The Effect of Wages and Infrastructure on Foreign Direct Investment (FDI) By Industry in Sumatera Island, Sulawesi Island, and Java Island

Authors : Destarita Indah Permatasari, Tisa Maharani

Volume/Issue : Volume 4 - 2019, Issue 12 - December

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As preliminary, there were some stylist facts related to : fluctuation of FDI, the spreadment of region as the investment recipient, and the dominancy of sectors as the investment targets. The inflow of foreign direct investment (later is abbreviated as FDI) to Indonesia fluctuates. The sectors composition of FDI inflows recipient from 2009 to 2018 are dominated by the industrial sector i.e. 66.93%. During 2009 to 2018, most of the FDI inflows were invested in Java by 48.71%. According to the table above, industry emerges as a dominant sector in 3 (three) islands, namely Java, Sulawesi, and Sumatra respectively 97.38%, 79.42%, and 68.73%. Essentially, this study attempts to portrait the FDI (industry) flows of Sumatra Island., Sulawesi, and Java. Based on several previous styudies showed that Minimum wages are one of the factors influencing the FDI choice of industrial locations (Owuka, 2011). And Infrastructure was another factor that significantly influenced FDI industry (Iskandar, 2014), Huyen (2015), William (2015), and Singh (2008). As a start of this study description, this section relates to the literature study as stated in CHAPTER 2, that the choices of variables and methods refers to the results of the respective examination. In this study, researcher uses panel data of foreign direct investment (FDI) by industry from 10 (ten) provinces of Sumatra Island, 6 (six) provinces of Java Island, and 6 (six) provinces of Sulawesi Island from 2009 to 2018. The number of observations is 10 x 22 = 220. Analysis of the data in this study uses regression of 22 provinces cross section panel data approach and time series of the last 10 years (2009-2018). In this case, panel data regression will be applied to the secondary data since it is bound by the realization of the total foreign direct investment (FDI) by industry. There are several variables one of which is minimum wages, which is a control variable, that is affected by the foreign direct investment (FDI) inflows. On the other hand, the electricity variable, CPI, and dummy of Island/Islands spatial plan are variables affect significantly to the flow of FDI by industry in Sumatra, Java, and Sulawesi. At the same time, other variables, namely roads and labor do not significantly affect the flow of FDI by industry in the three islands.

Keywords : Investment, Industry, Infrastructure, Wage.


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