The Cointegration Analysis of the Relationships between Foreign Direct Investment Inflow and Gross Domestic Product in Indonesia

Abstract

This research aims to analyze a long run relationship between Foreign Direct Investment (FDI) inflow and Gross Domestic Product (GDP) in Indonesian economic since 1981 until 2012. The analysis method used is Cointegration Test by using Johansen and Granger Causality Test Model. The result suggests that both variables do not have the same trend in Indonesian economy since 1981-2012. The GDP has increased more slowly, although FDI flow has fluctuated progress in Indonesia. In the long run, there isn’t any relationship between FDI flow and GDP in Indonesia. But in the short run, GDP causes FDI flow in Indonesia during 1981-2012.

Keywords: Foreign Direct Investment, Gross Domestic Product, Cointegration Method, Granger Causality