Foreign Direct Investment in Indonesia: What is the Effect on Policy Variables and Neighbouring Countries?

Abstract

This study analyses how the effects of implementing monetary policy and the factor of neighbouring countries can affect the value of FDI in Indonesia in the long and short term by using the ECM method. The result is that the variable IDR, SGD, and loan interest rates in Thailand have a positive relationship to FDI in Indonesia in the long term. Meanwhile, variables MYR, THB, BI Rate, loan interest rates in Malaysia, and loan interest rates in Singapore have a negative relationship to Foreign Direct Investment in Indonesia in the long term. The CBT, DID, and PSM methods are used to analyse the effect of implementing fiscal policies on FDI in Indonesia. The result is that the implementation of the tax allowance can increase real interest rates and FDI in Indonesia. Thus, the increase in the value of FDI in Indonesia can be achieved by implementing a tax allowance policy accompanied by an increase in the BI rate at the right time.