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Foreign And Private Domestic Investments In Indonesia: Crowding-In Or Crowding-Out?

Author

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  • Aris Setiyanto

    (Gadjah Mada University, The Audit Board of the Republic of Indonesia)

Abstract

This study aims to investigate the empirical relationship between Foreign Direct Investment (FDI) to Private Domestic Investment (PDI) in Indonesia by using quarterly data from 1990Q2 to 2020Q2. It tests the crowding-in effect (which suggests complementarity between FDI and PDI) and crowding out effect (which indicates a substitution effect between FDI and PDI) at the sectoral level. Our results imply the prevalence of the crowding-in effect in the primary and secondary sectors, with the tertiary sector exhibiting a neutral relationship. No rational reason was observed for the restriction of foreign investment. Therefore, it is suggested that Indonesia’s government needs to actively engage in FDI to increase the growth of new investments in the primary and secondary sectors of the domestic economy.

Suggested Citation

  • Aris Setiyanto, 2022. "Foreign And Private Domestic Investments In Indonesia: Crowding-In Or Crowding-Out?," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 25(4), pages 623-646, January.
    • Handle: RePEc:idn:journl:v:25:y:2022:i:4e:p:623-646
    DOI: https://doi.org/10.21098/bemp.v25i4.1674
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    More about this item

    Keywords

    International monetary policy coordination; Open economy macroeconomics;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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