Determinants of Foreign Direct Investment: Evidence from Indonesia
Muhammad Sanusi (a*) Sri Herianingrum (b), Masrizal (a)
a) Master Candidate of Islamic Economic, Faculty of Economic and Business, Surabaya, Indonesia
*muhammad.sanusi-2017[at]pasca.unair.ac.id
b) Departement of Islamic Economics Science, Faculty of Economic and Business, Universitas Airlangga, Surabaya, Indonesia
Abstract
This study aims to analyse the long-run and short-run relationships among foreign direct investment (FDI) and their determinants (economic growth (GDP), exchange rate, interest rate, and inflation) in Indonesia for the (2011-2018) period. The Johansen Cointegration test and Vector Error Correction Model to test the long-run and short-run relationships among the variables. The results identify that in long-run GDP is positive significant related to foreign direct investment, while exchange rate is negative significant related to foreign direct investment. In short-run all variables (GDP, exchange rate, interest rate, and inflation) not significant relationships with foreign direct investment.
Keywords: Foreign Direct Investment; Determinants of FDI; Vector Error Correction Model; Indonesia
Topic: Social and Economic Issues