The Relationship between COVID-19 Pandemic, Foreign Direct Investment, and Gross Domestic Product in Indonesia

Ferry Syarifuddin,Maman Setiawan

doi:10.3390/su14052786

Abstract

This research investigates the impact of the COVID-19 pandemic on foreign direct investment. This research also studies the impact of the COVID-19 pandemic on the relationship between foreign direct investment (FDI) and the gross domestic product (GDP). This research employs a local projection estimation to calculate the effect of the COVID-19 pandemic on foreign direct investment. The panel vector autoregression is applied to estimate the impact of the COVID-19 pandemic on the relationship between FDI and GDP. This research finds variations in the impacts of the COVID-19 pandemic on FDI among economic sectors in Indonesia. Moreover, the relationship between FDI and GDP is affected by the COVID-19 pandemic.

Highlights

This study hypothesizes that the COVID-19 pandemic has a significant impact on foreign direct investment (FDI), but the magnitude of the impact varies by sector and region
This research investigates the impact of the COVID-19 pandemic on foreign direct investment in the Indonesian economy at the sectoral and regional levels
This research finds that the impact of the COVID-19 pandemic on FDI varies between economic sectors in Indonesia

Summary

Introduction

Foreign direct investment (FDI) plays an important role in the Indonesian economy. FDI supports the Indonesian economy by introducing new technologies, creating jobs, and raising salaries [1]. To sustain Indonesia’s GDP, FDI is critical for investment, and for technology and knowledge spillovers to the rest of the Indonesian economy. Indonesia’s current development is not sustainable without these inputs. Despite the importance of the FDI, the contribution of the FDI has approximately been only 2% to the gross domestic product in the Indonesian economy since 2010 [2].

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Results

Conclusion