The Role of Governance, GDP, and Inflation in Attracting Foreign Investment: Empirical Evidence in ASEAN

Arif Rahman Kuswara; Bima Cinintya Pratama; Wida Purwidianti; Ani Kusbandiyah

Authors

Arif Rahman Kuswara Faculty of Economics and Business, Universitas Muhammadiyah Purwokerto, Indonesia
Bima Cinintya Pratama Faculty of Economics and Business, Universitas Muhammadiyah Purwokerto, Indonesia
Wida Purwidianti Faculty of Economics and Business, Universitas Muhammadiyah Purwokerto, Indonesia
Ani Kusbandiyah Faculty of Economics and Business, Universitas Muhammadiyah Purwokerto, Indonesia

Keywords:

Rule of law, government effectivity, regulatory quality, inflation, GDP, FDI

Abstract

This study aims to examine the factors of governmental and non-governmental governance that influence FDI in ASEAN countries, with a research sample from 2005 to 2023. The factors of governmental governance are represented by the rule of law, government effectiveness, and regulatory quality. This study uses quantitative research. Quantitative data was obtained using secondary data in the form of Governance Data documentation from the Worldwide Governance Indicators (WGI) from the World Bank. FDI Data is in the form of FDI flow data from World Development Indicators (WDI), UNCTAD, and national investment agencies (BKPM for Indonesia). The analysis method used is multiple linear regression using STATA17. The results of the study show that regulatory quality and inflation have a positive effect on FDI. Meanwhile, the factors of rule of law, government effectiveness, and GDP have no effect on FDI. The contribution of this study is to serve as a practical guide for the government and policymakers in designing strategic programs for the quality of government regulations and inflation stability policies in order to attract FDI to Indonesia.

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