THE FACTORS INFLUENCE FOREIGN DIRECT INVESTMENT IN INDONESIA

Abstract

Foreign Direct Investment (FDI) is an important source of capital and economic growth in developing countries. It provides a package of new technologies, management techniques, finance and market access for the production of goods and services. However, attracting FDI is a major challenge for host countries as it faces the challenge of identifying the major factors that motivate and affect the FDI location decision. After reviewing the literature we identify the most important major location factors for FDI, which are the macroeconomic performance factors, human capital factors, investment climate factors and infrastructure condition factors. However, the previous studies lack the focus on Indonesia. Therefore, this study will fill the previous studies gaps by studying both the positive and negative factors which influence the FDI located in Indonesia.

This research can provide a guideline and consult for foreign companies who intent to start investing in Indonesia. From this research, they can evaluate the investment climate and balance the benefits and risks they have to take. Besides, this research also provides them a way to reduce investment risk in their future operation. Besides, the results of this study can also provide the government officers a rough outline for how to improve its investment climate and increase its competitiveness in attracting FDI inflow.