This seminar will examine factors affecting the inflows and outflows of foreign direct investment for Indonesia. The analysis examines the determinants of both horizontal and vertical foreign direct investment, focusing on the role of institutional measures.

A model is applied to a panel dataset that covers 42 of Indonesia’s foreign direct investment partners from 2004 to 2012. The findings include that horizontal and vertical foreign direct investment co-exist in the bilateral aggregate data, but horizontal FDI appears to be dominant. Institutional factors, particularly corruption, are important in affecting bilateral foreign direct investment flows.