Factors of foreign direct investment flows to Indonesia in the era of COVID-19 pandemic

Abstract

This paper presents a new spectrum and recommendations the Indonesian Government might find highly useful in attracting foreign direct investment (FDI) through electricity and water availability, Human Development Index (HDI), and COVID-19 pandemic evidence. Our study depends on cross-sectional data from 34 provinces and the time-series data from 2009 to 2020. We carry out the causality test (Dumitrescu-Hurlin) to check whether our research model is good enough to provide strategic options nationally. Furthermore, we employ the pooled ordinary least squared (POLS), fixed effect model (FEM), and random effect model (REM). The three models have so-called static panel data. Based on the Chow's and Hausman's test, we also find that the random effect is the best model to explain our empirical research. Our findings indicate that the electricity, water, HDI, and COVID-19 pandemic significantly contribute to the FDI. Our research also contributes to the literature on the predictors of FDI. This research is expected to help the Indonesian Government to make decisions on electricity, water, and human capital policy. Moreover, it highlights the direction a government or policymaker can take to attract the FDI.