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Analyzing the Effects of Openness and Political Variables on FDI in Indonesia

Author

Listed:
  • Niramaya Laksmitaningtyas

    (Central Bank of Indonesia, Bangka Belitung Province Representatative Office)

  • Wisnu Setiadi Nugroho

    (Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada)

Abstract

To recognize the importance of investment flows as one of the components of development, ASEAN member countries have created the ASEAN Economic Community (AEC) 2015 blueprint as guidelines for setting up a free and open investment regime in ASEAN. The enactment of AEC makes the issue of foreign direct investment (FDI) in Indonesia more attractive. However, an increase in FDI is followed by uneven absorption of FDI in various regions of Indonesia. The implementation of regional autonomy, which gives more authority to governors, allegedly influence investors’ decision to invest. This study aims to determine whether the disclosure of openness and the presidential election have an influence on FDI inflows across 30 provinces of Indonesia. This study employs panel data regression with a fixed effect model. The findings suggest that the level of openness and political variables contribute to the absorption rate of FDI inflows in the regions.

Suggested Citation

  • Niramaya Laksmitaningtyas & Wisnu Setiadi Nugroho, 2023. "Analyzing the Effects of Openness and Political Variables on FDI in Indonesia," Gadjah Mada Economics Working Paper Series 202303003, Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada.
    • Handle: RePEc:gme:wpaper:202303003
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    References listed on IDEAS

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    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis

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