Fdi Of Foreign Investment Law Essay

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FDI Institutional Change in Indonesia
The strong growth of total global FDI has increased the need of FDI as a source of external financing to contribute in host country’s economic development. This condition encourages many countries to perform institutional reform in order to attract larger shares of FDI flows. From the perspective of investors, they are more concern on the host country’s institutional quality when determining their investment location (Ali et al 2010). Therefore, institutions are essential determinant of host country’s locational advantage to entice FDI (Bevan et al 2004).
Capital account liberalization process in Indonesia started under Soeharto’s New Order presidency which was remarked by the introduction of Foreign Investment Law in 1967. Prior the issuance of this law, under President Soekarno regime (1945-1967), the government initiated self-sufficiency policy and Indonesia was administered as a socialist economy. In Soekarno era, investors from western countries were strictly restricted to invest in Indonesia (Fitriandi et al 2014, p.81). As a consequence, Indonesia was not an attractive place for foreign investors (Lindblad 2015, p.221). The absence of rule of law concerning foreign direct investment in the period of 1945-1967 has made investment environment in Indonesia became uncertain and had high business risks which were unfavourable for businesses. The business parties were became unconfident and faced uncertain and unpredictable of
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