THE RELATIONSHIP BETWEEN DOUBLE TAXATION TREATIES AND FOREIGN DIRECT INVESTMENT IN INDONESIA
Petrus Harjono, Professor Craig Parsons
2012 | Tesis | S2 Magister Ek.Pembangunan-
Until recently, the relationship between double taxation treaties (DTTs) and foreign direct investment (FDI) remained a puzzle. The emergence of the knowledge-capital theory has paved the way for studies to determine the relationship between DTTs and FDI. The first effort to examine the effects of bilateral tax treaties on FDI using this new theory was Blonigen and Davies’ 2004 study. Using the same method as in Blonigen and Davies (2004),the current study attempts to determine the relationship DTTs and inward FDI in Indonesia. In this paper, two econometric estimations are performed in an attempt to ascertain the effects of DTT on FDI inflows in Indonesia. The first estimation is an attempt to analyze the impact of DTT on Indonesia’s inward FDI from all collected data (old, new, and non-treaty partners). The second attempt aims to capture the effects of “new†tax-treaty on inward FDI. Pooled Least Squared (PLS) and Fixed Effect Regression Model (FEM) are applied to find the relationship between DTT and inward FDI in Indonesia. The results of the preferred fixed effect estimation suggest that the TREATY variable is not statistically significant. Moreover, FEM estimation on new treaty partners' data generates the same result as with the entire sample— namely, that double taxation treaties have no relationship with inward FDI in Indonesia. The estimates are similar to those in Blonigen and Davies (2004). In terms of the knowledge-capital model, the econometric results of this study support the horizontal motivation of FDI for the all countries sample and non- OECD members. Moreover, the absence of horizontal motivation of FDI from OECD estimation may indicate limited evidence of the presence of vertical motivation of FDI.
Kata Kunci : Double taxation treaties, foreign direct investment, the knowledgecapital model of FDI, horizontal motivation of FDI, vertical motivation of FDI.
