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.