IS INFLOW FOREIGN DIRECT INVESTMENT EFFECTIVE TO DECREASE UNEMPLOYMENT? EVIDENCE FROM INDONESIA OMNIBUS LAW

• Main Author: Fariq Muhammad, Aldriza
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/70343
• Institution: Institut Teknologi Bandung

The unemployment rate has steadily increased in many countries, especially in developing countries. This issue is generally driven by employment creation cannot keep up with the increase in population. Economic inequalities and the pandemic also further increase the Unemployment Rate (UR). The source of this cause is the shortage of cash which prevent the government from developing new industries and employment creation. Even though fiscal and monetary policies can help lower unemployment, this strategy consumes resources that are limited for a nation. Foreign Direct Investment (FDI) become one of the alternative solutions for nations with limited resources since the establishment of a foreign company in a nation creates a new workforce. Indonesia develop a law called the Omnibus Law which boosts investment by using FDI if the Domestic Direct Investment (DDI) is insufficient. This bill aims to promote job growth and lower unemployment in Indonesia by boosting competitiveness and productivity. This research tries the analyze the relationship between FDI and the unemployment rate and how effective this strategy is in reducing the unemployment rate. The variables that were considered in this study are DDI, FDI, Gross Domestic Product (GDP), and growth of UR. Vector Error Correction Model (VECM) analysis is used as the analytical method to analyze the variables, The research found that FDI had a positive effect on UR which means that foreign investment harms the labor market. The positive results show that the higher investment, the higher the unemployment rate. According to VECM analysis results, FDI affects UR significantly both in the short-term and long-term. FDI t-1 and FDI t-2 affect the Unemployment rate which is shown by the significance level at 4.09909 and 2.98796.