| dc.description.abstract | An important component in the economic development of a country is investment. One form of investment that important for developing countries is Foreign Direct Investment (FDI). FDI can increase accumulation of domestic capital. Besides, FDI is important for technology transfer from developed to developing countries. Indonesian Government made several efforts to attract FDI by improving the regulation of investment. However, the achievements of Indonesia in attracting foreign investors is still low compared to other ASEAN countries. Therefore, it is important to know what determinants of FDI that affect FDI inflow in Indonesia. The impact of FDI on the economy of destination country (host country) is actually still being debated. The impact could be positive or negative depend on the condition of host countries. The purposes of this study are to analyze the determinants of FDI inflows in Indonesia and to analyze the impact of FDI to Gross Domestic Product (GDP) in Indonesia. This study uses secondary data with quarterly period from 1997:1 to 2011:4, obtained from BKPM (Indonesian Investment Coordinating Board), BPS (Statistics Indonesia) and BI (Bank Indonesia). The data include FDI, GDP, real wages, the central government gross fixed capital formation, openness, real exchange rate, real interest rates, Domestic Direct Investment (DDI), government spending and the inflation rate. The analytical methods applied include descriptive analysis method and the simultaneous equations method (2SLS). The variables used as determinants of FDI are GDP, real wages, the central government gross fixed capital formation as a proxy for infrastructure, openness, real exchange rates and real interest rates. The impact of FDI to GDP is estimated by incorporating other variables that also affect the GDP; Domestic Direct Investment (DDI), government spending, openness and the inflation rate. 2SLS results indicate that determinant factors that affect the FDI inflow in Indonesia are GDP, labor wages, infrastructure and openness. Increase in GDP meaning an increase in market size is the dominant factor in attracting FDI inflow in Indonesia. The result also shows that FDI has positive impact on GDP in Indonesia. Some policy implications are suggested to Indonesian Government in order to attract FDI inflows in Indonesia are: (1) increasing economic growth; (2) labor policies particularly wage policy, so Indonesia can compete with other countries in terms of labor cost; (3) improving the infrastructure conditon. | en |
