The Relationship between Economic Factors and FDI in Indonesia
Abstract
Investment is a key macroeconomic variable for economic growth and development in every country. Private investment is one of the assistants in the economic development of a country. Foreign direct investment (FDI) is one of the engines driving the economy in developing countries. Several factors like foreign debt, labor, inflation, and growth that encourage the emergence of foreign direct investment are the objectives of this study. The study aims are to test the correlation between FDI and economic factors. The center of interest country is Indonesia. Indonesia has a quite stable economy and trying to improve FDI from other countries. This study implements the autoregressive distributive lag (ARDL) approach to determine the link between FDI and economic factors: foreign debt, inflation, economic growth, and labor. FDI and economic factors are cointegrated. In the short and long term, the variables of foreign investment at lag 1, economic growth, and foreign debt significantly affect Indonesia's foreign investment. The Long Run Form and ARDL bounds test, where economic factors are the independent variable and FDI is the dependent variable, show that growth and foreign debt significantly correlate with FDI. The novelty of this research is that this research looks at what factors affect investment supply, not investment demand, as has been done a lot. Further research can include non-economic variables because investment is influenced not only by economic variables.
Keywords: foreign direct investment, autoregressive distributive lag, Indonesia, economic factors, economic growth, foreign debt, labor, inflation.
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