Indonesia's FDI in Development of Special Economic Zones (SEZs)

Abstract

In realizing equitable development and economic growth, it is necessary to develop special economic zones (SEZs) as a form of commitment of the Indonesian government; and if viewed from the budget perspective applied, it is still limited. This study aims to determine the factors affecting Foreign Direct Investment (FDI) in Indonesia from 2008 2nd quarter to 2021 2nd quarter. Based on that period, the economy in Indonesia experienced a contraction since the Asian monetary crisis in 1998. So that the development of SEZs experienced financial budget constraints and Indonesia can try to find other financing solutions. For developing countries, such initiatives should be taken in order to attract foreign investment. This study uses quantitative research with the analytical method used is the Vector Error Correction Model (VECM), which is a derivative of the vector autoregressive (VAR) method. The results of this study indicate that for the long-term VECM variable estimates only interest rates have a negative effect on FDI, and trade inhibition, inflation, and GDP variables have a positive effect. While the wage variable has no effect on FDI. In this phenomenon, it is necessary to pay attention first to the influence on FDI, companies in Indonesia, the majority of which are labor-intensive workers.
 Keywords: FDI, GDP, inflation, interest rates, trade inhibition, wage