Macroeconomic determinants of the green transition: a regime-switching analysis of Indonesian clean energy start-ups

International Journal of Diplomacy and Economy. 2026.

Warong M. M.

 This study conducted in Indonesia between 2000 and 2023, demonstrates a complex, non-linear interplay between the economic environment and the emergence of clean energy start-ups. Using Autoregressive Distributed Lag and Markov Switching models, the research shows that start-up formation coincides with periods of lower GDP growth, suggesting that innovation is often spurred by necessity. Two distinct economic regimes emerged. Low Growth and High Volatility Growth have been dominant since 2017. Foreign direct investment and robust governance, helpful in the latter phase, left trade openness looking like a one-off sugar rush, useful only while markets were still maturing. Findings underscore that a one-size fits-all policy approach is suboptimal. Instead, argue for context-sensitive interventions. Legislators are urged to frame downturns as windows for inventive activity and to pair selective governance upgrades with targeted FDI outreach when expansion returns, thereby steering the economy toward a more durable green transition.

Keywords: Indonesia, Markov switching models, ARDL, green transition, clean energy start-ups, macroeconomic determinants