Dinkum Journal of Economics and Managerial Innovations (DJEMI).

Publication History

Published: December 01, 2022

Identification

D-0017

Citation

Muizzuddin (2022). FDI and economic growth in Indonesia: A provincial and sectoral analysis. Dinkum Journal of Economics and Managerial Innovations1(01):19-29.

Copyright

© 2022DJEMI. All rights reserved.

FDI and Economic Growth in Indonesia: A Provincial and Sectoral AnalysisOriginal Article

Al Muizzuddin Fazaalloh1 *

  1. Universitas Brawijaya; almuiz.wang@ub.ac.id

*             Correspondence: almuiz.wang@ub.ac.id

Abstract: Foreign direct investment (FDI) plays an essential role in growing the economy, where this role runs through two things, namely capital accumulation and technology transfer. However, in the literature, previous research findings are still inconclusive to show positive contributions of FDI on economic growth. Furthermore, while the impact of FDI on economic growth has been studied using sectoral data, there has been less research done using data at the provincial and sectoral levels. This study aims to analyze the impact of foreign direct investment (FDI) on economic growth employing sectoral data at the provincial level (33 provinces) in Indonesia over 2015-2022. Based on the fixed effects estimator (reghdfe), our estimation results prove that, in general, FDI significantly positively impacts economic growth in the Indonesian provinces. We also find that FDI in the mining, manufacturing, water, gas and electricity, hotels and restaurants, and real estate sectors has a significant positive effect on economic growth. Meanwhile, only FDI in the agricultural sector has a significant negative impact. Our estimation results confirm that FDI in the manufacturing sector contributes positively and has a considerable impact. The results are robust to the GMM System estimator, which considers the endogeneity problem.

Keywords: FDI, economic growth, Indonesia

  1. INTRODUCTION

FDI is critical to economic growth, and it accomplishes this through two channels: capital accumulation and technology transfer [1]. Regarding the latter channel, the presence of foreign companies is considered to increase the productivity and efficiency of domestic companies through productivity spillover. Foreign companies can stimulate spillover through various channels, including forwarding and backward relations with domestic firms, workers training in foreign companies, demonstration effects, and competition effects [2]. Although theoretically, FDI is convinced as the beneficial growth engine, there is a possibility of failure to implement empirically. Furthermore, prior research findings are still inconclusive to show positive contributions of FDI on economic growth, which previous research yielded disparate results. This motivation has consistently prompted scholars to investigate the FDI-growth nexus up to the present. At least in the last decade, the first debate can be traced back to previous studies using cross-country data that resulted positive [3-5] and negative or non-significant impact [6-8]. In the second debate, the disparity in empirical study results employing data on a single country also contributes to the debate over identifying the FDI-growth nexus. In general, using a single country allows controlling of country-specific factors that are likely to affect growth when analyzing the impact of FDI. Furthermore, the controversy stems from the results of previous papers that found both positive [9] and negative or not significant [10] when using a single country to evaluate the impact of FDI on growth. As a result, to more accurately assess the impact of FDI on economic growth, the researchers attempt to investigate using disaggregate FDI data at the sectoral level [12-16]. Although the analysis of the effect of FDI on economic growth has been tested employing sectoral data, it is less research explored with data at the provincial and sectoral levels. This study aims to analyze the impact of FDI on economic growth by sector with data at the provincial level in Indonesia over the period 2015–2022, where this study will cover two primary research questions: Does FDI inflow in sectors affect provinces’ growth in Indonesia? Which sector FDI has the more significant impact on economic growth in Indonesia? In this regard, the benefits of employing data at the provincial and sectoral levels are twofold. First, it will sharpen in measuring the extent to which the impact of FDI on economic growth at the sub-national level. Second, for Indonesian policymakers, it would be great to understand which economic sector gains mostly from FDI and simultaneously recommend which sector of FDI should be promoted. This paper is organized as follows. Section 2 will discuss graphical information of FDI inflow by regions and sectors in Indonesia. Section 3 will discuss the literature review. Next, section 4 will elaborate on data and methods. Results and discussion will be provided in section 5. The last section (6) is the conclusion and policy discussion.

  1. LITERATURE REVIEW

The theory underlying the relationship between FDI and economic growth is based on Neoclassical and Endogenous growth. In his discussion, De Mello (1997) summarizes that the former theory considers FDI to only play a role in accelerating income in the short term, assuming a diminishing return from physical capital. Meanwhile, the latter theory contends that FDI can stimulate long-term growth by increasing returns through externalities and production spillovers. In addition, domestic firms are critical economic agents in this context because they benefit from the technological externalities of FDI [17]. Furthermore, Aoki and Todo (2008) [18] provided a more in-depth interpretation of these externalities. The possibility of FDI contributing positively to economic growth relies on two primary conditions. First, technology transfer from FDI should be free of charge. The costs here are for domestic enterprises’ research and development (R&D) in absorbing technology transfer from foreign firms. Moreover, the other costs can come up from the government’s efforts to increase human capital capacity to absorb technology transfer by foreign companies. Second, FDI must be the sole channel for acquiring knowledge from abroad. In this context, imitation activities carried out by domestic enterprises in imitating products from foreign companies are critical to absorbing the transfer of technology and knowledge from FDI. However, domestic firms will only be able to successfully carry out this imitation activity to absorb technology if they have a sufficient level of technology. These two conditions imply that the effect of FDI on accelerating growth is not immediate and is determined by the level of absorption capacity of domestic firms. Furthermore, the literature also pays attention to the role of sectors when explaining the possible effect of FDI on growth. An important argument for this can be reviewed from Aykut and Sayek’s (2007) discussion. They argue that FDI in the primary sector is likely to harm growth because FDI projects in this sector have a weak link to the domestic sector. Meanwhile, FDI in the manufacturing sector is expected to boost growth because FDI in this sector is closely related to the domestic sector, such as job creation and knowledge transfer through employee training. Not to mention, FDI in this sector has a tight relationship with local intermediate products. Likewise, FDI in the service sector is also likely to contribute to growth positively. The argument is that FDI in this sector has a forceful link with forwarding linkage, where generally, the motive for FDI in this sector is market seeking. However, empirical research findings based on sectoral data also show no agreement. For example, using cross-country data from 1981 to 1999, Alfaro (2003) discovered that FDI in the agricultural sector harmed economic growth [19]. Likewise, Vu and Noy (2009) [20] found a negative effect of FDI on the agricultural sector for the case of developed OECD member countries (use data from 1980-2003). Bunte et al. (2018) documented the insignificant effect of FDI in the agricultural sector for the case in Liberia [21]. In the recent empirical study, Abouelfarag and Abed (2020) [22], employing data for the period 1985–2014, also find that FDI in the agricultural sector does not affect growth in Egypt. They argue that this non-significant result is likely due to the low spillover effects in agricultural FDI. On the contrary, Chandio et al. (2019) [23], employing data from 1991 to 2013 in Pakistan, demonstrate that agricultural FDI has a long-term enhancing effect on growth. According to their discussion, one of the primary motivations for this research is that 70% of Pakistan’s rural population is heavily reliant on agriculture. They also argue that their finding implies that FDI in the agricultural sector can be the primary factor in sustaining Pakistan’s economy in both the short and long term. There are also consensus gaps in the empirical evidence analyzing the growth effects of FDI in the mining sector. The author contends that FDI in the extractive sector has weak backward and forward linkages with the economy, owing to capital and technology-intensive and export-oriented. Chakraborty and Nunnenkamp (2008) found that FDI in the mining sector does not affect growth [24]. Also, Vu and Noy (2009) found that FDI in the mining sector affects growth negatively. In contrast, Bunte et al. (2018) found that FDI in the mining sector positively impacts growth. They argue that FDI in sectors that require more public goods, such as mining, is more likely to boost growth [25]. In addition, Gochero and Boopen (2020), which use data in Zimbabwe from 1988-2018, found that FDI in the mining sector is associated with growth enhancement in the long run. They also find that FDI in the mining sector has a more remarkable effect than FDI in other sectors and more than domestic investment. Similar to the effects of FDI in the agricultural and mining sectors, empirical research on the effects of FDI in the manufacturing sector also has less conclusive results [26]. Chakraborty and Nunnenkamp (2008) and Vu and Noy (2009) found a positive effect of FDI in the manufacturing sector on growth [27, 28]. Doytch and Uctum (2011), using data cross-countries, also document a growth-enhancing effect of FDI in the manufacturing sector on growth [29]. In comparison, Inekwe (2013), in analyzing the effect of FDI on economic growth in Nigeria during the period 1990-2009, the author found that FDI in the manufacturing sector harms economic growth [30]. The author argues that policymakers should selectively encourage which manufacturing sub-sectors are productive from these results. More recent research, such as Abouelfarag and Abed (2020), also found that manufacturing sector FDI had an insignificant impact on growth. They argue that the possibility is due to the low absorptive capacity of domestic companies in absorbing the spillover effects of FDI in the manufacturing sector. The impact of FDI in the service sector is also inextricably linked to differences in previous studies’ findings. Chakraborty and Nunnenkamp (2008) [27] found that FDI in the service sector did not affect growth. They argue that the effects of FDI in the service sector may take time to impact growth. They also advanced another argument, claiming that due to the scarcity of data on FDI in the service sector in the sub-sector, thus it is difficult to obtain more accurate results in answering the mechanism for the effect of FDI in the service sector on growth. The argument is that complicated procedures can stifle the impact of FDI in this sector In contrast, Inekwe (2013) [30] found that FDI in the service sector positively impacts growth. Hanafy and Marktanner (2019) [31] found that the interaction between domestic investment and FDI in the service sector positively impacts economic growth. This result implies a spillover effect from service sector FDI both horizontally and between sectors. To sum up, past studies exploring the association between FDI and growth steam up debate can be rooted in the diversity of the sample countries and sectors studied and the different methods used. However, there is still a gap to sharpen the analysis results, where previous research has not deeply explored the use of data at a country’s sub-national or provincial level. Using sectoral data at the provincial level is critical to account for the province’s specific effects, which may vary, especially in Indonesia, which has a large area and different economic characteristics in each province. Hence, in this study, we attempt to dig deeper into the effect of FDI on growth with the unique data we collect, namely sectoral data at the provincial level.

  1. MATERIALS AND METHODS

3.1 Data set

We use dataset FDI inflow provided by the Investment Coordinating Board (Badan Koordinasi Penanaman Modal, BKPM), which the dataset is available online (retrieved from https://www8.bkpm.go.id/). Since the unit of FDI inflow is measured in the US dollar, we manually convert the unit into Rupiah (Indonesian currency) and transform it to constant price with the base year of 2015. Gross Domestic Products (GDP) are obtained from Statistics Indonesia (Badan Pusat Statistik, BPS), which is also available online (retrieved from https://www.bps.go.id/). Furthermore, the control variables, including population, education, domestic investment, government expenditure, bank lending, and inflation, are also obtained from the BPS. Our dataset consists of 10 years period (2015–2022) and 33 provinces in Indonesia. We exclude one province (North Kalimantan) in this analysis as the province was born in 2012. Thus, we have a balanced panel dataset in our analysis. Moreover, our FDI inflow and GDP dataset are at the sectoral level. We use ten sectors in this study: agriculture, mining, manufacturing, water, gas, and electricity, hotel and restaurant, trade, construction, transportation and communication, real estate, and other services. The details of variable descriptions and descriptive statistics are shown in Table 1 and Table 2, respectively. Table 2 describes that our variable interest, FDI and GDP, does not significantly vary with the mean 29.51 and 24.88, respectively. Table 3 describes the correlations matrix among variables. It shows a high correlation between population and domestic investment, population and government expenditure, population and bank lending, domestic investment and government expenditure, domestic investment and bank lending, and government expenditure and bank lending.

3.2 Estimation Method

Our study investigates the effect of FDI inflow on economic growth at a sectoral and provincial level in Indonesia from 2010 to 2019. Following the growth literature of endogenous growth model, which allows for technological change as FDI taking role Aghion and Howitt (2009) and previous empirical works which focus on a provincial case such as Hoang et al. (2010), Hanafy and Marktanner (2019), and Van Bon (2019), we specify our specification model as follow:

Where, GDPsit is real GDP of sector s in province i at time t; FDIsit is FDI inflow of sector s in province i at time t; U’ sit is the set of control variables (population, education, domestic investment, government spending, bank lending, and inflation). Furthermore, previous studies predominantly examined the growth effect of FDI using the GMM estimator to avoid the endogeneity issue associated with FDI and growth. However, the prior empirical works less considered the high-dimensional fixed effects such as including sectoral level in the analysis such in our study. Including sectoral level beside province and time series is considered a large panel data. In this setting, running the regression model with multiple fixed effects would allow for control of unobserved heterogeneity specific to province or sectoral. For these reasons, we apply the regressions with highdimensional fixed effects (Stata command “reghdfe” by Correia (2016)).

In our estimation strategy, we start with estimating the impact of FDI on growth without evaluating the effect of particular sectoral FDI. Hence, to obtain the estimation results of which FDI sector affects growth, we carry out the interaction between FDI and dummy variable of a sector. In addition, we estimate the following regression:

  1. RESULTS

Table 4 shows the estimation results for the influence of FDI on growth without control variables. Column 1 reports the effect of FDI on growth while accounting for the province fixed effect. The result shows that FDI has a positive and statistically significant impact on growth. Columns 2 and 3 report the magnitude of the relationship between FDI and growth by controlling for province and year fixed effects (Column 2) and province, year, and sector fixed effects (Column 3). The results did not change, where FDI has a statistically significant positive effect. However, the association’s size increased also the R-squared is sharply improved (Column 3). This result indicates that control for the sector is crucial to single out the impact of FDI on growth using sectoral data. In Column 4, we introduce island fixed effect to capture the unobserved heterogeneity and does not change over time that could arise from an island since Indonesia is an archipelagos country. In this setting we divide into six archipelagos: Sumatra, Java, Kalimantan, Bali and Nusa Tenggara, Sulawesi, Maluku, and Papua. The result shows that FDI has to remain positively affect growth. Columns 5 and 6 report the estimation results of the effect of FDI on growth by controlling for the province fixed effect and adding the interaction between province and year fixed effect (Column 5) and sector and year fixed effect (Column 6). The results describe that FDI has a positive and statistically significant impact, where the relationship is slightly increased (Column 6). Further, in Column 7, we control for province fixed effect and add the interaction between island and year fixed effect to explain the effect of FDI on growth. The result is still robust, where FDI positively impacts growth and relatively high magnitude.

Table 5 shows the estimation results of the growth impact of FDI while controlling for other determinants such as population, education, domestic investment, government expenditure, bank lending, and inflation. Column 1 presents the estimation results of the effect of FDI on growth by including control variables and controlling for the province fixed effect. The results show that FDI has a positive and statistically significant impact on growth, with a stable magnitude compared to the finding in Table 1. All control variables, such as population, education, domestic investment, government spending, bank lending, and inflation, statistically insignificant affect growth. However, the signs are mixed, with negative consequences for population, education, and inflation. Meanwhile, domestic investment, government spending, and bank lending are positive signs.

Table 5: Main regression-The impact of FDI on economic growth

(1) (2) (3) (4) (5) (6) (7)
lgdp lgdp lgdp lgdp lgdp Lgdp lgdp
Lfdi 0.0917*** 0.0924*** 0.0924*** 0.0924*** 0.0905*** 0.0925*** 0.0908***
(0.0116) (0.0117) (0.00657) (0.00657) (0.0118) (0.00662) (0.0116)
Lpop -1.943 -2.600* -0.939 -0.939 -1.706 -0.756 -2.082
(1.401) (1.542) (0.776) (0.776) (2.413) (0.753) (1.611)
Ys -0.0948 -0.0456 -0.0174 -0.0174 -0.0897 -0.0209 -0.110
(0.114) (0.137) (0.0691) (0.0691) (0.130) (0.0577) (0.116)
Ldi 0.255 -0.0266 0.136 0.136 -0.350 0.196 -0.127
(0.462) (0.515) (0.260) (0.260) (0.927) (0.256) (0.581)
Lgov 0.451 0.434 0.371 0.371 -0.421 0.334 0.196
(0.711) (0.740) (0.372) (0.372) (1.070) (0.360) (0.732)
Lcre 0.0848 0.262 0.253 0.253 0.0587 0.0227 -0.0102
(0.298) (0.444) (0.223) (0.223) (0.397) (0.160) (0.329)
Inf -0.00813 0.00280 -0.00500 -0.00500 -0.00599 -0.00506 -0.00641
(0.0148) (0.0284) (0.0143) (0.0143) (0.0160) (0.00778) (0.0156)

Columns 2 and 3 show the estimation results of the growth effect of FDI by adding control variables and controlling for province and year fixed effects (Column 2) and controlling for province, year, and sector fixed effects (Column 3). The results show that FDI has a statistically significant positive effect on growth. Meanwhile, the effect of control variables remains statistically insignificant except for population, which becomes statistically significant and has a negative sign. Column 4 describes the estimation results of the effect of FDI on the growth by controlling for the control variables and province, year, sector, and island fixed effect. The result shows that FDI has to remain positively affect growth and statistically significant with the size of magnitude no significant difference from previous results in Columns 2 and 3. Columns 5 and 6 report the estimation results of the FDI’s influence on growth by adding control variables and controlling for province fixed effect, the interaction between province and year fixed effect (Column 5) and the interaction between sector and year fixed effect (Column 6). The results show that FDI still has a statistically significant positive effect on growth, the magnitude of the relationship increases (Column 6). Meanwhile, the effect of all control variables is still statistically insignificant. Column 7 shows the estimation result from FDI’s effect on growth by adding control variables and controlling for province fixed effect and the interaction between year and island fixed effect. The result shows that the impact of FDI on growth is positive and statistically significant, whereas the control variables also indicate statistically no significance.

  1. DISCUSSION

This study sets out to assess the importance of FDI in driving growth at the sectoral level. Overall, the current study found that FDI has an enhancing effect on growth in the Indonesian province. This study produced results that corroborate the findings of a great deal of the recent previous empirical work in this field, such as [32, 33], which found a positive impact of FDI on provincial growth in Vietnam. This finding underscores the importance of FDI in improving growth in Indonesian provinces, which can occur through direct and indirect effects, with the direct effect being an increase in capital stock and the indirect effect being an increase in knowledge stock [33]. Turning to the results of the sectoral effect of FDI, we find that the effect of sectoral FDI on growth differs significantly across sectors. These findings corroborate prior research, which found various sectoral FDI effects [34-36]. Further, we find that FDI in the agricultural sector has a detrimental influence on growth. Our finding is as expected and consistent with previous findings in which the effect of FDI in the agricultural sector is negative or insignificant [37, 38]. This result implies that FDI in the agricultural sector has a weak relationship with the domestic economy and exports oriented [39]. That reason is plausible for the Indonesian case since foreign enterprises operating in agriculture mainly invest in oil palm. They may export the product in raw material (such as crude palm oil) without first adding value. Another possible explanation for this is that the less technology transfer from FDI in agriculture can be associated with the low absorptive capacity of domestic firms [39]. In contrast, our findings show that FDI in the mining sector positively impacts growth. This conclusion differs from what is expected in the literature, which generally contends that FDI in extractive industries like mining is detrimental to growth. Our results support Gochero and Boopen’s (2020) empirical finding, which found that FDI in the mining sector has a beneficial influence on Zimbabwean growth [33]. One possible explanation for this finding is an economic turnover impact caused by FDI in the mining sector via a better supply of public goods [40]. This indicates that foreign investment in the mining sector contributes to growth by boosting the supply of public goods, hence increasing the economy’s efficiency and growth. Another important finding was that FDI in the manufacturing sector positively affects growth and the magnitude is more potent than FDI in other sectors. The present findings seem consistent with other research that found the positive impact of manufacturing FDI on growth [33-39]. The positive impact of manufacturing FDI suggests that foreign firms have a close link with domestic firms through providing intermediate input [41]. For instance, in the case of the automotive industry in Jabodetabek, Indonesia (Syah 2019), hence the transfer technology exists. Our result also corroborates the recent empirical evidence of Haini and Tan (2022), which found that the magnitude of FDI in manufacturing is more prominent than in other sectors. The authors suggest that FDI in the sector would generate enormous growth spillover since the sector has a tremendous potential link with other sectors and intra-industry. Our evidence of the more considerable growth-promoting effect of manufacturing FDI also indicates that attracting FDI in the sector will be the policy option to enhance growth faster. The evidence on the effect of FDI in the service sector is equivocal, with FDI in the water, gas, electricity, hotel and restaurant, and real estate sectors positively impacting growth. Meanwhile, foreign direct investment (FDI) in trade, construction, transportation and communication, and other service sectors does not affect growth. Because service sector FDI has a distinct character across the industry, these findings should be interpreted cautiously. One probable explanation for this is that FDI in the service sector with a forward link will boost growth (Aykut and Sayek 2007). This argument could explain the influence of FDI on the water, gas, and electricity sectors, the hotel and restaurant industries, and real estate, where the motive is commonly to serve the local market. Meanwhile, to explain the effect of services FDI in other sectors, the possibility is that service FDI in that sector is based on “soft” knowledge (technical, management and marketing know-how, expertise, organizational skills, and information), which makes it more difficult to transfer knowledge and technology as our findings in the transportation and communication sector (Doytch and Uctum 2011). Furthermore, FDI in that sector is linked to foreign aid’s role in accelerating growth. Younsi et al. (2021) found that aid and FDI have a significant positive complementarity effect on economic growth. Hence, our findings suggest that FDI in the transportation and communication sectors may have less influence on growth when it is not accompanied by aid. Another possible explanation for the insignificant effect is that the effect is likely to be long-term rather than short-term. The argument is that investing in the transportation and communication sectors may take a long time to reap economic benefits. The insignificant impact of FDI in construction is in line with the finding of (Haini and Tan 2022). They argued that the FDI services sector, such as construction, has no significant effect on growth, possibly due to tight restrictions related to national security and the difficulty of transmitting knowledge and technology. Another possible reason could be that complicated procedures may hinder the construction of FDI’s effect on growth (Abouelfarag and Abed 2020). Another unresolved issue in responding to the challenge of harnessing FDI to stimulate economic growth is the host country’s absorption capacity. Scholars have paid close attention to this issue, and they have formalized a study of the role of absorption capacity in capturing the benefits spread by FDI (see Silajdzic and Mehic 2016; Hanafy and Marktanner 2019). Absorption capacity refers to the ability of domestic firms to absorb FDI-brought technology or knowledge (Görg and Greenaway 2004). However, the proxies used to capture absorption capacity vary across the literature, such as human capital and domestic firms. According to Tang and Zhang (2016), absorption capacities such as human capital, government policies that encourage FDI, infrastructure capacity, and research and development are required for China to benefit from FDI in manufacturing exports. Their findings may also imply that intense export activity will stimulate economic growth.

  1. CONCLUSIONS

This study aims to estimate the impact of FDI on sectoral economic growth in 33 provinces in Indonesia during the 2010–2019 period. By applying the regressions with many levels of fixed effects estimator (reghdfe), our estimation results prove that, in general, FDI positively impacts economic growth in the Indonesian provinces. We also find that specifically, FDI in the mining, manufacturing, water, gas and electricity, hotels and restaurants, and real estate sectors have a positive effect and statistically significant on economic growth. Meanwhile, only FDI in the agricultural sector has a negative impact. Our estimation results confirm that FDI in the manufacturing sector contributes positively and has a considerable impact. From the above findings, our study expands the policy spectrum of the Indonesian policymaker to foster economic growth via FDI. First, the government must realize that not all FDI sectors can be formulated as direct drivers of economic growth, which means that the government should sort out which sectoral FDI stimulates economic growth. Second, enhancing economic growth by promoting FDI in the manufacturing sector will be more efficient considering that FDI in this sector has a more remarkable driving effect than other sectoral FDI. Third, the government needs to prepare sufficient absorption capacity, such as improving labor skills for domestic companies to harness FDI that shows a deteriorating effect (FDI in the agricultural sector) or does not have a significant effect (trade, construction, and transportation and communication FDI). Regarding study limitations, our research does not look into which absorptive capacity channels (such as human capital and domestic firms) in the host province for FDI can affect economic growth. In addition, the connection between foreign firms and domestic firms is needed for gearing the technological and knowledge transfer brought by FDI, which domestic firms can provide intermediate inputs for foreign firms. Thus, this motivation can be triggered future studies to sharpen the analysis of the impact of sectoral FDI on economic growth.

REFERENCES

  1. Abouelfarag HA, Abed MS (2020) The impact of foreign capital inflows on economic growth and employment in Egypt. J Econ Adm Sci 36:258–276. https:/ doi.org/10.1108/jeas-12-2018-0138
  2. Aghion P, Howitt PW (2009) The economics of growth. MIT Press, Cambridge, Massachusetts
  3. Agloboyor EK, Gyeke-Dako A, Kuipo R, Abor JY (2016) Foreign Direct Investment and Economic Growth in SSA: The Role of Institutions. Thunderbird Int Bus Rev 58:479–497.
  4. Akinlo AE (2004) Foreign direct investment and growth in Nigeria. An empirical investigation. J Policy Model 26:627–639. https:/ doi.org/10.1016/j.jpolmod.2004.04.011
  5. Alfaro L (2003) Alfaro, L. (2003) Foreign Direct Investment and Growth: Does the Sector Matter ? Harvard Bus Sch
  6. Alvarado R, Iñiguez M, Ponce P (2017) Foreign direct investment and economic growth in Latin America. Econ Anal Policy 56:176–187. https:/ doi.org/10.1016/j.eap.2017.09.006
  7. Aoki Y, Todo Y (2008) FDI and economic growth in less developed countries. OECD J Gen Pap 2008:1–31. https:/ doi.org/10.1787/gen_papers-v2008-art5-en
  8. Aykut D, Sayek S (2007) The role of the sectoral composition of foreign direct investment on growth.Do Multinatl Feed local Dev growth?35–59
  9. Bermejo Carbonell J, Werner RA (2018) Does Foreign Direct Investment Generate Economic Growth? A New Empirical Approach Applied to Spain. Econ Geogr 94:425–456. https:/ doi.org/10.1080/00130095.2017.1393312
  10. Bird G, Choi Y (2020) The effects of remittances, foreign direct investment, and foreign aid on economic growth: An empirical analysis. Rev Dev Econ 24:1–30. https:/ doi.org/10.1111/rode.12630
  11. Blomström M, Kokko A (1998) Multinational corporations and spillovers. J Econ Surv 12:247–277. https:/ doi.org/10.1111/1467-6419.00056
  12. Bunte JB, Desai H, Gbala K et al (2018) Natural resource sector FDI, government policy, and economic growth: Quasi-experimental evidence from Liberia. World Dev 107:151–162.
  13. Chakraborty C, Nunnenkamp P (2008) Economic Reforms, FDI, and Economic Growth in India: A Sector Level Analysis. World Dev 36:1192–1212. https:/ doi.org/10.1016/j.worlddev.2007.06.014
  14. Chandio AA, Mirani AA, Shar RU (2019) Does agricultural sector foreign direct investment promote economic growth of Pakistan? Evidence from cointegration and causality analysis. World J Sci Technol Sustain Dev ahead-of-p 196–207. https:/ doi.org/10.1108/wjstsd-05-2019-0025
  15. Choi YJ, Baek J (2017) Does FDI really matter to economic growth in India? Economies 5:1–9. https:/ doi.org/10.3390/economies5020020
  16. Correia S (2017) Linear Models with High-dimensional Fixed Effects: An Efficient and Feasible Estimator. Work Pap
  17. De Mello LR (1997) Foreign direct investment in developing countries and growth: A selective survey. J Dev Stud 34:1–34. https:/ doi.org/10.1080/00220389708422501
  18. Doytch N, Uctum M (2011) Does the worldwide shift of FDI from manufacturing to services accelerate economic growth? A GMM estimation study. J Int Money Financ 30:410–427.
  19. Gochero P, Boopen S (2020) The effect of mining foreign direct investment inflow on the economic growth of Zimbabwe. J Econ Struct 9. https:/ doi.org/10.1186/s40008-020-00230-4
  20. Gönel F, Aksoy T (2016) Revisiting FDI-led growth hypothesis: the role of sector characteristics. J Int Trade Econ Dev 25:1144–1166. https:/ doi.org/10.1080/09638199.2016.1195431
  21. Görg H, Greenaway D (2004) Much ado about nothing? Do domestic firms really benefit from foreign direct investment? World Bank Res Obs 19:171–197. https:/ doi.org/10.1142/9789814749237_0009
  22. Haini H, Tan P (2022) Re-examining the impact of sectoral- and industrial-level FDI on growth: Does institutional quality, education levels and trade openness matter? Aust Econ Pap n/a:
  23. Hanafy S, Marktanner M (2019) Sectoral FDI, absorptive capacity and economic growth–empirical evidence from Egyptian governorates. J Int Trade Econ Dev 28:57–81.
  24. Herzer D (2012) How Does Foreign Direct Investment Really Affect Developing Countries’ Growth? Rev Int Econ 20:396–414. https:/ doi.org/10.1111/j.1467-9396.2012.01029.x
  25. Hoang TT, Wiboonchutikula P, Tubtimtong B (2010) Does Foreign Direct Investment Promote Economic Growth in Vietnam? ASEAN Econ Bull 27:295–311
  26. Inekwe JN (2013) FDI, Employment and Economic Growth in Nigeria. Afr Dev Rev 25:421–433. https:/ doi.org/10.1111/1467-8268.12039
  27. Ingham H, Read R, Elkomy S (2020) Aggregate and heterogeneous sectoral growth effects of foreign direct investment in Egypt. Rev Dev Econ 24:1511–1528. https:/ doi.org/10.1111/rode.12698
  28. Luu HN, Trinh VQ, Vu NH (2017) Does Foreign Direct Investment Accelerate the Vietnamese Economic Growth?: A Simultaneous Equations Approach. J Dev Areas 51:331–345.
  29. Mehic E, Silajdzic S, Babic-Hodovic V (2013) The impact of FDI on economic growth: Some evidence from southeast Europe. Emerg Mark Financ Trade 49:5–20. https:/ doi.org/10.2753/REE1540- 496X4901S101
  30. Owusu EL (2020) The relationship between foreign direct investment and economic growth: A multivariate causality approach from Namibia. Int J Financ Econ 1–8.
  31. Sahu JP (2021) Does inflow of foreign direct investment stimulate economic growth? Evidence from developing countries. Transnatl Corp Rev 13:376–393.
  32. Silajdzic S, Mehic E (2016) Absorptive Capabilities, FDI, and Economic Growth in Transition Economies. Emerg Mark Financ Trade 52:904–922.
  33. Syah DO (2019) Identifying vertical partnership among automotive component companies: empirical evidence from automotive industry in Jabodetabek, Indonesia. J Econ Struct.
  34. Tahir M, Estrada MAR, Afridi MA (2019) Foreign inflows and economic growth: An emiprical study of the SAARC region. Econ Syst. https:/ doi.org/10.1016/j.ecosys.2019.100702
  35. Tang Y, Zhang KH (2016) Absorptive capacity and benefits from FDI: Evidence from Chinese manufactured exports. Int Rev Econ Financ 42:423–429. https:/ doi.org/10.1016/j.iref.2015.10.013
  36. Van Bon N (2019) The role of institutional quality in the relationship between FDI and economic growth in Vietnam: empirical evidence from provincial data. Singap Econ Rev 64:601–623. https:/ doi.org/10.1142/S0217590816500223
  37. Vu TB, Noy I (2009) Sectoral analysis of foreign direct investment and growth in the developed countries. J Int Financ Mark Institutions Money 19:402–413.
  38. Yalta AY (2013) Revisiting the FDI-led growth Hypothesis: The case of China. Econ Model 31:335– 343. https:/ doi.org/10.1016/j.econmod.2012.11.030
  39. Younsi M, Bechtini M, Khemili H (2021) The effects of foreign aid, foreign direct investment and domestic investment on economic growth in African countries: Nonlinearities and complementarities. Afr Dev Rev 33:55–66. https:/ doi.org/10.1111/1467-8268.12490
  40. Zaman K, Shah IA, Mushtaq Khan M, Ahmad M (2012) Macroeconomic factors determining FDI impact on Pakistan’s growth. South Asian J Glob Bus Res 1:79–95.
  41. Zghidi N, Mohamed Sghaier I, Abida Z (2016) Does Economic Freedom Enhance the Impact of Foreign Direct Investment on Economic Growth in North African Countries? A Panel Data Analysis. Afr Dev Rev 28:64 https:/ doi.org/10.1111/1467-8268.12167

Publication History

Published: December 01, 2022

Identification

D-0017

Citation

Muizzuddin (2022). FDI and economic growth in Indonesia: A provincial and sectoral analysis. Dinkum Journal of Economics and Managerial Innovations1(01):19-29.

Copyright

© 2022DJEMI. All rights reserved.