Laporkan Masalah

THE RELATION BETWEEN FOREIGN DIRECT INVESTMENT AND HUMAN DEVELOPMENT IN INDONESIA

Titiek Dharyatmi, Prof. Hiroshi Ohta

2012 | Tesis | S2 Magister Ek.Pembangunan

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The current focus of economists and policymakers has shifted from “economic growth” which emphasizes on GDP to “human development” which also considers other humanistic aspects (e.g., health and education) in determining a country’s progress. This has raised the important question of whether foreign direct investment (FDI) as one of the factors believed to have a significant effect on a country’s growth would also have the same crucial effect on the country’s human development. Some studies find a bi-directional causality between economic growth and FDI (Parjiono, 2009; Chowdury and Mavrotas, 2006). Other studies indicate that a two-way relationship between growth and human development (Ranis, Stewart, and Ramirez, 2000; and Ranis, Suri, Boozer, and Stewart, 2010) exists. However, research on the relationship between FDI and human development is still lacking. This paper investigates the two-way relationship between those two variables, specifically for Indonesia. This paper employs the Human Development Index (HDI) from the United Nations Development Programme (UNDP) as a proxy for human development and both per capita FDI and real FDI as a proxy for FDI inflows. A set of data for the period 1970-2010 is tested under the Vector Auto Regression (VAR) analysis with the Granger causality test to find the direction of causation between the two main variables. The results show that, after controlling for trade openness, HDI Granger causes FDI, but not vice versa. These findings support some previous studies which show that human development exerts a positive impact on attracting FDI inflows (Alsan et al., 2006; Noorbakshsh et al., 2001; Nunnenkamp, 2002; Sharma and Gani, 2004; and Suliman and Mollick, 2009) and that FDI does not affect HDI (Owen and Yawson, 2010). Our findings may well be explained by considering the wide gap among and within the provinces of Indonesia. Conducting further research on the relationship between FDI and HDI at the provincial level would be valuable.

Kata Kunci : Human Development, Foreign Direct Investment, Granger Causality


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