Impact Of Foreign Direct Investment Of Indonesia Investment Authority On Economic Growth: Strengthening National Economic Recovery to Overcome Global Recession In 2023

Aldi Dwiyanto Yurioputra

doi:10.31092/jpkn.v4i1S.1920

Authors

Aldi Dwiyanto Yurioputra Directorate General of State Asset Management (DJKN), The Ministry of Finance of The Republic of Indonesia

DOI:

https://doi.org/10.31092/jpkn.v4i1S.1920

Keywords:

Impact, Foreign direct investment, Economic growth, Positive effect

Abstract

This research aimed to examine the impact of Foreign Direct Investment (FDI) of the Indonesia Investment Authority (INA) on the economic growth of Indonesia to reinforce the national economic recovery to face the global recession in 2023. This paper is crucial since Indonesia needs to overcome the challenge of a huge recession in the distressed condition due to the Covid-19 impact. Meanwhile, the previous studies were not purposed to solve a global recession. We employ quantitative methodology with various econometric methods, such as Ordinary Least Squares (OLS) and robustness tests. The data that we use is secondary data from 1981 until 2020 on a yearly basis. The result of this paper is that the FDI of INA has a positive effect on IndonesiaÂ´s economic growth and it is statistically significant. Furthermore, the model is robust, so it is consistently accurate from unforeseen causes and avoided potential bias in the results. It implies that Indonesia may employ FDI from INA to boost the economy and conquer the nearing massive recession.

References

Aizenman, J. (2007). FRBSF Economic Letter: Sovereign Wealth Funds: Stumbling Blocks or Stepping Stones to Financial Globalization? (2007-38, 12/14/2007). FRBSF Economic Letter, dec14.

Alexiou, C. (2007). Unraveling the â€˜Mysteryâ€™ Between Public Expenditure and Growth: Empirical Evidence from Greece. International Journal of Economics , 1(1), 21â€“31.

Alimi, R. S. (2014). A Time Series and Panel Analysis of Government Spending and National Income. MPRA Paper , 5694.

Al-Shatti, A. S. (2014). The Impact of Public Expenditures on Economic Growth in Jordan. International Journal of Economics and Finance, 6(10). https://doi.org/10.5539/ijef.v6n10p157

Asafu-Adjaye, J. (2000). The Effects of Foreign Direct Investment on Indonesian Economic Growth, 1970-1996. Economic Analysis and Policy, 30(1). https://doi.org/10.1016/S0313-5926(00)50004-6

ASCHAUER, D. A. (1990). IS GOVERNMENT SPENDING STIMULATIVE? Contemporary Economic Policy, 8(4). https://doi.org/10.1111/j.1465-7287.1990.tb00300.x

Azman-Saini, W. N. W., Baharumshah, A. Z., & Law, S. H. (2010). Foreign direct investment, economic freedom and economic growth: International evidence. Economic Modelling, 27(5). https://doi.org/10.1016/j.econmod.2010.04.001

Bahoo, S., Alon, I., & Paltrinieri, A. (2020). Sovereign wealth funds: Past, present and future. In International Review of Financial Analysis (Vol. 67). https://doi.org/10.1016/j.irfa.2019.101418

Barro, R. J. (1991). Economic growth in a cross section of countries. Quarterly Journal of Economics, 106(2). https://doi.org/10.2307/2937943

Barro, R. J. (2013). Inflation and economic growth. Annals of Economics and Finance, 14(1). https://doi.org/10.1086/259360

Beck, R., & Fidora, M. (2008). The impact of sovereign wealth funds on global financial markets. Intereconomics, 43(6). https://doi.org/10.1007/s10272-008-0268-5

Beck, T., DemirgÃ¼Ã§-Kunt, A., & Levine, R. (2000). A new database on the structure and development of the financial sector. World Bank Economic Review, 14(3). https://doi.org/10.1093/wber/14.3.597

Beck, T., Levine, R., & Loayza, N. (2000). Finance and the sources of growth. Journal of Financial Economics, 58(1â€“2). https://doi.org/10.1016/s0304-405x(00)00072-6

Birdsall, N., Ross, D., & Sabot, R. (1995). Inequality and growth reconsidered: Lessons from East Asia. World Bank Economic Review, 9(3). https://doi.org/10.1093/wber/9.3.477

BlomstrÃ¶m, M. (2002). The Economics of International Investment Incentives.

BlomstrÃ¶m, M., Kokko, A., & Zejan, M. (1994). Host country competition, labor skills, and technology transfer by multinationals. Weltwirtschaftliches Archiv, 130(3). https://doi.org/10.1007/BF02707611

Borensztein, E., de Gregorio, J., & Lee, J. W. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45(1). https://doi.org/10.1016/S0022-1996(97)00033-0

Caves, R. E. (1974). Multinational Firms, Competition, and Productivity in Host-Country Markets. Economica, 41(162). https://doi.org/10.2307/2553765

Chen, J., & Quang, T. (2014). The impact of international financial integration on economic growth: New evidence on threshold effects. Economic Modelling, 42. https://doi.org/10.1016/j.econmod.2014.06.011

Choe, J. il. (2003). Do foreign direct investment and gross domestic investment promote economic growth? Review of Development Economics, 7(1). https://doi.org/10.1111/1467-9361.00174

Cole, D. C., & Shaw, E. S. (1974). Financial Deepening in Economic Development. The Journal of Finance, 29(4). https://doi.org/10.2307/2978421

Comes, C. A., Bunduchi, E., Vasile, V., & Stefan, D. (2018). The impact of Foreign Direct Investments and remittances on Economic Growth: A case study in Central and Eastern Europe. Sustainability (Switzerland), 10(1). https://doi.org/10.3390/su10010238

de Gregorio, J. (1993). Inflation, taxation, and long-run growth. Journal of Monetary Economics, 31(3). https://doi.org/10.1016/0304-3932(93)90049-L

de Mello, L. R. (1999). Foreign direct investment-led growth: Evidence from time series and panel data. Oxford Economic Papers, 51(1). https://doi.org/10.1093/oep/51.1.133

Dunning, J. H. (2014). Economic analysis and the multinational enterprise. In Economic Analysis and Multinational Enterprise. https://doi.org/10.4324/9781315824000

Fukase, E. (2010). Revisiting Linkages between Openness, Education and Economic Growth: System GMM Approach. Journal of Economic Integration, 25(1). https://doi.org/10.11130/jei.2010.25.1.194

Ghosh Roy, A. (2012). Revisiting the Relationship between Economic Growth and Government Size. Economics Research International, 2012. https://doi.org/10.1155/2012/383812

Gillman, M., Harris, M. N., & MÃ¡tyÃ¡s, L. (2004). Inflation and growth: Explaining a negative effect. Empirical Economics, 29(1). https://doi.org/10.1007/s00181-003-0186-0

Goldman, R. N., Aliaga, M., & Gunderson, B. (1998). Interactive Statistics: Preliminary Edition. The American Statistician, 52(3). https://doi.org/10.2307/2685946

Goldsmith, R. W. (1969). Financial Structure and Development. Yale University Press.

Gylfason, T., & Herbertsson, T. T. (2001). Does inflation matter for growth? Japan and the World Economy, 13(4). https://doi.org/10.1016/S0922-1425(01)00073-1

Iamsiraroj, S., & UlubaÅŸoÄŸlu, M. A. (2015). Foreign direct investment and economic growth: A real relationship or wishful thinking? Economic Modelling, 51. https://doi.org/10.1016/j.econmod.2015.08.009

Khobai, H., Kolisi, N., & Moyo, C. (2017). The relationship between trade openness and economic growth: The case of Ghana and Nigeria. The relationship between trade openness and economic growth: The case of Ghana and Nigeria. Nelson Mandela University, South Africa .

King, R. G., & Levine, R. (1993). Finance and growth: schumpeter might be right. Quarterly Journal of Economics, 108(3). https://doi.org/10.2307/2118406

Koojaroenprasit, S. (2012). The impact of foreign direct investment on economic growth: A case study of South Korea. International Journal of Business and Social Science, 3, 8â€“19.

Levine, R. (2005). Chapter 12 Finance and Growth: Theory and Evidence. In Handbook of Economic Growth (Vol. 1, Issue SUPPL. PART A). https://doi.org/10.1016/S1574-0684(05)01012-9

Levine, R., Loayza, N., & Beck, T. (2000). Financial intermediation and growth: Causality and causes. Journal of Monetary Economics, 46(1). https://doi.org/10.1016/S0304-3932(00)00017-9

Li, X., & Liu, X. (2005). Foreign Direct Investment and economic growth: An increasingly endogenous relationship. World Development, 33(3). https://doi.org/10.1016/j.worlddev.2004.11.001

Mansfield, E., & Romeo, A. (1980). Technology Transfer to Overseas Subsidiaries by U.S.-Based Firms. The Quarterly Journal of Economics, 95(4). https://doi.org/10.2307/1885489

Markusen, J. R., & Venables, A. J. (1999). Foreign direct investment as a catalyst for industrial development. European Economic Review, 43(2). https://doi.org/10.1016/S0014-2921(98)00048-8

McKinnon, R. I. (1974). Money and Capital in Economic Development. International Journal, 29(4). https://doi.org/10.2307/40201473

Neumayer, E., & PlÃ¼mper, T. (2017). Robustness Tests for Quantitative Research. In Robustness Tests for Quantitative Research. https://doi.org/10.1017/9781108233590

Niyimbanira, F. (2013). An econometric evidence of the interactions between inflation and economic growth in South Africa. Mediterranean Journal of Social Sciences, 4(13). https://doi.org/10.5901/mjss.2013.v4n13p219

Phillips, P. C. B., & Xiao, Z. (1998). A primer on unit root testing. Journal of Economic Surveys, 12(5). https://doi.org/10.1111/1467-6419.00064

Rajan, R. G., & Zingales, L. (1998). Financial Dependence and Growth. American Economic Review, 88(3).

Ram, R. (1985). Exports and economic growth: some additional evidence. Economic Development & Cultural Change, 33(2). https://doi.org/10.1086/451468

Rauf, A., Qayum, A., & Zaman, K. (2012). Relationship Between Public Expenditure and National Income : an Empirical Investigation of Wagner â€™ S Law in. Academic Research International, 2.

Roubini Xavier, N. S.-M. (1991). Financial Development, the Trade Regime, and Economic Growth. Research Papers in Economics, NA(NA).

Sakyi, D., Commodore, R., & Opoku, E. E. O. (2015). Foreign Direct Investment, Trade Openness and Economic Growth in Ghana: An Empirical Investigation. Journal of African Business, 16(1â€“2). https://doi.org/10.1080/15228916.2015.1061283

Tiwari, A. K., & Mutascu, M. (2011). Economic Growth and FDI in Asia: A Panel-Data Approach. Economic Analysis and Policy, 41(2). https://doi.org/10.1016/S0313-5926(11)50018-9

Urban, D. (2011). The Role of Sovereign Wealth Funds in Global Managament of Excess Foreign Exchange Reserves. Comparative Economic Research, 14(2â€“2). https://doi.org/10.2478/v10103-011-0015-1

Wacziarg, R. (2001). Measuring the dynamic gains from trade. World Bank Economic Review, 15(3). https://doi.org/10.1093/wber/15.3.393

World Bank. (2001). Global Development Finance Report.

Yeboua, K. (2019). Foreign direct investment, financial development and economic growth in Africa: evidence from threshold modeling. Transnational Corporations Review, 11(3). https://doi.org/10.1080/19186444.2019.1640014

Yue, S., Yang, Y., & Hu, Y. (2016). Does foreign direct investment affect green growth? Evidence from Chinaâ€™s experience. Sustainability (Switzerland), 8(2). https://doi.org/10.3390/su8020158