Article: Do institutions matter in global trade? Evidence from high-income countries and their spillover effects on Indonesia Journal: International Journal of Trade and Global Markets (IJTGM) 2025 Vol.21 No.6 pp.696 - 717 Abstract: 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. Inderscience Publishers - linking academia, business and industry through research

Title: Do institutions matter in global trade? Evidence from high-income countries and their spillover effects on Indonesia

Authors: Muhammad Rizal Anggit Putra; Suryanto; Bhimo Rizky Samudro

Addresses: Master of Economics and Development Studies, Sebelas Maret University, Surakarta, 57126, Indonesia ' Faculty of Economics and Business, Sebelas Maret University, Surakarta, 57126, Indonesia ' Faculty of Economics and Business, Sebelas Maret University, Surakarta, 57126, Indonesia

Abstract: 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.

Keywords: carbon emission; CPI; corruption perception index; FDI; foreign direct investment; HICs; high-income countries; military; trade openness.

DOI: 10.1504/IJTGM.2025.151472

International Journal of Trade and Global Markets, 2025 Vol.21 No.6, pp.696 - 717

Received: 17 May 2025
Accepted: 03 Nov 2025
Published online: 02 Feb 2026 *

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Title: Do institutions matter in global trade? Evidence from high-income countries and their spillover effects on Indonesia

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