The Impact of Foreign Direct Investment and Financial Sector Development on Economic Growth in Indonesia

Abstract

The research analysis aims to determine whether Foreign Direct Investment (FDI) and the Development of the Financial Sector have a significant impact on the short-term and long-term economic growth of Indonesia. The data analysis technique used is the quantitative method with the ARDL approach. Secondary data collection is derived from BI (Bank Indonesia), BPS (Badan Pusat Statistik), and OJK (Otoritas Jasa Keuangan) for the period from the first quarter of 2013 to the second quarter of 2022, totaling 40 data points.The research results indicate that in the short term, financial sector development has a negative and significant impact on Indonesia's economic growth, while foreign direct investment has a positive and significant effect on Indonesia's economic growth. And the result in the long term, financial sector development has a negative and significant impact on Indonesia's economic growth, but on foreign direct investment, has a negative but not significant effect on Indonesia's economic growth. Key strategies to enhance the role of FDI and financial development on economic growth in developing and least developed Indonesia also discussed in the paper.