Jurnal Ekonomi dan Bisnis .
Volume 4.
Nomor 2 .
age 113-.
e-ISSN 2961Oe8169.
Sinta 4 accredited The Role of Foreign Investment and Domestic Investment in Indonesia's Gross Domestic Product (GDP) David Kaluge1.
Titin Juniarti2*.
Sudarnice3 1,2Faculty of Economics and Business.
Brawijaya University.
Malang.
Indonesia 3Faculty of Social Sciences and Economics.
Kolaka.
Indonesia
ARTICLE INFORMATION
A B S T R A C T
Received: July 13, 2025 Revised: August 26, 2025 Accepted: October 25, 2025 This research is important to provide a clear picture of Indonesia's economic dynamics and to support better decision-making in economic policy.
Increased domestic investment is not enough to drive overall economic growth, and foreign investment is also not in line with the increase in domestic investment due to a mismatch between domestic investment and expected economic growth The purpose of this study is to analyze the role of foreign investment and domestic investment on Indonesia's Gross Domestic Product (GDP).
This study uses time series data from 2014-2023.
The results of this study indicate that Foreign Direct Investment (FDI) does not have a significant positive effect on Indonesia's Gross Domestic Product (GDP).
Although it shows a positive direction, the effect is not significant, so increasing foreign investment is still needed to drive the growth of Indonesia's Gross Domestic Product (GDP).
Domestic Direct Investment (DDI) has a significant positive effect on Indonesia's Gross Domestic Product (GDP).
This indicates that PMDN significantly contributes to GDP growth in Indonesia, with a stronger role than foreign investment.
Simultaneously, foreign investment and domestic investment had a positive and significant impact on Indonesia's Gross Domestic Product (GDP) from 2014 to 2023.
This indicates that although domestic investment had a partial negative impact, both simultaneously still made a positive contribution to economic DOI: 10.
57151/jeko.
KEYWORDS
domestic investment.
foreign investment.
domestic product
CORRESPONDING AUTHOR
Name : Titin Juniarti Address: Kolaka E-mail : titinjuniarti@student.
INTRODUCTION
Indonesia, as the world's fourth-most populous country and endowed with abundant natural resources, has significant investment potential.
Despite its rich natural resources, the challenge lies in suboptimal human resource management.
However, current global economic dynamics present complex challenges.
Indonesia's economic growth following the COVID-19 pandemic has shown a positive trend, but it continues to face pressure from global inflation, increases in the Fed's benchmark interest rate, and geopolitical uncertainty impacting international capital flows (IMF, 2.
addition, the uncertainty of the global supply chain due to the Russia-Ukraine war increases energy and food costs, which in turn affects the attractiveness of investment in developing countries, including Indonesia (UNCTAD, 2.
This situation demonstrates that the Indonesian economy is not only influenced by domestic factors but is also highly vulnerable to external shocks.
To achieve a just and prosperous society in accordance with Pancasila and the 1945 Constitution, sustainable and democratic economic development is necessary.
Increasing investment, both domestic and international, is crucial for transforming economic potential into real economic strength (Polii et al.
Investment in a country can come from Domestic Direct Investment or Foreign Direct Investment, both of which have the potential to boost the economy.
Investment can be direct, such as purchasing assets or establishing new businesses, or indirect, such as in the money and capital FDI can serve as additional capital, but its impact tends to be short-term if it only meets needs that DDI cannot meet.
However.
FDI can also bring innovation and stimulate economic growth.
Nevertheless, the Indonesian government prioritizes DDI to manage strategic sectors and improve provincial economies, thereby improving the national economy (Kambono & Marpaung, 2.
(Hapsari & Prakoso, 2.
Theoretically, the relationship between investment FDI and DDI and economic growth can be explained through the Harrod Domar Growth Model which emphasizes the role of capital accumulation in increasing national output (Domar, 1.
In the context of developing countries.
Open acces: https://ejournal.
id/index.
php/jeko Page 114 Endogenous Growth Theory Romer, .
adds the dimension that investment not only increases the capital stock, but also brings technology, innovation, and increased productivity.
Another relevant theory is the Eclectic Paradigm (OLI Framewor.
by (Dunning, 1.
, which explains that foreign investment enters a country due to advantages in ownership, location, and internalization.
This is relevant to understanding why FDI has a different impact than DDI on Indonesia's GDP.
According to Jamil & Hayati, .
Foreign direct investment (FDI) is a strategic source of foreign funding to support national development, particularly in the development of the real sector, which is expected to create jobs.
The important role of FDI in Indonesia's economic development is also reflected in Law No.
25 of 2007 concerning Investment, which serves as the legal basis for investment activities in Indonesia.
According to Sucipto & Puspitasari, .
To boost the economy, new investment is needed as an additional capital stock.
Each additional capital stock will increase total output according to the capital-output ratio.
Increased investment encourages growth in the private sector and households in resource allocation, which ultimately increases GDP.
Thus, foreign investment has a positive relationship with GDP.
Domestic Investment is an investment activity carried out by domestic investors in the territory of the Republic of Indonesia, using capital from within the country.
DDI is part of the wealth of the Indonesian people, including rights and assets owned by the state and the private sector.
Domestic Direct Investment (DDI) is the key to national economic growth, reflecting effective demand and creating productive efficiency for the future.
Investment in capital goods not only increases production but also creates jobs, (Tamba et al.
, 2.
According to Tamba et al.
, .
Investment in the national accounts or GDP structure is defined as the formation of domestic fixed capital.
Investment is an important component of aggregate demand and crucial for sustainable economic development.
Indicators of success include national income per capita and stable GDP growth.
Economic development involves production across all sectors, requiring the construction of factories, buildings, and the provision of skilled labor and supporting facilities that require investment funds.
According to Nuritasi, .
states that developing countries' economies require investment to improve economic performance, one of which is through Domestic Investment sourced domestically.
DDI functions as capital formation, supports economic growth, increases production, and creates jobs, thus positively impacting the country's GDP.
According to Tamba et al.
, .
explains that Gross Domestic Product (GDP) is the total value of goods and services produced by production units within a country during one year.
GDP
reflects the market value of all final goods and services produced, and the higher a country's GDP, the better its economic performance, making it an indicator of economic growth.
Economic activity in a country involves production by citizens, state-owned enterprises, and the private sector.
Gross Domestic Product (GDP) is the total value of goods and services produced in a country, both by citizens and by foreign nationals working there.
GDP reflects the country's economic capacity and growth, (Tamba et al.
, 2.
International trade poses risks to Indonesia's economic stability, particularly due to a trade deficit that threatens domestic industry and creates dependence on imports.
This can lead to industrial bankruptcy, job losses, and a decline in national income.
Open trade policies also increase the risk of external shocks affecting public welfare, as occurred during the 2009 US economic crisis, which negatively impacted Indonesia's economic growth, (Riyad, 2.
Domestic Investment (FI) plays a crucial role in economic growth by increasing the supply of capital goods, such as new machinery and This contributes to increased economic output and, in turn, increases GDP, (Putri, 2.
Jurnal Ekonomi dan Bisnis .
Volume 4.
Nomor 2 Table 1.
Development of GDP and Investment in Indonesia 2014-2023
Year
GDP
DDI
FDI
Source: BPS Data, 2024
METHOD
This study uses a quantitative research type with a descriptive analytical approach.
This study aims to analyze the influence of Foreign Direct Investment (FDI) and Domestic Direct Investment (DDI) on Indonesia's Gross Domestic Product (GDP) in the period 2014-2023.
The data used in this study are secondary data in the form of time series data that includes information related to GDP.
DDI, and FDI from 2014 to 2023.
The data was obtained from the Indonesian Central Bureau of Statistics (BPS).
The population in this study is all annual data on GDP.
DDI, and FDI recorded from 2014 to The sample used is available and relevant annual data, which includes data for each variable from a predetermined period.
Data were collected through a documentation method using existing data sources, namely secondary data from the Central Bureau of Statistics (BPS) and official government reports related to GDP.
DDI, and FDI.
Data analysis in this study uses the multiple linear regression This analysis is used to determine the partial and simultaneous effects of the independent variables (PMA and PMDN) on the dependent variable (GDP).
This study uses SPSS as a tool to perform linear regression calculations.
The hypotheses tested in this study are as follows:
Hypothesis 1: Foreign Direct Investment (FDI) has a partial positive and significant effect on Indonesia's GDP.
Hypothesis 2: Domestic Direct Investment (DDI) has a partial positive and significant effect on Indonesia's GDP.
Hypothesis 3: FI and DI simultaneously have a positive and significant effect on Indonesia's GDP.
To test the hypothesis, a multiple linear regression test was conducted using SPSS.
This test was conducted to determine whether there was a significant effect of foreign investment (FI) and domestic direct investment on GDP, either partially or simultaneously.
After conducting the regression test, a t-test .
or partial effect.
and an F-test .
or simultaneous effect.
were conducted to determine Jurnal Ekonomi dan Bisnis .
Volume 4.
Nomor 2 Page 115 From 2014 to 2023.
Indonesia's Gross Domestic Product (GDP) showed a general upward Domestic Direct Investment experienced significant growth during this period.
Meanwhile.
Foreign Direct Investment also showed stable growth, although not as fast as DI growth.
This reflects the investment dynamics in Indonesia, where DI is the main driver of economic growth, while FDI contributes more moderately.
Most previous studies emphasize the positive influence of PMA on Indonesia's economic growth (Kambono & Marpaung, 2.
(Hapsari & Prakoso, 2.
However, the results of this study show a different finding, namely a significant negative effect of DDI partially, although simultaneously it still contributes positively to GDP.
This research gap lies in the lack of empirical studies comparing the simultaneous role of FDI and DDI in the post-COVID-19 pandemic period .
, when there was a drastic change in global investment flows (OECD, 2.
Thus, this study contributes to enriching the literature by providing the latest empirical evidence regarding the differences in the partial and simultaneous effects of FDI and DDI on Indonesia's GDP, and emphasizes the need for a balanced investment policy strategy between foreign and domestic capital.
whether each independent variable had a significant effect on the dependent variable (GDP).
The significance level used was 0.
05, (Kurniawan & Puspitaningtyas, 2.
RESULTS & DISCUSSION
Multiple Regression Test Results This research was analysed using multiple linear regression.
This test was conducted using SPSS.
This test aims to determine the influence of the independent and dependent variables.
The results of the test are shown in Table 2 below:
Table 2.
Multiple Regression Test Results Model Standar Coeffici Unstandarized Coefficients Std.
Error
23,86
-,031
,016
-1,915
PMDN
,008
Source: processed data, 2025
,001
1,144
10,756
(Contan.
PMA
Sig
5% Confidence Interval
for Bound
Lower
Bound
Uppear
Bound
,000
763707,73
9325391,097
,097
-,068
,000
,000
Beta
Correlations Zeroorder Parti
Part
,007
,723
-,586
-,119
,010
,979
,971
,671
It is known that the regression equation is as follows: GDP = 8484549 (-0.
Ia 0,008Ib e PMA=FDI.
PMDN=DDI
Based on Table 2, foreign investment has a significance value .
097, which is greater 05, so the hypothesis is rejected and there is no significant positive effect on GDP, although it shows a positive direction.
Increased foreign investment is needed to increase GDP.
Meanwhile, domestic investment has a sig value of 0.
000, less than 0.
05, so the hypothesis is accepted and shows a significant positive effect on GDP growth in Indonesia.
However, when viewed from the simultaneous influence, it is explained that foreign investment and domestic investment have a significance value .
000, which is less than 0.
05, so the hypothesis is accepted, meaning that FDI and PMDN simultaneously have a significant positive effect on GDP (Table .
Table 3.
Simultaneous Test Results (ANOVA) Model Sum of Squares Mean Square Sig.
Regression 1,20E 13
6,23E 12
125,091
,000
Residual 3,50E 11
4,98E 10
1,30E 13
Total Source: processed data, 2025 The research results show that Domestic Investment has a positive and significant impact on Indonesia's Gross Domestic Product (GDP).
From 2014 to 2023.
PMDN has increased annually, and GDP has also continued to rise.
The post-monetary crisis situation has kept investment regulations stable, resulting in domestic investors' interest in continuing to invest.
Each increase in PMDN contributes to an increase in GDP, meaning that domestic investment drives domestic economic activity such as increased production of goods and services, expansion of economic sectors, and job Therefore, increasing PMDN has a positive impact if labor is not available.
This result contradicts research Jufrida et al.
, .
which found a positive and significant relationship.
Domestic Investment continues to be increased comprehensively by improving workforce quality and optimizing resources to significantly impact GDP and economic growth.
The governmentAos role in creating a conducive investment climate is crucial in maintaining the growth of Domestic Investment (PMDN).
Policies that support business ease, tax incentives, infrastructure development, and simplified licensing systems can further enhance investor confidence.
Strengthening coordination Jurnal Ekonomi dan Bisnis .
Volume 4.
Nomor 2 Page 116 The Effect of Domestic Investment on GDP between central and regional governments, as well as ensuring legal certainty, will also attract more domestic investors.
Consequently, a sustainable increase in PMDN will not only boost GDP but also promote inclusive and long-term economic development in Indonesia.
The Impact of Foreign Investment on GDP The results of the study indicate that Foreign Direct Investment (FDI) has a positive but insignificant impact on Indonesia's Gross Domestic Product (GDP).
Increased FDI is expected to boost GDP, but after the COVID-19 pandemic.
FDI experienced an increase until 2023, while GDP continued to increase since 2014.
In 2018.
FDI decreased due to difficulties in the global economic situation that reduced foreign investor interest in investing in Indonesia.
The results of the study indicate that Foreign Direct Investment (FDI) has a positive but insignificant effect on Indonesia's Gross Domestic Product (GDP), in line with theoretical expectations but not statistical expectations.
This study contradicts Kambono & Marpaung, .
which states that FI has a positive and significant influence, but is in line with (Tamba et al.
, 2.
(Jufrida et al.
This explains the positive, though not significant, impact.
Therefore, the government needs to implement a comprehensive strategy to promote FDI to make its impact on economic growth and GDP more significant.
This finding suggests that while FDI contributes to capital accumulation and technology transfer, its impact on GDP may be limited by factors such as low absorption capacity, bureaucratic barriers, and weak linkages between foreign and domestic industries.
To enhance the effectiveness of FDI.
Indonesia should focus on improving infrastructure, ensuring policy consistency, and increasing human resource competencies to support high-value investment sectors.
Strengthening institutional quality and promoting sectors with high multiplier effects can also help maximize the long-term benefits of FDI for sustainable economic growth.
Simultaneous Influence of FI and DI on GDP
CONCLUSION
The results of the study indicate that Foreign Direct Investment (FDI) has a positive, but not statistically significant, effect on GDP.
This indicates that while foreign investment can drive economic growth, its contribution was not strong enough during the study period, necessitating efforts to improve the quality and quantity of FDI to have a greater impact on GDP.
Conversely.
Domestic Direct Investment (DDI) was shown to have a positive and significant effect on GDP growth, indicating that DDI plays a stronger and more consistent role in supporting national economic growth.
This finding underscores the importance of strengthening the domestic investment base as a primary driver of development.
Furthermore, simultaneous analysis revealed that FDI and DDI together significantly contributed to GDP growth.
Therefore, it can be concluded that although FDI is partially Jurnal Ekonomi dan Bisnis .
Volume 4.
Nomor 2 Page 117 The results of the study indicate that at a significance level of 5 percent, with a statistical F probability or ANOVA of 0.
000, p-value < .
000 <0.
This means that there is a significant simultaneous influence of foreign investment and domestic investment variables on GDP.
The results of this study are consistent with previous research by Agustina et al.
, .
which explains that foreign investment and domestic investment have a positive and significant influence on economic This simultaneous influence indicates that both Foreign Direct Investment (FDI) and Domestic Investment (PMDN) play complementary roles in driving IndonesiaAos economic FDI often brings advanced technology, management expertise, and access to international markets, while PMDN strengthens local industries and creates a stable production base.
The synergy between these two types of investment contributes to overall economic expansion, enhances industrial productivity, and increases national competitiveness in the global market.
Furthermore, the government must ensure that the benefits of investment are evenly distributed across sectors and regions to achieve inclusive growth.
Encouraging collaboration between foreign and domestic investors, supported by consistent economic policies and a transparent regulatory framework, can maximize the impact on GDP.
Additionally, efforts to improve infrastructure, digital transformation, and sustainable investment practices will reinforce the positive contribution of both FDI and PMDN to IndonesiaAos long-term economic development.
REFERENCE