Mapping And Determinants Of Intra-Asean Foreign Direct Investment (FDI): Indonesia Case Study

Shinta R. I. Soekro () and Triono Widodo ()
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Shinta R. I. Soekro: Bank Indonesia
Triono Widodo: Bank Indonesia

No WP/12/2015, Working Papers from Bank Indonesia

Abstract: As one of the pillars of the ASEAN Economic Community, capital flows are expected to increase among ASEAN countries through the implementation of the AEC at the end of 2015. As the country with the biggest economy in ASEAN, Indonesia is the largest recipient of foreign direct investment (FDI) from the region. This investment is expected to not only expand the size of the market and the search for resources, but also to make Indonesia a production base for exports. This research aims to map Indonesia’s FDI originating from ASEAN-5 countries and to identify the determinants of FDI. Besides that, this study also aims to analyse the behavior of Indonesia’s outward FDI to ASEAN-5 countries whilst also examining the shifting patterns of FDI into more high-tech sectors of the economy. The method used in this study is dynamic data panel analysis with Generalized Method of Moments (GMM) and structural breaks Bai and Perron analysis. The results of the study show that the determinants of inward intra-ASEAN FDI into Indonesia are the previous year’s FDI, Indonesia’s GDP, the GDP of the country of origin, distance, relative productivity, natural resources, road infrastructure, bilateral trade, and the volume of exports. Meanwhile, the determinants of Indonesia’s outward FDI are GDP of the destination country, bilateral trade, and the characteristics of the state of Singapore. The FDI that has entered Indonesia has tended to be orientated toward pursuing local markets, as is the case for Indonesia’s outward FDI. In regard to the apparent shift of Indonesia’s inward FDI to more high-tech sectors, a sustainable shift in this direction was not found. Rather, the study found that intra-ASEAN FDI into Indonesia tended to shift towards the tertiary sector.

Keywords: FDI; intra-ASEAN; local markets; dynamic panel data; structural breaks (search for similar items in EconPapers)
JEL-codes: C33 F00 F23 (search for similar items in EconPapers)
Date: 2015-12
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