Impact of Government Spending and Corruption on Foreign Direct Investment in Indonesia

Authors

  • Adya Utami Syukri STIE Tri Dharma Nusantara, Makassar, Indonesia https://orcid.org/0000-0002-4545-3711
  • Basri Hasanuddin Faculty of Economics and Business, Hasanuddin University, Makassar, Indonesia
  • Abdul Hamid Paddu Faculty of Economics and Business, Hasanuddin University, Makassar, Indonesia
  • Sultan Suhab Faculty of Economics and Business, Hasanuddin University, Makassar, Indonesia

DOI:

https://doi.org/10.18559/ref.2022.1.3

Keywords:

Foreign Direct Investment, Government Expenditure, Corruption

Abstract

Investment is a critical macroeconomic variable for economic growth and development in any country. As a developing country with the fourth largest population in the world, Indonesia is also dependent on investment coming in from both home and abroad. A good investment climate is one of the solutions in overcoming economic problems so that foreign investors can invest in Indonesia. Obviously, various factors influence investors' willingness to invest in Indonesia. The purpose of this study is to examine the impact of government spending, corruption, economic growth and wages on foreign direct investment in Indonesia. The study uses Ordinary Least Square (OLS) multiple linear regression analysis for the research period 2000-2020. The results show that the variables of government spending, corruption and economic growth have positive and significant impact on foreign direct investment, while the variable of salary has negative and significant impact on foreign direct investment. The Indonesian government needs to reduce the level of corruption and wage level to attract investors.

Downloads

Download data is not yet available.

References

Al-Sadig, A. (2009). The effects of corruption on FDI inflows. Cato Journal, 29(2), 267–294.
View in Google Scholar

Asiamah, M., Ofori, D., & Afful, J. (2019). Analysis of the determinants of foreign direct investment in Ghana. Journal of Asian Business and Economic Studies, 26(1), 56–75. https://doi.org/10.1108/jabes-08-2018-0057
View in Google Scholar DOI: https://doi.org/10.1108/JABES-08-2018-0057

Bayar, Y., & Alakbarov, N. (2016). Corruption and Foreign Direct Investment Inflows in Emerging Market Economies. Ecoforum, 5(2), 303–308.
View in Google Scholar

Biglaiser, G., & Jr, K. D. (2006). Economic reforms and inflows of foreign direct investment in Latin America. Latin American Research Review. https://www.jstor.org/stable/3662784
View in Google Scholar DOI: https://doi.org/10.1353/lar.2006.0001

Brima, S., & Brima, A. S. (2017). Monetary Policy Effect on Private Sector Investment: Evidence from Sierra Leone. International Journal of Economics and Financial Issues, 7(1), 476–488.
View in Google Scholar

Castro, C., & Nunes, P. (2013). Does corruption inhibit foreign direct investment? Revista Política, 51(1). https://doi.org/10.5354/0716-1077.2013.27418
View in Google Scholar DOI: https://doi.org/10.5354/0716-1077.2013.27418

Dewata, B. K., & Swara, I. W. Y. (2013). Pengaruh Total Ekspor, Libor, dan Upah Tenaga Kerja Terhadap Investasi Asing Langsung di Indonesia. E-Jurnal Ekonomi Pembangunan Universitas Udayana, 2, 350–358.
View in Google Scholar

Egger, P., & Winner, H. (2005). Evidence on corruption as an incentive for foreign direct investment. European Journal of Political Economy. https://www.sciencedirect.com/science/article/pii/S0176268005000194
View in Google Scholar DOI: https://doi.org/10.1016/j.ejpoleco.2005.01.002

Epaphra, M., & Massawe, J. (2017). The effect of corruption on foreign direct investment inflows: Evidence from a panel of Asia-Pacific countries. Turkish Economic Review, 4(1), 19–54. https://doi.org/10.1016/B978-0-08-101109-6.00003-4
View in Google Scholar DOI: https://doi.org/10.1016/B978-0-08-101109-6.00003-4

Faroh, A., & Shen, H. (2015). Impact of Interest Rates on Foreign Direct Investment : Case Study Sierra Leone Economy. International Journal of Business Management and Economic Research, 6(1), 124–132.
View in Google Scholar

Gasanova, A., Medvedev, A. N., & Komotskiy, E. I. (2017). The assessment of corruption impact on the inflow of foreign direct investment. AIP Conference Proceedings, 1836(June). https://doi.org/10.1063/1.4981951
View in Google Scholar DOI: https://doi.org/10.1063/1.4981951

Gerschewski, J. (2013). The three pillars of stability: Legitimation, repression, and co-optation in autocratic regimes. Democratization, 20(1), 13–38. https://doi.org/10.1080/13510347.2013.738860
View in Google Scholar DOI: https://doi.org/10.1080/13510347.2013.738860

Hayami, H., Nakamura, M., & ... (2012). Wages, overseas investment and ownership: implications for internal labor markets in Japan. The International Journal of …. https://www.tandfonline.com/doi/abs/10.1080/09585192.2011.637070
View in Google Scholar DOI: https://doi.org/10.1080/09585192.2011.637070

Hossain, S. (2016). Foreign direct investment (FDI) and corruption: Is it a major hindrance for encouraging inward FDI? African Journal of Business Management, 10(10), 256–269. https://doi.org/10.5897/ajbm2016.8032
View in Google Scholar DOI: https://doi.org/10.5897/AJBM2016.8032

Jayachandran, G., & Seilan, A. (2010). A causal relationship between trade, foreign direct investment and economic growth for India. International Research Journal of Finance and Economics, 42(January 2020), 74–88.
View in Google Scholar

Kakoti, D. (2019). An Empirical Investigation of India’s Outward Foreign Direct Investment: A Macro Perspective. Emerging Economy Studies, 5(2), 79–88. https://doi.org/10.1177/2394901519870764
View in Google Scholar DOI: https://doi.org/10.1177/2394901519870764

Krogstrup, S., & Matar, L. (2005). Foreign Direct Investment, Absorptive Capacity and Growth in the Arab World. HEI Working Paper, 02(2005), 1–21.
View in Google Scholar

Kubo, A. (2019). A note on determinants of Japanese foreign direct investment in Southeast Asia, 2008–2015. Economic Analysis and Policy, 62, 192–196. https://doi.org/10.1016/j.eap.2019.03.003
View in Google Scholar DOI: https://doi.org/10.1016/j.eap.2019.03.003

Le, M., & Suruga, T. (2005). The Effects of FDI and Public Expenditure on Economic Growth : From Theoretical Model to Empirical Evidence GSICS Working Paper Series The Effects of FDI and Public Expenditure on Economic Growth : From Theoretical Model to Empirical Evidence Manh Vu Le T. January 2005.
View in Google Scholar

Mokuolu, J. O. (2018). Effect of Exchange Rate and Interest Rate on Fdi and Its Relationship With Economic Growth in Nigeria. 33–47. https://doi.org/10.5281/zenodo.1168515
View in Google Scholar

Montagna, C., & Molana, H. (2005). Centre for dynamic marcoeconomic analysis. Expansionary Effects of the Welfare State in a Small Open Economy *. 44(0). Myint, U. (2000). Corruption: Causes, consequences and cures. Trends in Organized Crime, 3(1), 109–111. https://doi.org/10.1007/s12117-997-1155-3
View in Google Scholar DOI: https://doi.org/10.1007/s12117-997-1155-3

Na, L., & Lightfoot, W. S. (2006). Determinants of foreign direct investment at the re- gional level in China. Journal of Technology Management in China, 1(3), 262–278. https://doi.org/10.1108/17468770610704930
View in Google Scholar DOI: https://doi.org/10.1108/17468770610704930

Okafor, H. O. (2012). Do Domestic Macroeconomic Variables Matter for Foreign Direct Investment Inflow in Nigeria ? 3(9).
View in Google Scholar

Othman, N., Andaman, G., Yusop, Z., & Ismail, M. M. (2018). Impact of public expenditures on FDI inflows into developing countries. Pertanika Journal of Social Sciences and Humanities, 26(2), 751–768.
View in Google Scholar

Quazi, R., Vemuri, V., & Soliman, M. (2014). Impact of Corruption on Foreign Direct Investment in Africa. International Business Research, 7(4). https://doi.org/10.5539/ibr.v7n4p1
View in Google Scholar DOI: https://doi.org/10.5539/ibr.v7n4p1

Sadik, A. T., & Bolbol, A. A. (2001). Capital flows, FDI, and technology spillovers: Evidence from Arab countries. World Development, 29(12), 2111–2125. https://doi.org/10.1016/S0305-750X(01)00083-3
View in Google Scholar DOI: https://doi.org/10.1016/S0305-750X(01)00083-3

Shahzad, A., & Al-Swidi, A. K. (2013). Effect of macroeconomic variables on the FDI inflows: The moderating role of political stability: An evidence from Pakistan. Asian Social Science, 9(9), 270–279. https://doi.org/10.5539/ass.v9n9p270
View in Google Scholar DOI: https://doi.org/10.5539/ass.v9n9p270

Siddiqui, H. A. A., & Aumeboonsuke, V. (2014). Role of Interest Rate in Attracting the Fdi : Study on Asean 5 Economy. International Journal of Technical Research and Applications, 2(1), 59–70.
View in Google Scholar

Smarzynska, B. K., & Wei, S. J. (2000). Corruption and composition of foreign direct investment: Firm-level evidence. nber.org. https://www.nber.org/papers/w7969 Thirafi, M. A. Z. (2013). Pengaruh Pertumbuhan Ekonomi, Ketersediaan Tenaga Kerja, Infrastruktur Dan Kepadatan Penduduk Terhadap Penanaman Modal Asing Di Kabupaten Kendal. Economics Development Analysis Journal, 2(1). https://doi.org/10.15294/edaj.v2i1.1000
View in Google Scholar

Ul Husnain, M. I., Khan, M., ul Haq Padda, I., Akram, N., & Haider, A. (2011). Public Spending, Foreign Direct Investment and Economic Growth. International Research Journal of Finance and Economics, 61(June 2014), 20–28.
View in Google Scholar

Umar, U. O., & Alabede, A. B. (2017). The Impact of Capital Expenditure on Foreign Direct Investment in Nigeria. Journal of Finance and Accounting, 22(11), 18–23. https://doi.org/10.11648/j.jfa.20170504.17
View in Google Scholar DOI: https://doi.org/10.11648/j.jfa.20170504.17

United Nations Conference on Trade and Development (UNCTAD). (2017). Trade and Development Report 2017. Beyond Austerity: Towards a Global New Deal (Issue September). https://unctad.org/en/PublicationsLibrary/tdr2017_en.pdf
View in Google Scholar

Downloads

Published

2022-06-24

Issue

Vol. 6 No. 1 (2022)

Section

Articles

License

Copyright (c) 2022 Adya Utami Syukri, Basri Hasanuddin, Abdul Hamid Paddu, Sultan Suhab

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

How to Cite

Syukri, A. U., Hasanuddin, B., Paddu, A. H., & Suhab, S. (2022). Impact of Government Spending and Corruption on Foreign Direct Investment in Indonesia. Research Papers in Economics and Finance, 6(1), 34-45. https://doi.org/10.18559/ref.2022.1.3

Similar Articles

1-10 of 24

You may also start an advanced similarity search for this article.