Determinants of Private Investment In Indonesia: An Error Correction Model Approach

Retno Fitrianti (), Sri Undai Nurbayani, Nur Dwiana Sari Saudi, Fitriwati Djam’an and Muhammad Fadel Dwi Makmur
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Retno Fitrianti: Hasanuddin University
Sri Undai Nurbayani: Hasanuddin University
Nur Dwiana Sari Saudi: Hasanuddin University
Fitriwati Djam’an: Hasanuddin University
Muhammad Fadel Dwi Makmur: Hasanuddin University

A chapter in Proceedings of the 8th International Conference on Accounting, Management, and Economics (ICAME 2023), 2024, pp 853-866 from Springer

Abstract: Abstract The objective of this study is to examine the impact of independent variables on dependent variables over both the short and long term. The study examines interest rates, government spending, and risk as independent variables, with investment as the dependent variable. The analysis utilized time series data from 1996 to 2020 in Indonesia and using multiple regression models and an Error Correction Model (ECM). The findings indicated a strong favorable impact of both interest rates and government spending on investment. Conversely, risk factors have a considerable negative effect on investment in Indonesia both in the short and long run. The study examines the impact of interest rates on investment using Bank Indonesia’s interest rate data, which differs from the interest rates offered by commercial or private banks in Indonesia. The variable of government expenditure has a positive impact on investment, suggesting that government intervention is causing a crowding effect on investment. This means that investments in infrastructure improvements, health services, and education are increasing activities in the capital market. Ultimately, the risk factor has a detrimental impact on investment due to its perceived negative nature. an uncertainty variable that can suppress the amount of investment in Indonesia.

Keywords: Investment; Interest Rate; Government Spending; Risk (search for similar items in EconPapers)
Date: 2024
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DOI: 10.2991/978-94-6463-400-6_65

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