Examining the Determinants of Inward Foreign Direct Investment: Evidence from Provinces in Indonesia
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Institusion
Universitas Padjadjaran
Author
Parsaulin, Febri Vernando
Subject
Datestamp
2021-11-23 00:00:00
Abstract :
Realizing the important roles of foreign direct investments, combined with a certainty of the so-called pollution haven hypothesis presence in Indonesia, this study undertook to investigate the determinants of FDI inflows from provincial view point. Macroeconomic and non-economic factors that potentially influence FDI flows into the provinces in the country are used in a form of panel data of 33 provinces over the period 2010-2014. The empirical finding shows that GRDP, population, and skilled workforce, indeed, significantly and positively affect FDI inflows whereas CO2 emissions appears to have a significant yet negative impact on influx FDI. Moreover, the study also found that there is no significant effect of infrastructure availability on FDI inward. Based on the results, several policy implications are drawn. First, it is critical to maintain the market size. Therefore, authorities should be able to increase per capita GRDP and manage the proportion of population in term of age and income class. Secondly, the governments should pay more attention in enhancing the quality of human capital, particularly in educational sector in order to upgrade labor competitiveness. Lastly, stricter environmental laws should be applied in order to attract FDI inwards and at the same time to protect the environment.
Realizing the important roles of foreign direct investments, combined with a certainty of the so-called pollution haven hypothesis presence in Indonesia, this study undertook to investigate the determinants of FDI inflows from provincial view point. Macroeconomic and non-economic factors that potentially influence FDI flows into the provinces in the country are used in a form of panel data of 33 provinces over the period 2010-2014. The empirical finding shows that GRDP, population, and skilled workforce, indeed, significantly and positively affect FDI inflows whereas CO2 emissions appears to have a significant yet negative impact on influx FDI. Moreover, the study also found that there is no significant effect of infrastructure availability on FDI inward. Based on the results, several policy implications are drawn. First, it is critical to maintain the market size. Therefore, authorities should be able to increase per capita GRDP and manage the proportion of population in term of age and income class. Secondly, the governments should pay more attention in enhancing the quality of human capital, particularly in educational sector in order to upgrade labor competitiveness. Lastly, stricter environmental laws should be applied in order to attract FDI inwards and at the same time to protect the environment.
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