Nexus of Foreign Direct Investment, Domestic Investment, and Manufacturing Industry Value Added in Indonesia

Horas Djulius, Choi Wongyu, J. Juanim, Raeni Dwi Santy


The development of the manufacturing industry is one of the standards for Indonesia's development as a developing country. Domestic investment (DI) and foreign direct investment (FDI) can meet investment needs in this industry. This paper focuses on the nexus of the two types of investment in meeting investment needs in the manufacturing industry and the influence of those investments in relatively capital-intensive and relatively labor-intensive industrial groups. The aim is to evaluate the role of both types of investments and their benefits to the economy not only to the value-added but also in transferring technology and knowledge spillover from FDI to DI. The panel data regression was first to do to observe the differences between groups of relatively capital-intensive industrial samples and relatively labor-intensive industrial samples. The comparison results show that there are significant differences between the two industry groups so that it can be regressed on these two sample types, apart from the regression of the overall sample. The overall sample found that both FDI and DI influence the value-added of the manufacturing industry. 


foreign direct investment; domestic direct investment; manufacturing value-added


Abdul, K. (2010). Determinants of Foreign Direct Investment in Developing Countries : A Comparative Analysis. The Journal of Applied Economic Research, 4(4), 369–404.

Agosin, M. R., & Machado, R. (2005). Foreign Investment in Developing Countries: Does it Crowd in Domestic Investment? Oxford Development Studies, 33(2), 149–162.

Akpan, E. S., & Eweke, G. O. (2017). Foreign Direct Investment and Industrial Sector Performance: Assessing the Long-Run Implication on Economic Growth in Nigeria. Journal of Mathematical Finance, 7(2), 391–411.

Alfaro, L., & Charlton, A. (2007). Growth and the Quality of Foreign Direct Investment. In The Industrial Policy Revolution I (pp. 162–204).

Amighini, A. A., Mcmillan, M., & Sanfilippo, M. (2015). FDI as a Catalyst for Domestic Investment in Developing Economies: New Evidence from Industry-level Data. Società Italiana degli Economisti.

Azarhoushang, B., Masoumy, P., & Wu, J. P. (2015). FDI Effects on Industrial Value-added: Evidence from Chinese and Thai Government Policies. ETSG Paris Working Paper.

Chandran, V. G. R., & Krishnan, G. (2008). Foreign Direct Investment and Manufacturing Growth : The Malaysian Experience. International Business Research, 1(3), 83–90.

Djulius, H. (2017). Foreign Direct Investment and Technology Transfer: Knowledge Spillover in the Manufacturing Sector in Indonesia. Global Business Review, 18(1), 57–70.

Fatima, S. T. (2016). Productivity spillovers from Foreign Direct Investment: Evidence from Turkish Micro-level Data. The Journal of International Trade & Economic Development, 25(3), 291–324.

Ilyas, M., Ahmad, H. K., Afzal, M., & Mahmood, T. (2010). Determinants of Manufacturing Value added in Pakistan: an Application of Bounds Testing Approach to Cointegration. Pakistan Economic and Social Review, 48(2), 209–224.

Lauter, M., & Moreaub, F. (2012). Domestic Investment and FDI in Developing Countries : The Missing Link. Journal Of Economic Development, 37(3), 1–23.

Lean, Hooi Hooi and Tan, B. W. (2011). Linkages between Foreign Direct Investment, Domestic Investment and Economic Growth in Malaysia. Journal of Economic Cooperation and Development, 32(4), 75–96.

Morrissey, O., & Udomkerdmongkol, M. (2012). Governance, Private Investment and Foreign Direct Investment in Developing Countries. World Development, 40(3), 437–445.

Sjöholm, F. (2016). Foreign Direct Investment and Value Added in Indonesia. IFN Working Paper No. 1141, 2016.

Tambunan, T. T. H. (2010). The Indonesian Experience with Two Big Economic Crises. Modern Economy, 01(03), 156–167.

United Nations Conference on Trande and Development [UNCTAD]. (2013). Strengthening Linkages Between Domestic and Foreign Direct Investment in Africa. UNCTAD Working Paper TD/B/EX(57)/3. retrieved from:

Uwubanmwen, A. E., & Ogiemudia, O. A. (2016). Foreign Direct Investment and Economic Growth : Evidence from Nigeria. International Journal of Business and Social Science, 7(3), 89–103.

Wang, M. (2010). Foreign Direct Investment and Domestic Investment in The Host Country: Evidence from Panel Study. Applied Economics, 42(29), 3711–3721.

Full Text: PDF

DOI: 10.15408/sjie.v8i1.9520


  • There are currently no refbacks.