Foreign Direct Investment and Economic Growth: An Analysis With Granger Causality Panel Data Approach in Indonesia Period 1994–2010
Jefry Batara Salebu, Professor Yoshihiro Otsuji
2012 | Tesis | S2 Magister Ek.Pembangunan-
One of the most essential aspects of foreign direct investment (FDI) is its potential impact on economic growth in the host country. This is particularly important for developing countries which generally subject to lack of financial and capital necessary for economic development. Furthermore, empirical evidence for FDI-economic growth nexus from developing countries is still rather mixed. On one side, many studies have found evidence for FDI driving economic growth of developing countries while several other studies have found no or weak evidence. The aim of this study is first to observe the causality relationship between FDI and economic growth across sectors in Indonesia and then try to identify what sectors have significant positive impact on economic growth. This study explores the Granger causality relationship between FDI and economic growth, performing Wald tests with sector-specific bootstrap critical values based on Kónya (2006). Panel data of 20 subsectors for the period 1994–2010 obtaining a balanced panel of 340 observations are used in the empirical estimation. This study observed the results based on two different currencies. The empirical results based on either Rupiah or US$ currency show strong evidence of FDI Granger causing GDP at the 1% significance level in metal, transport equipment, machinery, and electronic industry. This evidence shows that FDI Granger causing GDP comes from secondary sector. To find the significant impact of FDI on economic growth, we employ Arellano–Bond linear dynamic panel-data estimation. The result from Rupiah or US$ currency shows that if there is any correlation between FDI and economic growth, this study suggests that it could be positive. The study finds some evidence that FDI has benefitted the country in this sector. Some supports from the government of Indonesia are needed in applying more outward-oriented policy in this sector. The policy implication is that the government of Indonesia has to provide corporate rules and regulations, for example tax incentive regulation, to attract this FDI inflow.
Kata Kunci : Foreign direct investment, economic growth, panel causality, bootstrapping.
