Abstract
Investment will create a multiplier effect for the economy, especially investments from abroad which may also encourage the technology spillover and innovation process. Political risk and government investment policy are two factors considered by investors in investing. This research aimed to determine the effect of these two factors on foreign direct investment (FDI) in Indonesia. This research used data of FDI in Indonesia in 2010-2017, during which there were three changes in foreign direct investment policies in Indonesia and one political year. Using panel data analysis, this research found that government policy in revising the negative investment list had no significant effect on FDI flows in Indonesia. It can be seen that the sector effect experiencing a tightening of foreign asset ownership limitation on FDI was greater than the sector effect experiencing loosening of asset ownership limitation by foreign parties. In addition, this research found that political risk had no significant effect on FDI in Indonesia.Keywords: FDI, Politics, Policy.
Highlights
The multiplier effect on economy, and technology spillover and innovation process are two benefits obtained from investment activities in an economy, especially investments from abroad known as Foreign Direct Investment (FDI)
This research analyzed the effect of government policy and political risk on foreign direct investment in Indonesia
This research found that the government policy in revising the negative investment list (NIL) occurred three times since 2010 had a negative effect on foreign direct investment (FDI) flows in Indonesia
Summary
The multiplier effect on economy, and technology spillover and innovation process are two benefits obtained from investment activities in an economy, especially investments from abroad known as Foreign Direct Investment (FDI). The direct benefits of investment on the economy are obtained in the form of employment availability, infrastructure development and technology spillover (Juliussen, 2010). Chen (2010) states that investment carried out in stages can improve regional economies. Investment will increase productivity, spur growth and have opportunity to increase people’s income as well as reduce poverty. For these reasons, investments to be improved are investments that can create employment opportunity and use regional economic resources. According to Adiningsih (2008), growth derived from consumption does not indicate a strong growth
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