Digitalization and Indonesia's macroeconomi resilience: An empirical var study of exchange rate, inflation, foreign direct investment and digital adoption

Septiana, Yuvi Putri, Shihab, Mochammad Qurais and Retnasih, Nora Ria ORCID: https://orcid.org/0000-0001-5915-8871 (2025) Digitalization and Indonesia's macroeconomi resilience: An empirical var study of exchange rate, inflation, foreign direct investment and digital adoption. Presented at International Conference of Islamic Economics and Business 11th 2025, 16 Oktober 2025, Malang.

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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.

Item Type:	Conference (Paper)
Keywords:	Exchange Rate, Inflation, Foreign Direct Investment (FDI), Digital Adoption
Subjects:	14 ECONOMICS > 1401 Economic Theory > 140102 Macroeconomic Theory 14 ECONOMICS > 1401 Economic Theory 14 ECONOMICS > 1403 Econometrics
Divisions:	Faculty of Economics > Department of Management
Depositing User:	Nora Ria Retnasih
Date Deposited:	10 Jul 2026 16:25

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