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Foreign Direct Investment and Infrastructure Development in Indonesia: Evidence from Province Level Data

Author

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  • Primandita Fitriandi
  • Makoto Kakinaka
  • Koji Kotani

Abstract

Attracting foreign direct investment (FDI) has been an important policy agenda under institutional and regulatory reforms toward the decentralized system in Indonesia. Infrastructure development has been acknowledged as a crucial condition to attract foreign direct investment. This study empirically examines the relationship between infrastructure development and FDI inflows at the province level in Indonesia by using panel data of 30 provinces over the sample period of 2000-2009. As a proxy to infrastructure development, this study uses four measures of hard infrastructure: electricity, road length, water capacity, and water distribution. Our empirical analysis shows that infrastructure development would promote FDI inflows. In addition, the result presents that provinces with small-sized government, which is measured by government expenditure, attract more FDI inflows. These results are also confirmed by the count data analysis of FDI projects. The need of better infrastructure with small-sized government suggests that the policy authority should utilize private investment through various schemes, such as public private partnership (PPP).

Suggested Citation

  • Primandita Fitriandi & Makoto Kakinaka & Koji Kotani, 2014. "Foreign Direct Investment and Infrastructure Development in Indonesia: Evidence from Province Level Data," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 4(1), pages 79-94.
    • Handle: RePEc:asi:ajoerj:v:4:y:2014:i:1:p:79-94:id:3670
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    Citations

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    Cited by:

    1. Sodik, Jamzani & Sarungu, JJ. & Soesilo, AM. & Tri Rahayu, Siti Aisyah, 2019. "The Determinants of Foreign Direct Investment Across Provinces in Indonesia: The Role of Market Size, Resources, and Competitiveness," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 53(3), pages 141-152.
    2. Hui Wang & Xin Zhong, 2023. "An Empirical Study on the Impact of Chinese OFDI on the Global Value Chain Positions of Countries Along the Belt and Road and Threshold Effects," SAGE Open, , vol. 13(1), pages 21582440231, February.
    3. Yu Fu & Agus Supriyadi & Tao Wang, 2018. "China’s Outward FDI in Indonesia: Spatial Patterns and Determinants," Sustainability, MDPI, vol. 10(12), pages 1-20, December.
    4. Dionisius A. Narjoko, 2023. "Foreign Direct Investment, Agglomeration, and Production Networks in Indonesian Manufacturing," Working Papers DP-2023-01, Economic Research Institute for ASEAN and East Asia (ERIA).
    5. Kashif Munir & Mehwish Iftikhar, 2021. "Impact of Transport and Technological Infrastructure in Attracting FDI in Pakistan," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 7, pages 93-106.
    6. Nik Azmiah Binti Nik Azin & Norhayati bt Alias, 2019. "Value Relevance of Intangible Assets Before and After FRS 138 Adoptions: Evidence From Malaysia," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 10(3), pages 267-279, May.
    7. Zalina Zainudin & Zarina Mohd Zaki & Abdul Razak Abdul Hadi & Hafezali Iqbal Hussain & Mazhar Hallak Kantakji, 2019. "Investor Sentiment and Firm Financial Performance of Malaysian IPO Firms: Pre and Post Financial Crisis," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(5), pages 450-458, August.

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