Final report methods of economic analysis

[Type here] TON DUC THANG UNIVERSITY FACULTY OF FINANCE AND BANKING FINAL REPORT METHODS OF ECONOMIC ANALYSIS Investigate the relationship between FDI and economic growth in the INDONESIA Lecturer Bùi[.]

TON DUC THANG UNIVERSITY FACULTY OF FINANCE AND BANKING FINAL REPORT METHODS OF ECONOMIC ANALYSIS INVESTIGATE THE RELATIONSHIP BETWEEN FDI AND ECONOMIC GROWTH  IN THE INDONESIA Lecturer: Bùi Duy Tùng Nguyễn Duy Sửu Team members: Fullname ID Student Kiều Lê Trúc Linh B20H0102 Lê Xuân Mai B20H0533 Phạm Ngọc Như Ý B20H0269 [Type here] Table of Contents ABSTRACT .3 I INTRODUCE: .3 II OVERVIEW OF THE FDI AND GDP OF THE INDONESIA REASON TO CHOOSE THE TOPIC THE LAYOUT OF THE REFERENCES PAPER OVERVIEW OF THEORY AND EXPERIMENTAL RESEARCH III OVERVIEW OF THEORY THE RELATIONSHIP BETWEEN FDI AND ECONOMIC GROWTH .8 EXPERIMENTAL RESEARCH DATA .12 RESEACH DATA 12 IV RESEARCH METHODS 17 IV RESEARCH RESULTS 19 DESCRIPTIVE STATISTIC 19 REGRESSION RESULTS 19 REGRESSION STATISTICS 19 VI CONCLUSION 22 REFERENCES .23 METHODS OF ECONOMIC ANALYSIS - INDONESIA [Type here] METHODS OF ECONOMIC ANALYSIS - INDONESIA [Type here] ABSTRACT This paper uses the Regresion Model to look at the relationship between foreign direct investment and GDP growth in Indonesia The findings imply a connection between Indonesia's GDP growth and foreign direct investment Using data from records spanning the years 2000 to 2020, this report empirically investigates the impact of foreign direct investment on the financial boom within Indonesia Foreign direct investment (FDI) extensively appeared as a critical driving force of the financial boom The purpose for that is that due to the fact funding is a dynamic factor of GDP, FDI is the unbiased variable, and GDP boom is the dependent GDP is directly impacted favorably by FDI, and an increase in FDI rates of 1% will result in a rise in growth rates of 0.282524073% The ultimate result demonstrates that FDI is a key tool for achieving economic growth, but only when sufficient absorptive capacity has been generated through increased private investment within Indonesia The private sector in Indonesia has the ability to develop the business since FDI growth in Indonesia is rising and there is long-term projection in the relationship of the financial drivers I INTRODUCE: OVERVIEW OF THE FDI AND GDP OF THE INDONESIA Foreign direct investment (FDI) extensively appeared as a critical driving force of the financial boom The purpose for that is that due to the fact funding is a dynamic factor of GDP, FDI is the unbiased variable, and GDP boom is the dependent One of the main responsibilities of governments is to enhance the country's development and welfare Foreign direct investment (FDI) has been explored as a significant determinant for growth and development during the last two decades In recent years, Asian countries have garnered a large portion of the world's foreign direct investment (FDI) Indonesia attracts FDI worth only around percent of its GDP, which compares unfavorably to other economies in the region, such as Malaysia (over percent), Vietnam (over percent) and Cambodia (over 12 percent) Asa result Indonesia loses an important source of technology and knowledge transfer and external funding for the METHODS OF ECONOMIC ANALYSIS - INDONESIA [Type here] economy Furthermore, the composition of FDI has shifted from export-oriented sectors to natural resources sectors and production for the domestic market This is a problem as export-oriented manufacturing FDI is associated with rapid labor productivity growth, higher average wages, larger introduction of new products, and higher investment rates Additionally, more robust FDI inflows would be a more stable channel to finance the current account deficit than volatile short-term portfolio capital flows One of the major factors contributing to Indonesia’s relative inability to attract FDI is a restrictive FDI policy environment For instance, based on the 2007 Investment Law and various sectoral laws, Indonesia’s negative investment list (DNI) stipulates different types of restrictions on investments, particularly foreign equity limits The DNI applies at least one investment restriction to 813 business sectors, equivalent to around 28 percent of all economic sectors Examples include onshore oil and gas upstream production installation, power plants with capacities below one megawatt, and supermarkets smaller than 1,200 square meters In addition, the DNI reserves many agricultural, industrial, and services subsectors exclusively for MSMEs, effectively barring foreign investors, which cannot operate MSMEs in Indonesia Investment restrictions deter entry of foreign firms, particularly export-oriented ones, which are crucial to link the Indonesian economy with Global Value Chains (GVCs) and increase its competitiveness Indonesia has long believed that foreign private investment was economically beneficial to host country In 1967, when president Soeharto took power from president Soekarno, he directly changed the orientation of the economy from centralized economy toward liberal economy Despite the initial liberal action policies FDI showed significant growth only after 1986 Policies toward FDI could be broken into four periods The first liberalization policies were 1967 to 1973, which aimed to correct the economic policies of the previous government The second policies were 1974 to 1986, which categorized protectionist policies These policies have implemented in response to increased nationalist reactions to FDI The third period was marked by the second liberalization policies, from 1986 to 1997, as an effect of the fall in oil price The fall in oil prices forced the government to restructure the economy, away from its dependence on oil revenues The fourth period was the third liberalization policies, after the 1997 crisis, which was the continuation of the second liberalization policies 1986 -1997 METHODS OF ECONOMIC ANALYSIS - INDONESIA [Type here] Since the onset of 1997 currency crisis, Indonesia has given more attention to FDI This was because the government desires to foster economic recovery by way of attracting FDI In the short run FDI was expected to solve lack of capital, absorb unemployment, extend the market price systems and the private sector and mitigate the external debt problem in Indonesia According to Salvatore (2007), Capital flows from incoming and outgoing capital from a certain country is one of the economic activities that is primary important for international trading Indonesia as one of the expanded growth put FDI as one of the most important engine of power to increase the expected growth of economy According to Makki and Somwaru (2004), Foreign Direct Investment and trade are substantial catalysts for economic growth and enhancement both in developing countries and developed countries The FDI in Indonesia has been believed that the greater the flows and the impact will be positive to the economic growth In this case, the FDI has power to influence the GDP growth FDI in Indonesia becomes a very significant factor influencing the industry and labor potential work Since 2000s, the government implied the policies that can boost the investment in Indonesia Indonesia has a world success story in the economic success stories However, the country still has long path of the development Indonesia has been success recovery from the Asian crisis and leads the country to become of the highest growth rate in the world Annual GDP growth rate in real term of Indonesia is around % in the past eight to nine years, 1999 to 2015 GDP is used by the economists to compare the prosperity of the nations Real GDP is used to measure growth or decline of a country’s economy The effect of inflation and deflation has been counted in Real GDP Real GDP becomes one of the best indicators to measure economic growth If the GDP has a positive growth rate, it indicates that the economy of one nation is high and if the GDP has a negative growth rate, it indicates that the economy of one nation is in recession period Export is a crucial factor that can provide the impetus for economic growth in developing countries such as Indonesia The export led growth strategy becomes an important alternative to the inward development strategy Recent studies have shown METHODS OF ECONOMIC ANALYSIS - INDONESIA [Type here] that there is a positive and significant long-term relationship between investment and export with GDP The relationship of investment and export is negative Vector Error correction model analysis for GDP indicates an error correction coefficient which is negative to the value of GDP in short term than long term Exports and investments have positive coefficient It means that the variable of the investment and exports is over the long-term equilibrium values in short term The impact of investment and export on GDP are positive in short term Domestic production effect on investment is positive but negative on export Exports have a negative effect on investment in the short term and investment can cause increase in exports Fluctuations in the GDP because of it changes from its values and fluctuations in investments influenced by GDP The importance result of this study will give important information for the policy makers and the scholars to further research on the FDI, export and GDP in specific variables and sub discussion REASON TO CHOOSE THE TOPIC Foreign direct investment (FDI) has received the attention of a vast literature that focuses on both determinants and consequences Two important theories throw light on the locational determinants of FDI Factor endowments-based trade theory argues that FDI is drawn to countries with lower wages and more abundant natural resources The new trade theory suggests that economies of scale are a driving force of FDI and agglomeration effects often play a crucial role Against such a background, this paper plans to investigate the empirical relationship between FDI and GDP growth in Indonesia Is FDI economically beneficial to Indonesian economic since long time ago (How much contribution of FDI to GDP growth?) Before we undertake econometric analyses on the impact of FDI to GDP growth, we first examine factors that determine FDI in Indonesia This study uses historical and quantitative research methods The historical overview of FDI policies and trend of investment looks at such important as various government policies and institution designed to foster private investment The statistical analysis section METHODS OF ECONOMIC ANALYSIS - INDONESIA [Type here] comprises two models on FDI: a model of determinants of FDI and a model of impact FDI on GDP Growth The empirical work in this study is based on time series data Recent advancements in growth theory have been mostly theoretical, while significant progress in growth empirics has also been accomplished In recent research, the study of the drivers of economic growth has proved difficult A growing number of studies have found that, while the recipient country's absorptive capacity influences the volume and type of FDI inflow, institutional factors such as the person receiving economy's trade regime, legislation, and political stability, as well as scale factors such as the balance of payment constraints and the size of the domestic market for goods and services produced through FDI, influence the impact of FDI on economic growth and development There has been very little if any, country-specific empirical research into the factors of economic growth in the Indonesia 3.THE LAYOUT OF THE REFERENCES PAPER Section 1:  Abstract  The background of research  Introduction Section 2: Talk about the theoretical basis for explaining financial indicators including GDP, and FDI.  Section 3: Describes the sources of data and data employed in the analyses, reports Section 4:  Methodological title  Sections on research design Section 5: Discusses the empirical consequences of the software of an monetary increase version to Indonesia annual time-collection facts spanning the length 2000 to 2020 Section 6: METHODS OF ECONOMIC ANALYSIS - INDONESIA [Type here]  Conclusions  Recommendations are made for further research Section 7: References II OVERVIEW OF THEORY AND EXPERIMENTAL RESEARCH OVERVIEW OF THEORY Foreign direct investment (FDI) is an ownership stake in a foreign company or project made by an investor, company, or government from another country Generally, the term is used to describe a business decision to acquire a substantial stake in a foreign business or to buy it outright to expand operations to a new region The term is usually not used to describe a stock investment in a foreign company alone FDI is a key element in international economic integration because it creates stable and long-lasting links between economies “FDI, a form of cross-border investment, in which a direct investor acquires part or all of the permanent ownership of a business in another country This ownership must be at least 10% of the total shares of the business” Curently, foreign direct investment is not new issue for understanding the macroeconomic situation FDI can affect almost economic and socio-cultural sector And, for developing countries, the rate of capital accumulation is often low, so FDI is considered an important source of capital to supplement domestic investment for economic growth Not all countries use FDI capital effectively, which leads to some countries attracting quite large FDI inflows, increasing investment capital for the economy, but the contribution of this capital to growth is low This shows that the assessment of the impact of FDI on economic growth is more concerned, especially for developing countries, including the Indonesia THE RELATIONSHIP BETWEEN FDI AND ECONOMIC GROWTH Currently, there are many studies on the impact of FDI on growth with many different research methods and samples Studies have shown the rather important role of FDI in economic growth, the relationship between FDI and the Solow model is representative of the neoclassical growth model used to determine the growth in the economy The METHODS OF ECONOMIC ANALYSIS - INDONESIA [Type here] model assumes that scientific and technological progress and the larbor force are exogenous for FDI to increase domestic income levels and has no long-term effect on economic growth Romer relied on his model to observe and argue that some types of knowledge are non-competitive, meaning that they cannot be used up like ordinary goods and services.It is impossible for companies to invest in research and development because they not capture the full benefits of innovation Thus, technological change in developing countries is determined by investment FDI supports long-term economic development through technology transfer and capital accumulation, but mainly through advanced technology In addition, FDI has a lasting effect on economic growth in host countries through technology transfer, capital accumulation and human capital growth Therefore, the polarization between the two regions is strongly increased by FDI inflows and accelerated industrialization in the countries, making the old sector become more positive in the economy In recent years the growth of FDI has served as a catalyst for investment in developing countries FDI brings the most needed capital, improved managerial skills, modern marketing techniques, access to modern technology and global links Since 1980 both developed and developing countries have been trying to attract FDI through providing incentives by adopting greater deregulation policies and reliance on market forces in the economies Motive of earning high profit is the main contributing factor that induces firms to invest abroad particularly in those countries where labour cost is relatively low Literature reveals that the foreign firms initially face high investment cost particularly in those countries whose market and institutional conditions are not familiar to them However, economic theories suggest number of explanatory variables that explain why foreign firms invest abroad in the presence of these disadvantages These theories are identified as market imperfection hypothesis, internationalization theory and Ownership, Location and Internalization (OLI) theory as an eclectic approach Market imperfection hypothesis postulates that FDI is the direct result of an imperfect global market environment EXPERIMENTAL RESEARCH Indonesia was hit very hard by the East Asian financial crisis with GDP contracting by 13 percent in 1998 Many sub-sectors of economy had decreased dramatically from their high-growth trajectories except for farm food crops, non-food crops, fishery, oil and gas mining, electricity and water, and communications sectors The worst hit METHODS OF ECONOMIC ANALYSIS - INDONESIA 10 [Type here] sectors were construction, transport, hotels & restaurants, services, and finance (particularly hard hit by the general banking collapse) Economic growth in Indonesia was accompanied by significant structural change over the period 1986-2005 Since the beginning of the mid-1980s, the importance of the agriculture sector and mining sector has declined Over the period 1986-1990, the shares of agriculture and mining sector have averaged 20.03 percent per year and 14.08 percent per year, respectively Meanwhile, by the period 2000-2005, the shares of these sectors averaged 14.85 percent per year and 9.83 percent per year, respectively The share of manufacturing sector had increased from an average of 19.96 percent per year over the period 1986-1990 to 27.82 percent per year in the period 2000-2005 Moreover, transport and communication sectors, service sectors, and banking and finance had all seen concurrent rapid growth and development Những cải cách sách quan trọng năm 1980 mang đến thay đổi đột biến dòng vốn FDI Indonesia hưởng lợi từ bùng nổ đầu tư nước Nhật Bản sau Hiệp ước Plaza 1985, đồng Yên tăng giá đẩy doanh nghiệp Nhật Bản đầu tư nước Đơng Nam Á Sau đó, doanh nghiệp từ nước công nghiệp bắt đầu di chuyển sở sản xuất đến địa điểm chi phí thấp khu vực châu Á Một lượng lớn doanh nghiệp FDI định hướng xuất tập trung vào khu vực sản xuất thâm dụng lao động dệt may mặc Các khủng hoảng tài châu Á vào năm 1997 1998 giáng địn chí mạng làm sụt giảm dòng vốn FDI vào Indonesia Kể từ năm 2000, kinh tế Indonesia phục hồi tương đối chậm so với nước châu Á bị ảnh hưởng khủng hoảng khác, đặc biệt dòng vốn FDI xuất Với ổn định kinh tế vĩ mơ trị phục hồi, niềm tin nhà đầu tư bắt đầu quay trở lại FDI đóng góp 1,9% GDP Indonesia 2010 Tổng vốn đầu tư cộng dồn tính đến năm 2012 lên tới 19,9 tỷ USD Trong hầu hết giai đoạn phục hồi gần đây, dòng vốn FDI thiên dự án sản xuất tương đối nhỏ nhằm mục tiêu theo đuổi lợi nhuận nhanh chóng, khơng phải dự án lớn mạo hiểm với thời gian thai nghén tương đối dài sở hạ tầng khai thác mỏ, nơi thực cần vốn đầu tư Như thể hình 12, khu vực sản xuất đứng đầu danh sách dự án FDI năm 2011 đạt 2,3 tỷ USD Tiếp đến khu vực giao thông, kho bãi truyền thông, đạt mức 0,7 tỷ USD Thương mại bán buôn bán lẻ, kinh doanh bất động sản khai thác mỏ khai thác đá đạt khoảng 0,5 tỷ USD METHODS OF ECONOMIC ANALYSIS - INDONESIA 11 [Type here] Đóng góp FDI vào tổng nguồn vốn cố định Indonesia tương đối nhỏ so với quốc gia ASEAN khác, FDI tạo công ăn việc làm, tăng suất cải thiện khả tiếp cận thị trường toàn cầu Từ 2006 - 2008, dự án đầu tư nước tạo khoảng 645.000 việc làm, chiếm khoảng 7% tổng số việc làm tăng thêm Indonesia Foreign direct investment (FDI) has been empirically studied numerous times in the past The literature shows that the nature of relationship between FDI and economic growth is far from univocal On the surface, it seems that FDI should have a positive influence over economic growth for many reasons Several of these reasons include technology spillover, increased total investment and development of local human capital or knowledge spillover However, much of the empirical research did not come to this conclusion In order to explain such results, scholars included other relevant factors that might support the proclaimed benefits of FDI Examples of these supporting factors are human capital, financial market development and trade openness Human capital is often presented by researchers as the key factor in strengthening or actualizing the positive influence of FDI on economic growth Many researchers suggested and empirically found that human capital is an important variable in the relationship between FDI and economic growth Another variable that is commonly discussed is the condition of local financial markets or the strength of the local financial institutions Alfaro, Chanda, Kalemli-Ozcan and Sayek (2004) empirically studied the role of financial markets in bridging FDI and economic growth The results showed that FDI affects economic growth positively only when host countries have well-developed financial markets This result is similar to those in other articles that suggest FDI alone does not positively affect economic growth unless certain prerequisites are satisfied by a host country It is also interesting to see that most empirical studies made use of cross-country data spanning over a long period of time These panel data are robust, and they incorporate a large number of observations However, the results are at best generalized for the whole world, developing countries or a specific region such as Latin America or the Middle East Although larger data sets produce better empirical research, the results may be not directly applicable to particular countries As mentioned by Li and Liu (2005) and Blomström and Kokko (1996), the impact of FDI varies across countries Therefore, it is not recommended to directly apply the results of a cross-country analysis to any country included in that dataset Therefore, instead of performing a METHODS OF ECONOMIC ANALYSIS - INDONESIA 12 [Type here] cross-country analysis, this paper is going to specifically study the relationship of FDI and economic growth in Indonesia III DATA 1.RESEACH DATA The variables used in this study include Foreign Direct Investment (FDI) and Gross Domestic Product (GDP), usesd annual data from the World Bank online database (World Development Indicators) The data were taken for 21 years in Indonesia from 2000 to 2020 GDP growth ( annual %) – Indonesia Source: World Bank Country Accounts data and OECD Country Accounts data files Foreign direct investment, net capital inflows (%GDP) – Indonesia Sources: International Monetary Fund, International Financial Statistics and Balance of Payments database, World Bank, International Debt Statistics, and World Bank and OECD GDP estimates METHODS OF ECONOMIC ANALYSIS - INDONESIA 13 [Type here] Year FDI (%) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 -2,8 -1,9 0,1 -0,3 0,7 2,9 1,3 1,6 1,8 0,9 2,3 2,3 2,6 2,8 2,3 0,5 1,8 2,2 1,8 GDP (%) 4,9 3,8 4,5 4,8 5,7 5,5 6,3 4,6 6,2 6,2 5,6 4,9 5,1 5,2 -2,1 METHODS OF ECONOMIC ANALYSIS - INDONESIA 14 [Type here] Table 1: Statistics of Indonesia’s FDi and GDP from 2000 to 2020 The objective of this study is to examine the relationship of foreign direct investment, export and GDP growth rate in Indonesia Net FDI value and annual GDP aggregated from the World Bank for the period 20002020, the value of FDI's contribution to total social development capital and the support structure of the FDI sector compared to other regions through donations and rewards when investing in other industries and fields Social services (education, health care, transportation, etc.) have helped to open up FDI inflows into Indonesia Therefore, the period 2000 - 2004 was a period when FDI inflows into Indonesia were not strong The increase in FDI inflows peaked in 2005 with FDI inflows of 2.9% In the period 2006 - 2008, FDI slowed down due to the global economic recession but remained stable and FDI inflows decreased rapidly The contribution of FDI to total fixed capital in Indonesia is relatively small compared to other ASEAN countries, but FDI has created jobs, increased productivity and improved access to global markets From 2006 to 2008, new foreign investment projects created about 645,000 jobs, accounting for about 7% of Indonesia's total job growth FDI projects accounted for almost half of the jobs created in manufacturing, although new jobs created during this period were heavily concentrated in the service sector According to OECD (2010), foreign enterprises in Indonesia are generally assessed to be more efficient than domestic enterprises They tend to have high levels of investment, higher wages and better access to global markets From 2010 to 2015, FDI inflows increased again, but still lower than 2005 In 2016, FDI inflows decreased sharply with the index of only 0.5% In the next two years, FDI continued to increase with exact figures of 2% and 1.8% respectively Between 2017 and 2020, FDI inflows increased and decreased between 1.8% and 2.2% METHODS OF ECONOMIC ANALYSIS - INDONESIA 15 [Type here] In 2020, due to the negative impact of the Covid-19 epidemic, FDI attraction decreased to 1.8% The Indonesian government considers FDI as a potential resource for economic development as well as poverty alleviation (World Bank) Foreign direct investment flows into Indonesia change with changes in policy Although there will be occasional pauses The peak in FDI attraction shown in Figure corresponds to a period when Indonesian policy was more open to FDI attraction Since 2000, the Indonesian economy has recovered relatively slowly compared to other countries in Asia affected by the crisis Especially in terms of FDI and export flows, with the gradual recovery of macroeconomics and political stability, investors' confidence has begun to return again FDI is the main driver of export-led growth in Indonesia The increase in FDI is part of a larger FDI expansion into other emerging markets and is not exclusive to Indonesia in fact If we compare FDI inflows to Indonesia with other parts of Asia, it is very small compared to other countries During most of the recent recovery, FDI inflows have favored relatively small manufacturing projects in the pursuit of quick returns, rather than large and risky projects with a long gestation period relatively long periods such as infrastructure and mining, where capital investment is really needed Picture 1: FDI of Indonesia METHODS OF ECONOMIC ANALYSIS - INDONESIA 16 [Type here] The contribution of FDI to total fixed capital in Indonesia is relatively small compared to other ASEAN countries, but FDI has created jobs, increased productivity and improved access to global markets Some 645,000 jobs have been created, accounting for about 7% of Indonesia's total employment growth FDI projects account for almost half of the jobs created in the manufacturing sector Although the new jobs created during this period were mainly concentrated in the service sector, according to OECD (2010), foreign enterprises in Indonesia are generally judged to be more efficient than domestic ones They tend to have a high level of investment higher wages and better access to global markets FDI flowing into Indonesia comes from many countries with the largest investors In descending order: Singapore, Japan, Luxembourg and the United Kingdom Out of 29 billion FDI in 2013, the mining and processing industry continues to be identified as the sector that attracts the most FDI even though Indonesia has just issued a policy to restrict the export of raw minerals According to official statistics, the mining sector accounted for the largest proportion of FDI in 2012 with 17.3% Notably, disbursement rate among committed FDI projects in 2012 was quite high, reaching about 80% Major multinational corporations investing in Indonesia recently come from France, Japan, Taiwan-China Picture 2: GDP of indonesia METHODS OF ECONOMIC ANALYSIS - INDONESIA 17 [Type here] IV RESEARCH METHODS The studies evaluating the impact of FDI on economic growth in the world are quite rich and diverse and have drawn many inconsistent conclusions about the impact of FDI on the economy Laura Alfaro (2003) used panel regression to investigate the relationship between FDI and labor productivity in different sectors of 47 countries over the period 1891-1999 In conclusion, FDI has a positive impact on the productivity of processing enterprises Kokko's study shows a positive relationship between FDI and economic growth in Mexico The positive effect of FDI on growth was also tested in Kumar and Pradhan's study using mixed data for 107 developing countries for the period 1980-1999 Specifically, the research model has the following from the Linear Regression Model: yi = a + bxi + errori  x: is the independent variable - is the variable used to explain the variation of the dependent variable  y: is the value of the dependent variable - the variable whose change is explained by the independent variable  a: is the intercept, the predicted value of y when x is  b: is the regression coefficient or the scaling factor In classical statistics, b is equivalent to the slope of the best-fit line of a linear regression model – how much we expect y to change as x increases  error: is the error of the estimate or how much variation there is in our estimate of the regression coefficient  i: symbol for the i-th observation in the population METHODS OF ECONOMIC ANALYSIS - INDONESIA 18 [Type here] In regression and in statistical modeling in general, we want to model the relationship between an output variable or a response and one or more input variables or factors The output variable can also be called the dependent variable, the outcome variable, or simply the Y variable, and the input variable can be called the explanatory, effect, predictor, or X variable The model includes two variables:  x: FDI (%)  y: GDP (%) GDP is the dependent variable and FDI is the independent variable GDPi = a + bFDIi + errori Correlation between variables: if total foreign direct investment in Indonesia decreases, fewer projects will be financed, so output increases and GDP may decrease accordingly Total amount of FDI is proportional to GDP The regression method can estimate how GDP changes as FDI changes We can use regression and the results of the regression model to determine which variables influence the response or help explain the response This is called the explanatory model METHODS OF ECONOMIC ANALYSIS - INDONESIA 19 [Type here] IV RESEARCH RESULTS The study investigates the connection between foreign direct investment and the growth rate of the GDP per capita The dataset spans the years 2000 through 2020 and is annual The World Bank statistics Database is the source of all data series Calculation results from my team's use of the Microsoft Excel program 1.DESCRIPTIVE STATISTIC Variables Number of observations GDP 20 FDI 20 Mean Standard deviation 4,91428571 1,73040045 1,28095238 1,48883144 Maximum Minimum 6,3 -2,1 2,9 -2,8 The statistical table describes two variables GDP and FDI with 20 years In here, we can see the GDP growth has an average value of 4,91428571 and foreign direct investment has an average value of 1,28095238 2.REGRESSION RESULTS Regression Statistics SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error 0.189160462 0.035781681 -0.017786004 1.791068833 METHODS OF ECONOMIC ANALYSIS - INDONESIA 20