Festyanto, Airlangga Ratulangi and Willendra, Josh Christian
(2019)
Determinants affecting foreign direct investment (FDI) inflows to Indonesia.
Bachelor thesis, Universitas Pelita Harapan.
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Abstract
The importance of Foreign Direct Investment (FDI) in modern economy is perceived to be more pivotal as not only it provides benefit to the investing Multinational Companies (MNCs), it also contributes in the development of the host country. Indonesia, along with other countries with less-developing economies are therefore competitively trying to attract foreign investors. As the growth in demand for FDI inflow therefore provides new opportunities to MNC, this research will analyse the impact of several macroeconomic variables which are perceived to be able to affect the number of FDI inflow in Indonesia. These macroeconomic variables includes the variable of GDP growth, interest rate, trade openness, and inflation rate. This research will use an autoregressive distributed-lag model (ARDL) method and uses a set of timeseries data in the form of quarterly within the period of 1987Q1 to 2017Q4 in order to establish a causal relationship between the variables of GDP growth, interest rate, trade openness, and inflation rate in Indonesia to the number of FDI inflow to Indonesia. The result suggested that the relationship between GDP growth and FDI hold a positive and significant relationship in both the short-run or the long-run. Inflation in the short run showed a positive and significant relationship, however in the long-run it showed a negative and insignificant relationship. However, both interest rate and trade openness in both short-run or long-run are resulted to possess an insignificant effect to FDI inflow.
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