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 , Thailand , China , and many other countries shows that the presence of FDI gave a lot of positive things to economy of the host country . For the case of Indonesia , the most prooving evidence is during the reign of New Order goverment . Indonesian economy may not be able to bounce back from the devastation created by the Old Order goverment and could experience an average economic growth of 7 % per year during the period if not because FDI. Several Literature theory also gives a strong argument that there is a positive correlation between FDI and economic growth in the recipient country .
There are four fundamental problems that often lead for researcher to do studies about the relationship with FDI inflows of a country. 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 wha...
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... with the FDI. According to Salehi, " FDI inflows will lead to an increase in exports and also can increase the income of a country in the form of foreign exchange. Because of that, country will always wants to increase the number of imports. The results of the study found that the developing countries are able to import in the high levels, because it has a high export earnings. Country such as Kenya, Korea, South Africa, and Singapore are the example for that. Based on that, it can be said that the exports and imports also have a relationship and they are complement to each other.
Rubio et al (1998) in his research titled Foreign Direct Investment and Regional grwoth: an Analysis of the Spanish Case stated that FDI (Foreign Direct Investment) acts as a vehicle for technology transfer, because of that FDI is highly correlated with the the growth of a country.
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