LOCATION DETERMINANTS AND PROVINCIAL DISTRIBUTION OF FOREIGN INVESTMENT IN INDONESIA: A PANEL DATA STUDY
YOGAMA, EKO ARIEF (Adv.: Chunlai Chen, Dr), Chunlai Chen, Dr
This paper examines the location determinants of foreign direct investment (FDI) in Indonesias provinces and investigates the provincial inward FDI attractiveness index. The methodology involves estimating eight different sets of model using random effect regression and calculating the provincial inward FDI attractiveness index for 33 provinces and covers the period of 2001 to 2011. The results indicate that market size, purchasing power, economic growth rate, accumulated FDI stock, transport infrastructure intensity, and one-stop-shop (PTSP) policy are significant location factors which have positive impact on provincial FDI inflow. Both efficiency wage and adult illiteracy rate are significant location factors which have negative impact on provincial FDI inflow. While openness, measured by export to GDP and trade to GDP ratio, internal security measured by conflict and terrorism events, and special economic zones (SEZ) are not significant location factors. Therefore, provinces which possess higher market size, purchasing power, economic growth rate, accumulated FDI stock and transport infrastructure intensity accompanied by lower illiteracy rate and lower efficiency wage are attracting more FDI. Government policy, which simplify and accelerate investment licensing process strengthen the location advantage of the host provinces. The attractiveness index indicates that Java ranked as the most attractive region and Jakarta as the most attractive province.
Kata Kunci : attractiveness index; foreign direct investment; location determinants; Indonesia
