Determinants of Foreign Direct Investment in Indonesia

This paper examines the determinants of foreign direct investment (FDI) in Indonesia for the period 1990 – 2015. FDI has been widely recognized for its vital role in economic development in many countries. Recognising that FDI can contribute to economic growth, Indonesia is constantly working to attract FDI to Indonesia. During the last few years, Indonesia has made considerable efforts to improve the investment climate. Deregulation of investment policies, incentives for foreign investors, and improvement in production factors (i.e. infrastructure) have been done to attract more FDI. This study aims to determine the main determinants of FDI in Indonesia. The present study employs Eviews 9.5 software to carry out empirical analysis, such as unit root tests, cointegration analysis test and the Granger causality test. These tests were used to achieve the objective of this study. The empirical results suggest that GDP per capita, infrastructure development, exchange rate and trade openness determine the inflow of FDI to Indonesia. This result is in line with other previous empirical studies that have examined the determinants of FDI in other countries