Foreign Investment, Human Development, and Regional Disparities in Indonesia: A Provincial Comparative Analysis

Authors

  • Maria Imakulata Pongge Development Economics, Faculty of Economics and Business, Widya Mandira Catholic University, Kupang, Indonesia
  • Emiliana Martuti Lawalu Development Economics, Faculty of Economics and Business, Widya Mandira Catholic University, Kupang, Indonesia
  • Marianus Masri Development Economics, Faculty of Economics and Business, Widya Mandira Catholic University, Kupang, Indonesia
  • Maksimilianus Paulus Jati Gamatara Development Economics, Faculty of Economics and Business, Widya Mandira Catholic University, Kupang, Indonesia

DOI:

https://doi.org/10.18196/jerss.v9i2.27522

Keywords:

foreign direct investment, human development index, panel cointegration, regional disparity, Indonesia

Abstract

This study investigates the complex bidirectional relationship between Foreign Direct Investment (FDI) and the Human Development Index (HDI) in Indonesian provinces, with Gross Regional Domestic Product (GRDP), Education, and Health as mediating factors. Addressing interprovincial development inequality, this research uniquely accounts for socioeconomic heterogeneity by classifying provinces into fast, medium, and slow economic growth categories. Using panel data from 2010 to 2023 for 34 provinces, the study applies robust econometric methods, including panel unit root, cointegration, Fully Modified Ordinary Least Squares (FMOLS) for long-run estimation, and Granger causality tests. Findings reveal consistent long-run cointegration among all variables across categories. FMOLS results generally show that FDI, GRDP, Education, and Health positively and significantly influence HDI. However, notable anomalies include a negative impact of Health on HDI in fast-growing provinces and Education in slow-growing provinces. Granger causality tests demonstrate varied dynamics: bidirectional FDI-HDI relationships at the national level and in medium-growth provinces, but unidirectional causality from FDI to HDI in fast and slow-growth provinces. These results underscore the critical need for adaptive, regionally specific investment and human development policies to address persistent disparities and optimize FDI's contribution to equitable development across Indonesia.

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Published

2025-08-31

How to Cite

Pongge, M. I., Lawalu, E. M., Masri, M., & Gamatara, M. P. J. (2025). Foreign Investment, Human Development, and Regional Disparities in Indonesia: A Provincial Comparative Analysis. Journal of Economics Research and Social Sciences, 9(2), 231–253. https://doi.org/10.18196/jerss.v9i2.27522

Issue

Vol. 9 No. 2: August 2025

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Articles

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Copyright (c) 2025 Maria Imakulata Pongge, Emiliana Martuti Lawalu, Marianus Masri, Maksimilianus Paulus Jati Gamatara

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