Foreign Direct Investment Essay

POSITIVE IMPACT OF INTERNATIONAL TRADE, FOREIGN DIRECT INVESTMENT FOR INDONESIA

I. INTRODUCTION
Indonesia always received a large amount of FDI. This FDI came from several developed countries such as Japan, United States of America and the European Union. FDI inflow has confirmed the activity of trade between countries through development of export (export expansion). In addition , FDI can also replace trade by become import substitution, especially if FDI that brought in aims to develop the domestic market or as to avoid trade impediments such as tariffs. FDI impact for a country is is always in a favorable state of the the country especially in terms of development and economic growth. Many empirical evidence in South Korea , Malaysia

First is the factors that determine FDI inflows in the country in a well developed country or in the developing country. Second, the relationship between FDI and country trade activity (exports and imports). Third, the contribution of FDI to economic growth. Last is what is the appropriate role by the government to attract FDI flows. to explain these four questions. Majority of the previous studies are using aggregate data which is the result of using regression analysis method. This study will answer for the question number two, which is about the relationship between FDI and International trade of Indonesia in 2000 until

The reason is to take advantage of the exchange goods and the services produced in the field of specialization of a country which has the comparative advantage in each of the country itself. This specialization will be improving the living standards of a country. While foreign direct investment is considered as the main element for the industrial development and economic growth of a hostcountry. According to Rosa Portela Forte , " Foreign direct investment (FDI) influences the host country’s economic growth through the transfer of new technologies, formation of human resources, integration in global markets, increase of competition, and firms’ development and reorganization". In a previous study on the economic activity between countries and the international trade, there are two aspects of possibility of a chain between FDI with the trade. First FDI is a substitute or a complement for the trade. Second FDI become the cause to the trade or vice versa. Mundell (1957) said that trading between countries and the movement factor of the nation expenditures nation, which including FDI act as a substituie. In macroeconomic, the aggregate level of FDI will affect the economy of the recipient country FDI in many cases, including the production (output), employment, level of unemployment, income, prices, exports and imports, economic growth, balance sheet of payments, and general