foreign direct investment in indonesia

FOREIGN DIRECT INVESTMENT

Prepared by Group 7 :

1. Luqman Hakim Handoko

2. Mahamat Al Mourtada

3. Rininta Nurrachmi

THE MODEL

FDI = Foreign Direct Investment inflows in Indonesia in billion $US

GDP growth = the growth rate of domestic product, measured in (%), is positively

related to FDI.

TO (Trade openness) is reflected as the ratio of the Export plus Import divided by GDP

(Nunes et al. 2006; and Sahoo, 2006). It measured in (%) and expected to be

positively related to FDI.

Exchange rate (The strength of a currency) is used as proxy for level of inflation and

the purchasing power of the investing firm. we expect a positive and significant

relationship between the currency value and FDI inflows. The currency value can be

proxied by the Real Exchange Rate. It measured in (Rupiah / USD)

THE RESULT Dependent Variable: LNFDI

Method: Least Squares

Date: 03/08/11 Time: 14:33

Sample (adjusted): 3 39

Included observations: 35 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

LNEXCHANGE_RATE 1.106468 0.286553 3.861302 0.0005

TRADE_OPENESS -8.366246 2.922459 -2.862742 0.0075

GDPGROWTH 3.252764 1.873492 1.736204 0.0925

C 1.477872 1.323961 1.116250 0.2729

R-squared 0.347500 Mean dependent var 6.052299

Adjusted R-squared 0.284355 S.D. dependent var 1.112233

S.E. of regression 0.940902 Akaike info criterion 2.823256

Sum squared resid 27.44422 Schwarz criterion 3.001010

Log likelihood -45.40698 F-statistic 5.503192

Durbin-Watson stat 0.983693 Prob(F-statistic) 0.003778

LNFDI = 1.477872 + 1.106468 LNEXCHANGE_RATE + -8.366246 TRADE_OPENESS +

3.252764 GDPGROWTH

From the result above we can conclude that:

The exchange rate and GDP growth have positive relationship to foreign direct

investment (FDI), but trade openness is negatively related to FDI. The trade

openness is not in line with our expectation.

If we see the result of exchange rate, the P-value (0.0005) < critical value at 5%

(0.05), it means the H0 is rejected. So, we can conclude that the exchange rate has

significant relationship to FDI.

If we see the result of GDP growth, the P-value (0.0925) > critical value 5% (0.05), It

means the H0 is accepted. So, we can conclude that the GDP growth has no

significant relationship to FDI.

If we see the result of trade openness, the P-value (0.0075) < critical value at 5%

(0.05), It means the H0 is rejected. So, we can conclude that exchange rate has

significant relationship to FDI. But the relationship is negative.

Overall, we can see that the P-value (0.003778) < critical value at 5% (0.05), it

means all independent variables are significant to FDI

R2 is 34.75%. it means that there is 34.75% the changes of proportion in dependent

variable by the independent variables.

1. TEST OF SPECIFICATION ERROR

The table above is the result of Ramsey RESET test which the number of

fitted is 4. From the result above we can see that P-value (0.012179) >

only at critical value 1% (0.01).

It means the H0 is accepted at this (1%) level of significant. So the

model is correct at 1% level of significant. But since we choose the level

significant 5%, the P-value is no longer greater than critical value. Or we

can say that H0 is rejected at this level. So the model has specification

error.

Ramsey RESET Test:

F-statistic 3.930146 Probability 0.012179

Log likelihood ratio 16.05954 Probability 0.002940

2. MULTICOLLINEARITY TEST

A. Auxiliaries regression

When we run regression LNEXCHANGE RATE as dependent variable

and trade openness and GDPGROWTH as independent variables we

found that R-squared is 0.702527 (70.2527%). It is fewer than 80%. So

there is no multicolliniearity.

When we run regression TRADE OPENNESS as dependent variable

and LNEXCHANGE RATE and GDPGROWTH as independent

variables we found that R-squared is 0.707735 (70.7735%). It is fewer

than 80%. So is there no multicolliniearity.

When we run regression, GDPGROWTH as dependent variable and

LNEXCHANGE RATE and TRADE OPENNESS as independent

variables we found that R-squared is 0.427491 (42.7491%). It is fewer

than 80%. So is there no multicolliniearity.

Dependent Variable: LNEXCHANGE_RATE Method: Least Squares

Date: 03/08/11 Time: 14:43




TRADE_OPENESS 8.665719 0.963470 8.994279 0.0000

GDPGROWTH -4.728580 0.982011 -4.815201 0.0000

C 4.080670 0.498001 8.194102 0.0000

R-squared 0.702527 Mean dependent var 7.531483 Adjusted R-squared 0.686447 S.D. dependent var 1.218469

S.E. of regression 0.682291 Akaike info criterion 2.145319

Sum squared resid 17.22430 Schwarz criterion 2.271985

Log likelihood -39.90638 F-statistic 43.69049


Dependent Variable: TRADE_OPENESS Method: Least Squares

Date: 03/08/11 Time: 14:43




LNEXCHANGE_RATE 0.079182 0.008804 8.994279 0.0000

GDPGROWTH 0.458274 0.093045 4.925316 0.0000

C -0.179344 0.074223 -2.416278 0.0207


S.E. of regression 0.065220 Akaike info criterion -2.550065

Sum squared resid 0.157385 Schwarz criterion -2.423400

Log likelihood 54.00131 F-statistic 44.79878


Dependent Variable: GDPGROWTH


Date: 03/08/11 Time: 14:44




TRADE_OPENESS 0.864122 0.175445 4.925316 0.0000

LNEXCHANGE_RATE -0.081471 0.016919 -4.815201 0.0000

C 0.383166 0.089772 4.268198 0.0001


S.E. of regression 0.089558 Akaike info criterion -1.915818

Sum squared resid 0.296765 Schwarz criterion -1.789152

Log likelihood 41.31636 F-statistic 13.81388


LNFDI

LNEXCHANGE_RA

TE TRADE_OPENESS GDPGROWTH

LNFDI 1.000000

LNEXCHANGE_RATE 0.415810 1.000000

TRADE_OPENESS 0.088970 0.733673 1.000000

GDPGROWTH -0.126132 -0.228319 0.262156 1.000000

B. Pairwise correlation matrix test

If we see pairwise correlation matrix test, the value of correlation

between each variable shows fewer than 80%. It means there is no

correlation between variables.

3. AUTOCORRELATION TEST

Breusch-Godfrey Serial Correlation LM Test:


Obs*R-squared 5.588056 Probability 0.061174

A. Breush-Godfrey LM test Number of fitted is 2

We can see from the result above which the number of fitted is 2, F

statistic is 2.754895 and P-value is 0.080280. We can say that at level

of significant 5% the P-value (0.080280) > critical value 5%. H0 is

accepted. So we can conclude that the model has no autocorrelation.

Breusch-Godfrey Serial Correlation LM Test:



Breush-Godfrey LM test Number of fitted is 3

We can see from the result above which the number of fitted is 3,

F statistic is 0.265812 and P-value is 0.849444. We can say that

at level of significant 5% the P-value (0.849444) > critical value

5%. H0 is accepted. So we can conclude that the model has no

autocorrelation.

4. HETEROCEDASTICITY

White Heteroskedasticity Test:



A. WHITE TEST

When we test the model by White Heteroskedasticity Test, we find that

obs*R-squared is 14.65265 and P-value is 0.100930. In this model we

choose the level of significant at 5%. From this result we can say that the

model has no heterocedasticity because the P-Value > critical value at

5%, it means Ho is accepted.

B. PARK TEST

Dependent Variable: LOG(E*E)


Date: 03/08/11 Time: 15:14




TRADE_OPENESS 3.589758 4.083052 0.879185 0.3857

C -4.019399 2.156766 -1.863623 0.0713

According to park test, we find that the value of t-statistic of

TRADE_OPENESS is 0.879185 and P-value is 0.3857. Since we choose

the level of significant at 5%, we can see the P-value > critical value 5%. It

means that Ho accepted. So there is no heterocedasticity.



Date: 03/08/11 Time: 15:16




LNEXCHANGE_RATE 0.790101 0.393334 2.008728 0.0528

C -8.005511 2.939651 -2.723286 0.0102

According to park test, we find that the value of t-statistic of

LNEXCHANGE_RATE is 2.008728 and P-value is 0.0528. since we

choose the level of significant at 5%, we can see the P-value > critical value

at 5%. It means that Ho accepted. So there is no heterocedasticity.

According to park test, we find that the value of t-statistic of GDPGROWTH is

-1.723651 and P-value is 0.0941 since we choose the level of significant at 5%,

we can see the P-value (0.941) > critical value 5%. It means that Ho accepted.

So there is no heterocedasticity.



Date: 03/08/11 Time: 15:16




GDPGROWTH -6.449413 3.741717 -1.723651 0.0941

C -0.748224 0.935873 -0.799494 0.4297

WASALAM

THANK YOU

foreign direct investment in indonesia

Education