The Relationship between Manufacture Foreign Direct Investment in Indonesia and Indonesia's Bilateral Intra Industry Trade with Japan, China, and ASEAN-9

In the globalization era, many countries try to engage more in the international trade to be part of global networks. International trade is believed can be triggered by enlarging country’s production of scale. Foreign investment is expected to be one of ways to improve it. Thus, developing countries, such as Indonesia, try to attract more FDI inflow. Intra industry trade (IIT) is a form of international trade measuring export and import in the same categorize of industry. High degree of IIT means a country has strong integration with partner’s country. This study tries to examine the relationship between manufacturing FDI in Indonesia and bilateral IIT between Indonesia and each Japan, China, and ASEAN-9, especially in the industry level. The result shows that not all FDI in all industries have positive and significant relationship with intra industry trade. For example, FDI in paper-based goods, and printing industry has positive association and statistically significant with IIT between Indonesia and Japan as well as Indonesia and China. Moreover, FDI in metal, except machinery, and equipment has positive and statistically significant with IIT between Indonesia with both China and ASEAN-9. The relationship of FDI and intra industry trade differs across location and industries