The Determinants of Foreign Direct Investment Inflows in Non Oil Manufacturing Sector in Indonesia.

Abstract

The phenomena of de-industrialization as shown by the decrease of the contribution of the manufacturing sector to national GDP, could be one of the factors which is caused by the decrease of the proportion of FDI in the manufacturing industry to the overall foreign direct investment in non-oil manufacturing sector in Indonesia. This study analise the factors that influence FDI in non-oil manufacturing sector in Indonesia by using panel data from the period 1993 to 2008 with a unit cross section includes 26 main provinces (provinces that formed prior to the implementation of regional autonomy) in Indonesia .In addition to knowing the factors that affect of FDI in the manufacturing industry, this research is also expected to know the effect of decentralization on FDI in the manufacturing sector in Indonesia. Regression results using panel data indicate that the pull factors of FDI in non-oil manufacturing sector is the market size and infrastructure. While main push factor influencing FDI in non-oil manufacturing sector is wages and inflation. Fixed Effect Model output results show that decentralization (regional autonomy) significantly negative impact on FDI.