An Analysis of Determinant on Private Investment in North Sumatra Province, Indonesia

Abstract

This study aims to analyze the factors that affect private investment in the province of North Sumatra. The observed variables are the regional gross domestic product (GDP), government investment, interest rate, exchange rate, investment credits, inflation, international interest rate and the economic crisis during the period of 1980-2011. Using an exploratory research survey approach, this study uses the secondary data of a 32-year period that were obtained from various agencies which were then analyzed by the Error Correction Model (ECM) method. The results have shown that in the long and short terms, the GDP, exchange rate and investment credits have a positive and significant effect on private investment, while government investment, interest rates, inflation and economic crisis have a significant but negative effect on private investment. Meanwhile, the international interest rate (LIBOR) has a negative and insignificant effect on private investment in North Sumatra.