ABSTRACT
Indonesia's economy is still slow at the beginning of the new order, prompting the government to seek the source of development finance, both from domestic and abroad. Foreign investment for Indonesia is one of the sources of development financing in the development process in Indonesia.
From various studies obtained different conclusions about the contribution of foreign investment to economic growth. Research directed to analyze the contribution of foreign investment on economic growth by using the variable FDI), foreign debt and domestic savings
From various studies obtained different conclusions about the contribution of foreign investment to economic growth. Research directed to analyze the contribution of foreign investment on economic growth by using the variable FDI), foreign debt and domestic savings
1. Introduction
In the early stages of Development I (Pelita I), Indonesia is far behind compared to some ASEAN countries. Indonesia's national income amounted to U.S. $ 80 per capita in 1971, while some ASEAN countries had reached U.S. $ 200 ± per-capita. Indonesia's economic growth rate 1960 - 1970 less than 4% per year. The level of domestic capital formation is also very low, less than 8% of GDP, and not enough to encourage economic growth (Basuki and Sulistyo, 1997: 51).
During Long-Term Development I (PJPT I), foreign debt acts as additional funds to accelerate the rate of growth and economic development of Indonesia. During that period, the repayment obligations related to foreign debt burden has not been considered for the national economy, because most of the liability for payment of debt still consists of interest payments alone. Since 1990, loan principal repayments must begin to be paid, but still inadequate domestic savings, resulting in total liabilities to be larger than new loans. In other words, since then it has a negative transfer of net capital (negative net resource transfers). Negative net transfer of capital would be financed from the tightening of domestic consumption and tightening government spending, so the ability of government finance to fund the development of infrastructure and social investments become increasingly limited (Arryman, 1999).
During Long-Term Development I (PJPT I), foreign debt acts as additional funds to accelerate the rate of growth and economic development of Indonesia. During that period, the repayment obligations related to foreign debt burden has not been considered for the national economy, because most of the liability for payment of debt still consists of interest payments alone. Since 1990, loan principal repayments must begin to be paid, but still inadequate domestic savings, resulting in total liabilities to be larger than new loans. In other words, since then it has a negative transfer of net capital (negative net resource transfers). Negative net transfer of capital would be financed from the tightening of domestic consumption and tightening government spending, so the ability of government finance to fund the development of infrastructure and social investments become increasingly limited (Arryman, 1999).
Table 1:
Transfer Netto Indonesia 1991 – 1999 (in US $ Thousand)
| YEARS | MONEY THAWED | INTEREST DEBT & DEBT PAYMENT | TRANSFER NETTO ( UYO – BCO ) |
| 1991 1992 1993 1994 1995 1996 1997 1998 1999 | 11.754.429 13.532.913 8.084.176 12.546.541 13.628.469 20.980.971 8.090.965 6.227.120 3.799.933 | 11.491.786 12.356.642 14.088.759 14.267.074 16.415.932 21.459.181 23.275.962 18.836.158 18.076.192 | 266.647 1.176.271 -6.004.583 -1.720.538 -2.787.463 478.210 -15.184.597 -12.609.038 -14.276.25 |
Sumber : World Bank, Indonesia Sustaining Growth 1996, World Bank, World debt Tables, 2000.
As is the case with foreign debt, foreign direct investment (FDI) and portfolio investment is one source of financing for development and national economic growth. Foreign investment, both direct investment and portfolio investment, aimed to replace the role of foreign debt to finance growth and development of national economy. The role of foreign investment is felt more and more important the fact that the number of Indonesia's foreign debt has increased significantly.
In the New Order period, foreign capital, especially foreign debt, in fact placed as the main source of development financing, although normatively should be placed as an additional source. The fact is what causes the hidden danger, which is inherently attached to the pattern of development that encouraged foreign capital. If the position the greater the dependence, the greater the associated risks that must be faced by the global economic system in the form of dependence on foreign capital, especially foreign debt (Rachbini, 1995).
In the New Order period, foreign capital, especially foreign debt, in fact placed as the main source of development financing, although normatively should be placed as an additional source. The fact is what causes the hidden danger, which is inherently attached to the pattern of development that encouraged foreign capital. If the position the greater the dependence, the greater the associated risks that must be faced by the global economic system in the form of dependence on foreign capital, especially foreign debt (Rachbini, 1995).
Empirical studies about the influence of foreign capital inflows on economic growth in developing countries has been widely applied. The role of foreign capital in the economy or economic growth is still debated, both on the intensity and direction. According to Michael F. Todaro (1994) there are two groups of views on foreign capital. First, a group that supports the foreign capital, they view foreign capital as filling the gap between the supply of savings, foreign exchange, government revenue, managerial skills, as well as to achieve the level of growth. Second, groups opposed to foreign capital with multi-national companies, argued that foreign capital tends to reduce the level of domestic savings and investment.
By using data from 1970 - 1986, Sritua Arif and Adi Sasono (1987: 45-46) found that the net flow of foreign capital into Indonesia, either in the form of foreign capital investment and foreign debt, net of debt repayments, interest and profits are transferred to overseas foreign parties, menunjukkjan negative cumulative value, even foreign capital is likely to affect immediate exit (crowding out) against domestic savings. Similar results were also presented by Rahman (1979), Griffin and Enos (1970), Weiskoft (1972), Chenery and Strout (1979), Hujman (1968) and Mudrajat Kuncoro (1982) which indicate that foreign investment negatively affect domestic savings in many developing countries including Indonesia. In addition, foreign capital flows can also negatively affect economic growth, although not statistically significant. These studies also found that domestic savings more important role than foreign capital, both quantitatively and statistically in determining economic growth, the study only Bangley (1978) which indicates that foreign debt to increase domestic savings, but this only happens in Latin American countries .
Analysis of time series in some countries such as Pakistan, China, Korea shows that foreign debt has contributed to economic growth in both poor and rich countries. In addition, Papanek and Dowling (1983) supports the hypothesis that foreign debt contributed significantly to economic growth as domestic savings and private capital inflows, particularly in some Asian countries. Study results are consistent with the Rana-Dowling (1988) for developing countries during 1965 to 1982 by using simultaneous equations. They conclude that foreign capital inflows contribute to economic growth, foreign direct investment contributes to growth through capital formation and increase investment efficiency, and foreign debt is greater than the contribution of foreign capital flows (Rana-Dowling 1988; Iwasaki, 1986).
In outline, there are three main sources of foreign capital in a country that adheres to an open economic system, namely foreign debt (debt), Foreign Direct Investment (Foreign Direct Investment = FDI) and portfolio investment (Pangestu, 1995). Foreign loans made by governments on a bilateral or multilateral, FDI is a foreign private investments made into a country. The form can be a branch of a multinational corporation, multinational subsidiaries, licensing, Joint Venture, while portfolio investment is an investment made through the capital market.
Benefits to be expected from a package of foreign capital (FDI) in the form of labor, transfer of technology, managerial training and access to international markets through exports.
By using data from 1970 - 1986, Sritua Arif and Adi Sasono (1987: 45-46) found that the net flow of foreign capital into Indonesia, either in the form of foreign capital investment and foreign debt, net of debt repayments, interest and profits are transferred to overseas foreign parties, menunjukkjan negative cumulative value, even foreign capital is likely to affect immediate exit (crowding out) against domestic savings. Similar results were also presented by Rahman (1979), Griffin and Enos (1970), Weiskoft (1972), Chenery and Strout (1979), Hujman (1968) and Mudrajat Kuncoro (1982) which indicate that foreign investment negatively affect domestic savings in many developing countries including Indonesia. In addition, foreign capital flows can also negatively affect economic growth, although not statistically significant. These studies also found that domestic savings more important role than foreign capital, both quantitatively and statistically in determining economic growth, the study only Bangley (1978) which indicates that foreign debt to increase domestic savings, but this only happens in Latin American countries .
Analysis of time series in some countries such as Pakistan, China, Korea shows that foreign debt has contributed to economic growth in both poor and rich countries. In addition, Papanek and Dowling (1983) supports the hypothesis that foreign debt contributed significantly to economic growth as domestic savings and private capital inflows, particularly in some Asian countries. Study results are consistent with the Rana-Dowling (1988) for developing countries during 1965 to 1982 by using simultaneous equations. They conclude that foreign capital inflows contribute to economic growth, foreign direct investment contributes to growth through capital formation and increase investment efficiency, and foreign debt is greater than the contribution of foreign capital flows (Rana-Dowling 1988; Iwasaki, 1986).
In outline, there are three main sources of foreign capital in a country that adheres to an open economic system, namely foreign debt (debt), Foreign Direct Investment (Foreign Direct Investment = FDI) and portfolio investment (Pangestu, 1995). Foreign loans made by governments on a bilateral or multilateral, FDI is a foreign private investments made into a country. The form can be a branch of a multinational corporation, multinational subsidiaries, licensing, Joint Venture, while portfolio investment is an investment made through the capital market.
Benefits to be expected from a package of foreign capital (FDI) in the form of labor, transfer of technology, managerial training and access to international markets through exports.
Data used in this study are secondary data in the form of annual time series data. The data used covers economic growth data (GDB) obtained from the International Financial statistics published by the IMF, foreign debt (AID) and domestic saving (s) of the Memorandum of State Finance, and the data on foreign direct investment (FDI) from the Economic and Financial Statistics of BankIndonesia.
The basic model used in this research is the economic growth model developed by Papanek (1973) and Mosley (1980).
The basic model used in this research is the economic growth model developed by Papanek (1973) and Mosley (1980).
GDB = f (FDI, AID, S)
explanation :
GDB = Growth domestik bruto;
FDI = Penanaman modal asing ;
AID = Utang luar negeri;
S = Tabungan domestik
Estimation methods used in this study are multiple regression Orinary Least Square (OLS), with specification of the model as follows:
GDBt = b0 + b1 FDIt + b2 AIDt + b3 St + ìt
The concept is important in the OLS assumption stasionaritas where all variables must be non stochastik. These assumptions have consequences that will not change too much over the sampling period and have a tendency leads to the average value (mean) so that a waiver of stationaritas assumptions can lead to the emergence of spurious regression (spurious regresion) indicated by the high R2 value but Watsonnya Durbin low value. To avoid spurious regression phenomenon then this research will be conducted cointegration tests. Cointegration test is a test of the model analysis of the spurious regression problem. So before using the model, must be believed that the use of time series data have a degree or the same order of integration.
Testing cointegration in this study were calculated using Cointegration Regression Durbin Watson (CRDW) and the method of Dickey-Fuller (1981: 1057-1072) After conducting regression to the basic model, it can be seen the value of Durbin Watson Statisticsnya. Figures DW is used to determine the nature kointegratif model. If the analysis model is not stationary, then the DW statistics it will be close to zero, and reject non-cointegration null hypothesis. Conversely, if the DW statistic is large, it will accept the alternative hypothesis of the nature kointegratif found on the model analysis. CRDW test is a test model that uses a single order.
Method of Dickey-Fuller (DF) is working on a higher order than CRDW, the test model can be formulated as follows:
Method of Dickey-Fuller (DF) is working on a higher order than CRDW, the test model can be formulated as follows:
D(RESt) = c - jRESt-1+y1D(RESt-1)+…+ ynD(RESt-n)+et
Null hypothesis and the basis for a decision other support used in this test is based on statistical McKinnon as a substitute for t-test.
Kointegrasi Test
By using cointegration test developed by Engle-Granger (CRDW) and Dickey - Fuller (DF), obtained the test results as follows:
Table 2:
Kointegrasi Test
| | KOINTEGRASI METHOD | |
| CRDW | DICKEY-FULLER | |
| GDB = f (FDI, AID, S) | 16.718 | -47.498 |
From the test results proved that the model away from the trend analysis of spurious regression. Thus the model analysis can proceed using the model.
Table 3:
OLS estimation results
| GDB = -6,4303584 + 7,571 AID + 0,0016238 FDI – 3,452 S (-2,1798) (2,6785) (5,6137) (-1,6976) |
| R2 0,796 DWR 1,6718 LM (F-test) 0,13737 ARCH (F-Test) 0,92356 |
For the results of regression analysis found that the foreign debt variable (AID), foreign direct investment (FDI) and domestic saving (S) has a significant relationship to the variables of economic growth. T test results in the table above shows that these three variables have t-count is greater than t-table degrees is a significant 0.025% (± 0.201). From these values we can not accept Ho (Ho is rejected) or variable external debt, foreign investment and domestic savings have an influence on economic growth.
Coefficient estimation results give a positive sign, which means that the variable of foreign debt and foreign investment has positive influence on economic growth variable. While domestic savings variable estimation results give a negative sign, which means indicate a negative relationship between domestic saving variable with economic growth.
Besides, the table shows that the estimated pass from classical regression diagnostic tests, namely HMOS kedastisitas autocorrelation and multicollinearity, autocorrelation test using the Durbin-Watson test, test homoskedastisitas ARCH test, and multicolinearity by using the LM test.
Variable coefficient of foreign debt amounted to 7.571 indicate if any increase in foreign debt by 1 unit, it will lead to increased economic growth amounted to 7.571. Coefficient value of foreign investment amounted to 0.0016238 indicate if any increase in FDI amounting to 1 unit, it will cause an increase in FDI amounting to 0.0016238. While the value of domestic saving variable coefficient of -3.452 indicates if there is any increase in domestic savings by 1 unit will cause a decline in economic growth amounted to 3.452. F test showed that the calculated F value (14.308) is greater than F-table is 3.29, which means variables simultaneously AID, FDI and S significantly to economic growth.
Variable coefficient of foreign debt amounted to 7.571 indicate if any increase in foreign debt by 1 unit, it will lead to increased economic growth amounted to 7.571. Coefficient value of foreign investment amounted to 0.0016238 indicate if any increase in FDI amounting to 1 unit, it will cause an increase in FDI amounting to 0.0016238. While the value of domestic saving variable coefficient of -3.452 indicates if there is any increase in domestic savings by 1 unit will cause a decline in economic growth amounted to 3.452. F test showed that the calculated F value (14.308) is greater than F-table is 3.29, which means variables simultaneously AID, FDI and S significantly to economic growth.
Tests on the presence or absence of heterocedasticity performed with use traditional ARCH test, ARCH test model obtained heterocedasticity shy away from properties on the significance level of 92% or about homocedasticity Ho received the 92% level.
Detection of the presence or absence of multicollinearity performed using the LM test. From the correlation LM test shows that models shy away from properties on the level of multicollinearity signidikan by 71.8% or about non-multicollinearity Ho received the 71.8% level.
Testing for autocorrelation done by looking at the DW-statistic, that is by comparing the DW-test of each model with the value obtained from the use of item 4 with the reduced DW-table: if the DW test <(4 - DW the table) then the model used does not occur autocorrelation, and if the DW test> (4 - Dw table) then occurs autocorrelation. (Value 1.671853 DW DW count table: 0.59). From the results of these calculations showed that the model of autocorrelation avoided.
POLICY IMPLICATIONS
To enhance the contribution of foreign debt, domestic savings and foreign investment to Indonesia's economic growth is as follows:
a. Efforts withdrawal of foreign investment to Indonesia need to be improved. Therefore it is necessary to simplifying the process of permits and the integration of inter-departmental coordination through cutting the bureaucracy, and transparent application of tax incentives in the form of tax holiday that is still new for many years. Besides, foreign investment has the potential to contribute significantly to economic growth not only through technology transfer and improvements such as tightening management with the development of quality and productivity of human resources, to support applied technology, that technology transfer plans can be implemented well.
b. For optimal allocation of foreign aid, it is necessary to consider a reorientation of projects financed with foreign debt and the role of good supervision by the competent institution through its representatives need to be improved.
c. To reduce the country's dependence on sources of development financing from abroad, it is necessary that the mobilization of domestic funds. to that required intensification of domestic savings through:
· The promotion of tax collection (of wealth and luxury goods), which is progressive and based on ability to pay.
· The need for maturation function of banking and non banking financial institutions to be able to create a climate conducive to investment growth.
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