ANALYSIS THE IMPACT OF GDP, INFLATION AND EXCHANGE RATE ON FDI IN INDONESIA

RAHMAT, HIDAYAT (2015) ANALYSIS THE IMPACT OF GDP, INFLATION AND EXCHANGE RATE ON FDI IN INDONESIA. Diploma thesis, UPT. Perpustakaan Unand.

Text 201508050623th_skripsi rahmat hidayat 0910514032.pdf - Published Version Restricted to Repository staff only Download (1MB)

Abstract

Background Indonesia is a large and developing country in Southeast Asia, therefore, will be an attraction for FDI in Indonesia, and right now Indonesia is trying to speeds up the development. The ability of government to provide capital for the purpose of speeding up development is limited. Therefore, as one aspect of the government policy had to make efforts in order to obtain more funds for development. Capital deployment efforts for that purpose can be distinguished in the deployment of capital in the country which is a part of the wealth of society Indonesia, including right and good either State-owned or private, national or foreign private company based in Indonesia for the devoted to the development of the national economy has been established in law Number 6 Year 1968 about Domestic Investment. Whereas in the framework of the utilization of foreign investment for the development of the national economy devoted has been established in law Number 1 Year 1967 about foreign investment (Lubis, Afifuddin, Kasyful, 2008) According to Adiningsih (1998), that the depreciation of the rupiah exchange rate, against foreign currencies, especially the US dollar has a negative influence on the economic condition of the overall, including capital markets, as well as rising interest rate will reduce the financiers to invest in the capital market. Thus, the weakening of the rupiah exchange rate will significantly affect to the return on FDI of an enterprise, especially companies that rely solely on raw 2 materials from abroad, and it will also override the companies that rely solely on foreign loans in the form of US dollars to finance the operations of the company. Fluctuation in the value of the rupiah against foreign currencies will greatly affect the stable FDI climate in the country, particularly the capital markets. The appreciation of the rupiah exchange rate against the dollar, for example, will give the impacts on the development of its marketing Indonesia abroad, especially in terms of price competition. When this happen, indirectly will give effect on the trade balance, due to the decrease in export value compared to the value of imports, and then it will affect the balance of payment Indonesia. And the worsening of the balance of payment will certainly have an effect on foreign exchange. Reduce foreign exchange reserves will reduce investor confidence against Indonesian economy, which was causing negative impact on stock trading in the stock market resulting in capital outflow. Monge and Naranjo (2002) argued that NAFTA gave significant advantage inflow of FDI that countries member of NAFTA comparing with another country. The impact of regional integration on FDI reinforce studied by Waldkirch (2008), FDI in Mexico has increased dramatically since the inception of the NAFTA. Soo Lee and Hyup Shin (2009), economic gains from the EU enlargement are expanded in member countries when liberalization in the services sector is considered. According to Lean (2008), there is no evidence of causation running from the increase in FDI to GDP growth or vice versa in both the short and long run, implying that the relationship between FDI and growth of the Malaysian manufacturing sector is independent, this is finding rather interesting because it 3 contradicts with most theoretical expectations of FDI driven growth. Mun (2008) found a significant relationship between economic growth and FDI inflows in Malaysia. In Singapore, there is no evidence that the causality link between FDI and GDP, results further suggest that Singapore’s capacity, including but not limited to free trade zones, trade regime, tax incentives, infrastructure quality, the human capital base and the transfer of technology, to progress in economic development will depend on the country’s performance in attracting foreign capital (Feridun & Sissoko, 2011). Because of the descriptions above, the author is interested in studying and analyzing further that affect of gross domestic product, inflation and exchange rate against FDI in Indonesia with the title “ Analysis the Impact of GDP, Inflation and Exchange rate on FDI in Indonesia”.

Actions (login required)

View Item