This study analyses the influence of institutions on trade openness in 16 high-income countries (HICs) that are Indonesia's main trading partners, and their spillover effects on Indonesia using panel-error correction model (ECM) and Granger Causality test. The short-term estimation results show that corruption perception index (CPI), income per capita, foreign direct investment (FDI) outflow, and carbon emissions have a positive effect on trade openness, while military spending has a negative effect. The long-run analysis shows that government effectiveness, CPI, and military expenditure have a positive influence, while income per capita, FDI outflow, and carbon emissions have a negative impact on trade openness. Furthermore, the Granger causality test shows that the UAE's trade openness affects Indonesia's gross domestic product (GDP), while China and Singapore influence its FDI inflows. Additionally, increased openness in several countries leads to higher carbon intensity in Indonesia. These results suggest that Indonesia and other developing countries should promote exports with a higher added value and greener production.
Putra et al. (Wed,) studied this question.