The Determinants Of Foreign Direct Investment In Indonesia For The Period Of 1975 To 2002
Abstract
Riang Widya Wirawan (2005) The Determinants of Foreign Direct
Investment in Indonesia for the period of 1975 to 2002. Yogyakarta
Economic Department. International Program. Faculrv of Economic Islamic
University of Indonesia.
The aim of this research is to analyze the influence of foreign direct
investment variables, such as market size ofanation, the degree ofopenness of an
economy, laborcost, and population.
This research uses multiple regression models and the method being used
is Ordinary Least Square (OLS). To eliminate the mistakes and to make the
estimation process easier, the writer uses computer program E-views version
3.0.1 He data employed in this research are secondary data on the basis of yearly
data for the period of 1975 to2002.
The result ofthis research yields in the following information: GDP as a
proxy ofmarket size ofanation, ratio ofthe sum ofexport and import to GDP as
a proxy of the degree of openness of an economy, labor cost, and population
affect foreign direct investment in Indonesia significantly. Market size ofanation
has a positive impact to foreign direct investment. When market size ofa nation
increases, the foreign direct investment of Indonesia will also increase. The degree
of openness of an economy has a positive impact to foreign direct investment
When the degree of openness of an economy increases, the foreign direct
investment of Indonesia will also increase. Labor Cost-has a,negative impact to
foreign direct investment. When labor cost increases, it will lead to the decrease of
foreign direct investment in Indonesia. Population also has a negative impact to
foreign direct investment. When population increases, the foreign direct
investment in Indonesia will decrease. It can be shown from the existence of near
multicollinearity but the OLS estimators still retain the property of Best Linear
Unbiased Estimate, no heteroscedasticity and no decision of autocorrelation in
this model. Besides that, the disturbance factor in this model is distributed
normally and based on the regression result, there is a high value of R-squared.
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