Email this article 
Corruption and FDI Inflows in Indonesia
Abstract
The inflows of Foreign Direct Investment (FDI) to a country depend on many factorszzne of the crucial factors is the corruption index, which represents a pivotal aspect in Global Investment Competitiveness (GIC). This research analyzes the impact of the corruption perception index on FDI inflows to Indonesia. Other variables affecting FDI are Gross Domestic Product (GDP), inflation rate, and population. Vector Error Correction Model (VECM) is used to estimate the time series sample between 1995 and 2019. Following the time series procedure, several tests are conducted on the dataset before applying VECM: unit-root, optimum lag, and cointegration. The main finding shows that the higher the corruption index, the higher the FDI Inflows, implicating that low corruption attracts more FDI inflows to Indonesia. Other findings are that an increase in GDP attracts more FDI, an increase in inflation rate reduces FDI inflows, and an increase in population increases FDI inflows. The policy implication of the findings is related to an effort in attracting more FDI inflows requires a substantial endeavor in combating corruption and increasing the Corruption Perception Index of Indonesia from time to time.
Keywords
Full Text:
PDFReferences
Abdul, B., Abdul, Z., & Naufal, M. (2018). Corruption and Foreign Direct Investment (FDI) in ASEAN-5 : A Panel Evidence. Economics and Finance in Indonesia, 64(2), 145–156. https://doi.org/10.7454/efi.v64i2.594
Abed, G., & Davoodi, H. (2000). Abed, George T. and Davoodi, Hamid R. 2000. Corruption, Structural Reforms and Economic Performance in the Transition Economies. IMF Workin Paper. WP00132. In IMF Working Paper.
Ajija, S. R., Sari, D. W., & Setianto, R. H. (2011). Cara Cerdas Menguasai Eviews. Salemba EMpat.
Alshamsi, K. H., Hussin, M. R. Bin, & Azam, M. (2015). The impact of inflation and GDP per capita on foreign direct investment: The case of United Arab Emirates. Investment Management and Financial Innovations, 12(3), 132–141.
Azam, M. (2010). Economic Determinants of Foreign Direct Investment in Armenia , Kyrgyz Republic and Turkmenistan : Theory and Evidence. Eurasian Journal of Business and Economics, 3(6), 27–40.
Aziz, A., & Makkawi, B. (2012). Relationship between Foreign Direct Investment and Country Population. International Journal of Business and Management, 7(8), 63–70. https://doi.org/10.5539/ijbm.v7n8p63
Barassi, M. R., & Zhou, Y. (2012). The effect of corruption on FDI: A parametric and non-parametric analysis. European Journal of Political Economy, 28(3), 302–312. https://doi.org/10.1016/j.ejpoleco.2012.01.001
Bown, C. P. (2008). Dancing with Giants: China, India and the Global Economy. World Bank and the Institute for Policy Studies, 7(2), 464–466. https://doi.org/10.1017/s147474560800387x
Callen, T. (2008). Back to Basics: What Is Gross Domestic Product? Finance & Development, December, 48–49. www.imf.org
Canare, T. (2017). The effect of corruption on foreign direct investment inflows: Evidence from a panel of Asia-Pacific countries. The Changing Face of Corruption in the Asia Pacific:, 1(January), 35–55. https://doi.org/10.1016/B978-0-08-101109-6.00003-4
Demirhan, E., & Masca, M. (2008). Determinants of foreign direct investment flows to developing countries: A cross-sectional analysis. Prague Economic Papers, 1(4), 356–369. https://doi.org/10.18267/j.pep.337
Dunning, J. H. (2009). Location and the multinational enterprise: A neglected factor. Journal of International Business Studies, 40(1), 5–19. https://doi.org/10.1057/jibs.2008.74
Henisz, W. J. (2000). The Institutional Environment for Multinational Investment. Journal of Law, Economics, & Organization, 16(2), 334–364.
Houston, D. A. (2007). Can corruption ever improve an economy? Cato Journal, 27(3), 325–342.
Jalil, A., Qureshi, A., & Feridun, M. (2016). Is corruption good or bad for FDI? Empirical evidence from Asia, Africa and Latin America. Panoeconomicus, 63(3), 259–271. https://doi.org/10.2298/PAN1603259J
Karbasi, A., Mohamadi, E., & Ghofrani, S. (2005). Impact of foreign direct investment and trade on economic growth. Economic Research Forum, 12th Annual Conference, 19th-21st December, 1–21.
Kasasbeh, H. A., Mdanat, M. F., & Khasawneh, R. (2018). Corruption and FDI inflows: Evidence from a small developing economy. Asian Economic and Financial Review, 8(8), 1075–1085. https://doi.org/10.18488/journal.aefr.2018.88.1075.1085
Ketkar, K. W., Murtuza, A., & Ketkar, S. L. (2005). Impact of corruption on foreign direct investment and tax revenues. Journal of Public Budgeting, Accounting & Financial Management, 17(3), 313–341. https://doi.org/10.1108/jpbafm-17-03-2005-b004
Lunn, J. (1983). Determinants of U.S. direct investment in the E.E.C. European Economic Review, 21(3), 391–393. https://doi.org/10.1016/0014-2921(83)90099-5
Luu, H. N., Nguyen, N. M., Ho, H. H., & Nam, V. H. (2018). The effect of corruption on FDI and its modes of entry. Journal of Financial Economic Policy, 11(2), 232–250. https://doi.org/10.1108/JFEP-05-2018-0075
Mankiw, N. G. (2003). Macroeconomics (Vol. 41). New York: Worth Publishers.
Nguyen, M., Doan, T.-T. T., & Bui, N. T. (2021). The impact of macroeconomic and control of corruption on foreign direct investment inflows. Polish Journal of Management Studies, 24(1), 236–249. https://doi.org/10.17512/pjms.2021.24.1.14
Oktiani, D. (2017). The Impact of Corruption on Domestic and Foreign Investment in Indonesia. Advances in Social Science, Educational and Humanities Research, 84, 275–279. https://doi.org/10.2991/iconeg-16.2017.62
Quazi, R. M. (2014). Corruption and foreign direct investment in East Asia and South Asia: An econometric study. International Journal of Economics and Financial Issues, 4(2), 231–242.
Schneider, F., & Frey, B. S. (1985). Economic and political determinants of foreign direct investment. World Development, 13(2), 161–175. https://doi.org/10.1016/0305-750X(85)90002-6
Wei, S.-J. (2000). How Taxing is Coruption on International Investors? The Review of Conomics and Statistics, 82(1), 1–11.
Winters, L. A., & Yusuf, S. (2007). Dancing with Giants : China, India, and the Global Economy. World Bank.
World bank group. (2020). Rebuilding Investor Confidence in Times of Uncertainty. In Global Investment Competitiveness Report 2019/2020. https://doi.org/10.1596/978-1-4648-1536-2
Zangina, S., & Hassan, S. (2020). Corruption and FDI inflow to Nigeria: a nonlinear ARDL approach. Journal of Financial Crime, 27(2), 635–650. https://doi.org/10.1108/JFC-09-2019-0116
Zhao, J. H., Kim, S. H., & Du, J. (2003). The Impact of Corruption and Transparency on Foreign Direct Investment: An Empirical Analysis. Management International Review, 43(1), 41–62.
DOI: https://doi.org/10.21107/mediatrend.v17i2.17019
Copyright (c) 2022 Media Trend
