence of Digital Economy on the Inflow of Foreign Direct Investment. Frontiers in Business, Economics and Management, 11(2).
Johansen, S. (1991). Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models. Econometrica, 59(6), 1551–1580. https://doi.org/https://doi.org/10.2307/2938278
Kouam, J. C., & Asongu, S. (2023). The non-linear effects of fixed broadband on economic growth in Africa. Journal of Economic Studies, 50(5), 881–895. https://doi.org/10.1108/JES-03-2022-0159
Koutroumpis, P. (2009). The economic impact of broadband on growth: A simultaneous approach. Telecommunications Policy, 33(9), 471–485. https://doi.org/https://doi.org/10.1016/j.telpol.2009.07.004
Koutroumpis, P. (2019). The economic impact of broadband: Evidence from OECD countries. Technological Forecasting and Social Change, 148. https://doi.org/https://doi.org/10.1016/j.techfore.2019.119719
Lütkepohl, H. (1993). New Introduction to Multiple Time Series Analysis. https://link.springer.com/book/10.1007/978-3-540-27752-1
Niebel, T. (2018). ICT and economic growth – Comparing developing, emerging and developed countries. World Development, 104, 197–211. https://doi.org/10.1016/j.worlddev.2017.11.024
OECD. (2024). OECD broadband statistics update. Organisation for Economic Co-Operation and Development. https://www.oecd.org/en/about/news/press-releases/2024/03/broadband-statistics-update.html
Omol, E. J. (2024). Organizational digital transformation: from evolution to future trends. Digital Transformation and Society, 3(3), 240–256. https://doi.org/10.1108/DTS-08-2023-0061
Organization for Economic Cooperation and Development (OECD). (2021). Measuring telework in the COVID-19 pandemic. OECD Digital Economy Papers, 314. http://www.oecd.org/termsandconditions.
Pang, J., Zhang, Y., & Jiao, F. (2023). The Impact of the Digital Economy on Transformation and Upgrading of Industrial Structure : A Perspective Based on the “ Poverty Trap .” Sustainability, 15(15125), 1–20.
Purnama, Y. A. (2018). Fixed Broadband Penetration and Economic Growth : Evidence from panel data of ASEAN member countries. Journal of Telecommunications and the Digital Economy, 6(3), 1–16.
Qi, Y., & Chu, X. (2022). Development of the digital economy, transformation of the economic structure and leaping of the middle-income trap. China Political Economy, Emerald, 5(1), 14–39. https://doi.org/10.1108/cpe-09-2022-0012
Romer, P. M. (1986). Increasing Returns and Long-Run Growth. Journal of Political Economy, 94(5), 1002–1037. https://www.jstor.org/stable/1833190
Sims Christopher A. (1980). Macroeconomics and Reality Author(s): Angewandte Chemie International Edition, 6(11), 951–952., 48(1), 1–48.
Sudrajad, O. Y., Wiryono, S. K., Kitri, M. L., Rahadi, R. A., Saputra, J., & Adhinugroho, T. (2023). Does financial digitalization affect macroeconomic stability in Indonesia? An application of the autoregressive distributed lag (ARDL) model. International Journal of Advanced and Applied Sciences, 10(10), 46–54. https://doi.org/10.21833/ijaas.2023.10.005
Wahab, R. A. (2019). Comparative Analysis of Broadband Internet Development for Digital Economy in China and Indonesia. Jurnal Penelitian Pos Dan Informatika, 9(1), 63. https://doi.org/10.17933/jppi.2019.090106
Xi, W., & Wang, Y. (2023). Digital financial inclusion and quality of economic growth. Heliyon, 9(9), e19731. https://doi.org/10.1016/j.heliyon.2023.e19731
Yuan, M., Zhong, H., Hao, Z., Tang, D., & Atsi, E. R. (2025). The Influence of the Digital Economy on the Foreign Trade Competitiveness of Hunan Province in China. Sustainability (Switzerland), 17(1), 1–15. https://doi.org/10.3390/su17010002
Zhang, Q., Wu, P., Li, R., & Chen, A. (2024). Digital transformation and economic growth Efficiency improvement in the Digital media era: Digitalization of industry or Digital industrialization? International Review of Economis & Finance, 92, 667–677. https://doi.org/https://doi.org/10.1016/j.iref.2024.02.010
Published
2025-10-16
How to Cite
SEPTIANA, Yuvi Putri; SHIHAB, Mochammad Qurais; RETNASIH, Nora Ria.
DIGITALIZATION AND INDONESIA'S MACROECONOMI RESILIENCE: AN EMPIRICAL VAR STUDY OF EXCHANGE RATE, INFLATION, FOREIGN DIRECT INVESTMENT AND DIGITAL ADOPTION.
Proceedings of the International Conference of Islamic Economics and Business (ICONIES), [S.l.], v. 11, n. 1, p. 1327-1342, oct. 2025.
ISSN 2541-3333.
Available at: <https://conferences.uin-malang.ac.id/index.php/iconies/article/view/3400>. Date accessed: 12 may 2026.
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Articles
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