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Foreign Direct Investment and Economic Growth: Empirical Evidence from Sectoral Data in Indonesia

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  • Abdul Khaliq

    (Department of Economics, Andalas University, Indonesia)

  • Ilan Noy

    ()
    (Department of Economics, University of Hawaii at Manoa)

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Abstract

The paper investigates the impact of foreign direct investment (FDI) on economic growth using detailed sectoral data for FDI inflows to Indonesia over the period 1997-2006. In the aggregate level, FDI is observed to have a positive effect on economic growth. However, when accounting for the different average growth performance across sectors, the beneficial impact of FDI is no longer apparent. When examining different impacts across sectors, estimation results show that the composition of FDI matters for its effect on economic growth with very few sectors showing positive impact of FDI and one sector even showing a robust negative impact of FDI inflows (mining and quarrying). The sectors examined are: farm food crops, livestock product, forestry, fishery, mining and quarrying, non-oil and gas industry, electricity, gas and water, construction, retail and wholesale trade, hotels and restaurant, transport and communications, and other private and services sectors.

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File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_07-26.pdf
File Function: First version, 2007
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Bibliographic Info

Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 200726.

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Length: 27 pages
Date of creation: 01 Oct 2007
Date of revision:
Handle: RePEc:hai:wpaper:200726

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Keywords: Foreign direct investment; economic growth; Indonesia;

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References

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  1. Manuel Agosin & Roberto Machado, 2005. "Foreign Investment in Developing Countries: Does it Crowd in Domestic Investment?," Oxford Development Studies, Taylor & Francis Journals, vol. 33(2), pages 149-162.
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  7. Marwah, Kanta & Tavakoli, Akbar, 2004. "The effect of foreign capital and imports on economic growth: further evidence from four Asian countries (1970-1998)," Journal of Asian Economics, Elsevier, vol. 15(2), pages 399-413, April.
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  17. Tam B. Vu & Byron Gangnes & Ilan Noy, 2008. "Is Foreign Direct Investment Good for Growth? Evidence from Sectoral Analysis of China and Vietnam," Working Papers 200801, University of Hawaii at Manoa, Department of Economics.
  18. Archanun Kohpaiboon, 2003. "Foreign trade regimes and the FDI-Growth Nexus: a case study of Thailand," Journal of Development Studies, Taylor & Francis Journals, vol. 40(2), pages 55-69.
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Citations

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Cited by:
  1. Maryia Akulava, 2011. "The Impact of Foreign Direct Investment on Industrial Economic Growth in Belarus," BEROC Working Paper Series 11, Belarusian Economic Research and Outreach Center (BEROC).
  2. Maryia Akulava & Ganna Vakhitova, 2010. "The Impact of FDI on Firm’s Performance Across Sectors: Evidence from Ukraine," BEROC Working Paper Series 10, Belarusian Economic Research and Outreach Center (BEROC).
  3. Tam Bang Vu & Ilan Noy, 2007. "Sectoral Analysis of Foreign Investment and Growth In the Developed Countries," Working Papers 200725, University of Hawaii at Manoa, Department of Economics.
  4. Vu, Tam Bang & Noy, Ilan, 2009. "Sectoral analysis of foreign direct investment and growth in the developed countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(2), pages 402-413, April.

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