Authors: Sukma Indra

Year: 2019, Volume 29 No. 1
Pages: 178-190


The research aimed to analyse the competence of foreign direct investment in explaining the inequality of income distribution in Indonesia. It used error correction model analysis to analyse time series data within 1991-2017 which collected from the database of World Development Indicators (WDI) of World Bank and Indonesian Central Agency on Statistics. The estimation of ECM indicated that co-efficient of error was significant to be put in short-run correction to attain long-run equality, which was – 0,9286 years. The findings have shown that FDI had short-run effect negatively and significantly, the economic growth had short-run or long-run effects negatively and positively, the minimum wage had long-run effect negatively and significantly, while inflation and trade openness did not have significantly long-run or short-run effects on the inequality of income distribution in Indonesia. Therefore, a consistent policy is necessary to attract foreign investment in the hope of raising the domestic wage rate to decrease the rate of income inequality in Indonesia.

Keywords: Foreign direct investment, economic growth, income inequality, export, Error Correlation Model
JEL Classification: E5, O1, J2