The Role of Foreign Direct Investment in Driving Indonesia's Economic Growth

A Review from 1983 to 2023

Abstract

This article explores the role of Foreign Direct Investment (FDI) in driving Indonesia's economic growth from 1983 to 2023. FDI has become a crucial pillar of Indonesia's economic development strategy, contributing to increased production capacity, technology transfer, and job creation. However, Indonesia's Investment Law tends to be cumbersome, making it difficult for investors to obtain permits, which can hinder investment. This study uses secondary data from various official sources to analyze the relationship between FDI flows and economic growth. The Vector Error Component Model (VECM) analysis method is used to analyze the effect of FDI on economic growth in Indonesia. The test results indicate that increased FDI does not have a positive impact on Indonesia's economic growth. This means that Indonesia's economic performance is negatively affected by foreign investment, while domestic investment (PMTB) is beneficial to the Indonesian economy. These findings are expected to provide insights for policymakers and investors, as well as encourage efforts to improve the investment climate and be more effective in formulating policies and maximizing the potential for future economic growth.