Doing business in... Indonesia

Indonesia's long stability of over three decades came to a sudden end after the regional economic crisis of 1997–1998. The economic crisis not only shattered the Indonesian economy but also resulted in political turmoil. The national leadership has changed three times over the last five years. In such conditions, the confidence of foreign investors is very low. The present government has initiated a number of steps to restore political stability and economic recovery. This article provides useful information on the complex business environment, aimed to help foreign investors to develop a good understanding on key background knowledge for being successful in Indonesia. It reviews Indonesian historical development, political structure and climate, regional relations, and economy and foreign trade. Indonesia's infrastructure, legal framework, sociocultural setup, as well as market structure and potential, are also analyzed.

FDI, trade and growth, a causal link?

. FDI, Trade and Growth, a Causal Link? (RP0710) Prof Nigel DRIFFIELD Dr Rakesh BISSOONDEEAL Mayang Pramadhani Non-technical Summary This paper explores the relationship between imports, exports, foreign direct investment and growth. For some time there has been a good deal of debate whether trade and foreign direct investment) FDI are substitutes and complements, with the existing literature generating some rather contradictory findings. We show, for Indonesia that inward FDI and both imports and exports are complementary, and further that FDI causes an increase in trade. This is of particular interest for a country such as Indonesia, that has attracted a high proportion of export-orientated inward investment. This, theoretically at least is associated with an increase in imports, in the form of capital goods and components, but a reduction in imports. We show that the previous literature that fails to find such a relationship does so because both trade and FDI are associated with growth, and previous work ignores these growth effects when seeking to isolate the relationship between trade and FDI.