Cross Sectional Dependency and Panel Unit Root Tests: Foreign Direct Investment in Indonesia

Abstract

Indonesia has a unique characteristic, namely a large area separated by islands and diverse people in culture and religion and abundant economic resources. Indonesian President Joko Widodo faces various domestic political opponents and foreign interests over Indonesian resources. Since the export of mining raw materials is prohibited, foreign investors must invest directly in Indonesia. Therefore, attracting foreign investment to manage natural resources is very important. This paper wants to explain the problem of econometrics, namely stationarity in Indonesia's foreign direct investment panel data. The Panel Unit Root test can be carried out in various ways: the Levin-Lin-Chu Test, Harris-Tzavailis Test, Breitung, Im-Pesaran-Shim Test, Fisher Type Test, and Hadri LM Stationary. The Software of data processing is Stata Release 15. We use panel data covering all 34 provinces and 12 periods from 2009 to 2020. The result of this research is that Foreign Direct Investment data is stationary and can be used to need econometric items. Thus, Indonesia's panel data for foreign direct investment is robust.