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

Niramaya Laksmitaningtyas () and Wisnu Setiadi Nugroho
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Niramaya Laksmitaningtyas: Central Bank of Indonesia, Bangka Belitung Province Representatative Office

No 202303003, Gadjah Mada Economics Working Paper Series from 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.

Keywords: Foreign Direct Investment; Openness; Political Variables (search for similar items in EconPapers)
JEL-codes: C5 O1 R5 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2023-03
New Economics Papers: this item is included in nep-fdg, nep-int, nep-pol and nep-sea
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