Departement of Business and Management

Abstract: This research is focused on direct foreign investment in Indonesia and to analyze its influence to the export and economic growth. The analysis on this research is based on time series data and is processed by utilizing the simultaneous equation model.The result of the analysis indicates that market size variable and variation in the exchange rate yields in a positive FDI flow. Bigger GDP shows a large market size, the condition which reduces market offer value and lowers cost per output unit. Fluctuating exchange rate shows uncertain business prospect. Other variables such as real exchange rate, budget deficit ratio on GDP and interest rate yields a negative influence on FDI.Foreign Direct Investment (FDI) provides positive influence on the economic growth rate. The investment fills the resource gap between the target investment rate and the actual domestic savings. Besides that, the foreign investment encourages economic growth through transfer of technology. Direct Foreign Investment provides a positive effect on export performance. It means that Indonesia's FDI is a pro-trade FDI. Hence, it increases trade and exchange balance. Pro-trade FDI means investment in industries where the country lacks of comparative strength