Globalization and Sustainable Development: Evidence from Indonesia

In this study, we analyze the impact of globalization which are characterized by higher foreign direct investment (FDI) inflows, increase in openness to trade (TO), and deepening in financial development (FD) on the three main pillars of sustainable development (SD) consisting of model of growth, model of income distribution and model of environmental quality for Indonesia. The results based on Autoregressive Distributed Lag Model (ARDL) estimation showed that FDI inflows have led towards higher growth, lower income inequality and better environmental quality in Indonesia. Meanwhile, the study found that TO has led towards higher economic growth, worsening environmental quality, but no significant effect on income distribution. As for FD, it was found that it has a positive impact on growth and income equality but leads to negative impact on environmental quality. The outcome of this study reveals that only FDI has the potential to be the driver for SD in Indonesia while the other two variables, TO and FD have appropriately influenced at least one out of three pillars of SD. Thus, it is important for the policy makers to improve their existing policies to attract more FDIs in order to ensure that the country's SD goal is attainable.