Will carbon trading increase FDI to Indonesia? An integrated approach Available to Purchase

Carbon trading is a newly-introduced ambitious vision to reduce the technological impact on global warming and climate change in many countries. But, there is a doubt that the scheme potentially lessens the FDI as it lowers investors’ motivation to have businesses in areas with strict environmental regulations following the pollution haven hypothesis. A contradicting hypothesis, the technology spillover hypothesis, states that carbon trading will increase the FDI as it boosts investment in the capital-intensive sector with high-efficiency technology. This research aims to predict whether the impact of carbon trading on the FDI in Indonesia follows the pollution haven technology or the technology spillover hypothesis. It examines a model connecting carbon trading determinants (GDP, total emission, deforestation, finance), transportation, education, energy, and FDI. The model assigns if the carbon trading determinants have a role in increasing or decreasing the FDI. The researcher presents the model empirically through linear regression to decide the impact level of each variable. The result suggests that transportation, energy, GDP, and finance determine the FDI projects. The FDI value, on the other hand, is determined solely by the finance variable. Overall the result shows that carbon trading negatively influences the FDI per pollution haven hypothesis.