The Impact of Economic Integration on Indonesia Foreign Direct Investment (FDI): A Panel Gravity Model Approach

The purpose of this study is to analyze the impact of regional economic integration on Indonesia FDI inflows over the period 2005 to 2013. Analysis method conducted by augmented gravity model of Indonesia FDI, based on panel data. The empirical results show that GDP of the home country and Indonesia have a positive impact on Indonesian FDI. Distance and real interest rate of home country have a negative impact on Indonesia FDI. Economic integration of European Union (EU) and Indonesia's cooperation with Japan in ASEAN-Japan Comprehensive Economic Patnership (AJCEP) have created impact of investment creation on Indonesian FDI, Economic integration of ASEAN has created impact of investment diversion on Indonesian FDI. This result implies that there was a competition among ASEAN countries in attracting FDI.