IRJEMS International Research Journal of Economics and Management Studies

Published by Eternal Scientific Publications

ISSN: 2583 – 5238 / Volume 3 Issue 7 July 2024 / Pg. No: 312-320
Paper Id: IRJEMS-V3I7P135, Doi: 10.56472/25835238/IRJEMS-V3I7P135

Original Article
Analysis of Factors Affecting the Entry of Foreign Direct
Investment into Indonesia (Case Study of Three Industrial
Sectors in Indonesia)
1
Tracy Patricia Nindry Abigail Rolnmuch, 2Yuhana Astuti
1,2School of Economics and Business, Telkom University, Bandung, Indonesia.

Received Date: 15 June 2024 Revised Date: 30 June 2024 Accepted Date: 05 July 2024 Published Date: 17 July 2024

Abstract: The realization of FDI and DDI from January to December 2022 reached Rp1,207.2 trillion. The largest FDI
investment realization by sector was led by the Basic Metal, Metal Goods, Non-Machinery, and Equipment Industry sector,
followed by the Mining sector and the Electricity, Gas, and Water sector. The uneven amount of FDI investment realization in
each industry and the impact of the COVID-19 pandemic in Indonesia are the main issues addressed in this study. This study
aims to identify the factors that influence the entry of FDI into industries in Indonesia and measure the extent of these factors'
influence on the entry of FDI. In this study, classical assumption tests and hypothesis tests are conducted to investigate
whether the research model is robust enough to provide strategic options nationally. Moreover, this study uses the ordinary
least squares (OLS) method. The results show that the electricity factor does not influence FDI inflows in the three industries.
The Human Development Index (HDI) factor has a significant negative effect on FDI in the Mining Industry and a significant
positive effect on FDI in the Basic Metal, Metal Goods, Non-Machinery, and Equipment Industries. However, HDI does not
influence FDI in the Electricity, Gas, and Water Industries in Indonesia.

Keywords: Electricity, Foreign Direct Investment, Human Development Index.

I. INTRODUCTION
Indonesia has abundant natural resources to a large population, making it a great potential as a promising market for
foreign investors [1]. The natural resources owned by Indonesia have the potential to attract some investors from local to
foreign countries with the intention of developing their business [2], [3]. A stable and evenly distributed electricity supply is
one of the important pillars of industrial growth and development in Indonesia. There has been an increase in electricity
consumption in the PLN (Perusahaan Listrik Negara) network in Indonesia in the last 10 years, from 174 TWh in 2012 to 255
TWh in 2021, showing that electricity has the highest consumption growth compared to other types of energy [4]. Currently,
fossil fuel power plants dominate national electricity production with a composition of between 66% and 80% [5].
Significant social progress is demonstrated by the increase in Indonesia’s Human Development Index (HDI), which can
be seen from the escalation in the dimensions of education, health, and public welfare [6]. The HDI in Indonesia has
consistently experienced a high surge [6], but in the last four years, there has been a slowing trend in the HDI, especially from
2019 to 2020, where there were restrictions on activities during the wider spread of COVID-19. Along with the pandemic, HDI
has improved and started to grow again in 2021 at 72.29 points.
The realization of Foreign Direct Investment (FDI) and Domestic Direct Investment (DDI) in the period January to
December 2022 reached Rp1,207.2 trillion [7]. Indonesia has managed to attract significant foreign investment in recent years,
particularly in the metals, mining, and energy (electricity, gas, and water) industries. The largest FDI realization by sector was
led by the Mining sector, followed by the Basic Metals, Metal Goods, Non-Machinery, and Equipment sector, and the
Electricity, Gas, and Water sector. The amount of FDI revenues from sectors in Indonesia has not been evenly distributed,
which indicates the need for focused policies and strategies to support industries that are not fully developed to create a
balance of Indonesia’s economic growth across industries. The Mining Industry is the industry with the highest FDI revenues
compared to other sectors from 2012-2021. This sector recorded more than US$35 billion in FDI revenues. The second and
third sectors that receive the largest FDI are the Basic Metal, Metal Goods, Non-Machinery and Equipment Industry and the
Electricity, Gas, and Water Industry. Certain regions still dominate the current distribution of FDI in Indonesia. In the January-
September period of 2023, Java Island dominated the FDI realization with an inflow value of US$263,279.6 million [8]. Java is
followed by Sulawesi, Sumatra, Maluku and Papua, Kalimantan, then Bali and Nusa Tenggara.

This is an open access article under the CC BY-NC-ND license (https://creativecommons.org/licenses/by-nc-nd/2.0/)

 Tracy Patricia Nindry Abigail Rolnmuch & Yuhana Astuti / IRJEMS, 3(7), 312-320, 2024

The Mining Industry in Indonesia faces a multitude of complex challenges that impact the sustainability and growth of
the sector. Environmental impacts not only damage ecosystems but also provoke resistance from local communities directly
affected by mining activities. Commodity price fluctuations pose economic challenges for the mining sector, influencing
government investment policies. The Indonesia Investment Coordinating Board strives to create a stable investment climate
and attract investors by offering fiscal and non-fiscal incentives for mining investments [9]. Meanwhile, the Basic Metal, Metal
Goods, Non-Machinery, and Equipment Industries serve as the foundation for the manufacturing and construction sectors, with
basic metal products being essential raw materials for various industries, including automotive, electronics, and household
appliances. A primary challenge faced by Indonesia's basic metal industry is the volatility of global raw material prices. Prices
for raw materials such as metal ores and minerals often fluctuate significantly due to external factors such as global market
conditions, international trade policies, and changes in demand from major countries. This price instability can disrupt long-
term financial planning and investment, as well as hinder innovation and the development of new products. The Electricity,
Gas, and Water Industry is essential in daily life and significantly impacts the national economy. Infrastructure projects, such
as the construction of gas and water-based power plants and the development of distribution networks, are major attractions for
investors. Foreign investment significantly contributes to large projects like power plants and gas infrastructure. For instance,
in 2021, foreign investment in the electricity sector exceeded US$2,938,583 thousand, encompassing various projects in steam
power, gas, and renewable energy. Despite government efforts to create a supportive investment environment, investors still
face regulatory hurdles. Complicated and time-consuming permitting processes are major obstacles, and policy instability and
a lack of coordination among government agencies can create uncertainty for investors.
Based on the explanation in the background above, changes in mining commodity prices, fluctuations in metal
materials, and regulatory barriers are some of the main problems in the three industries previously mentioned. Then, the
uneven amount of FDI realization in each industry and the COVID-19 pandemic in Indonesia have made FDI realizations
inconsistent. On the other hand, foreign investors' interest is shaped by the availability of electricity infrastructure and the
caliber of the workforce. A key factor is the government's strategy to entice FDI by ensuring that electrical energy is readily
available to both the public and the industrial sector. Skilled and trained human resources are one of the key factors in
determining the success of a country. Similarly, FDI is affected by robust economic activity and sufficient infrastructure [10].
The explanation that has been described previously gets the intend which is to find out and determine how much influence
from the factors affect the entry of FDI in the Mining Industry, Basic Metal Industry, Metal Goods, Non-Machinery, and
Equipment Industry, and Electricity, Gas and Water Industry in Indonesia.
II. LITERATURE REVIEW
Foreign direct investment (FDI) is a crucial means for a country to achieve development and has become the main
foreign funding source for many developing nations, outpacing government funding for development, private loans, portfolio
equity, and remittances [11]. Indonesia has the potential for high FDI inflows; one of the driving factors is the availability of
natural resources. The availability of natural resources makes Indonesia superior in the wealth of production factors so that it
can attract investors to acquire various manufacturing businesses in Indonesia [10]. FDI fosters economic growth by enabling
capital formation, technology transfer, and enhanced productivity. This relates to the assets created by investors to run foreign
companies, including establishing ownership and controlling interests in those companies [12]. This explanation can be drawn
that FDI is a form of direct investment by domestic companies in foreign countries that includes purchasing shares establishing
and operating factories. FDI often brings innovation, such as new technology, management, and more efficient business
practices, into the country [13]. Although some of the benefits of this FDI flow back to foreign investors, with this investment,
the economy’s capital stock can increase, which means more wages and productivity [14]. With direct investments from
foreign companies into the host country, including establishing factories for products such as computers, smartphones, or
software like applications and operating systems, these companies will increase imports of information technology-based
goods in large quantities to meet their production needs [15].
Electric power is a type of secondary energy that is generated, transmitted, and distributed for various purposes.
However, electricity used for communication, electronics, or signaling is not included. Electric power must always be
improved to spread evenly due to its crucial and strategic role in achieving national development objectives. This nexus
between economic growth and electricity suggests that as economic activities requiring electricity increase, the construction of
additional power plants will also rise to meet the expanding energy demand [16]. Electrical energy significantly contributes to
the global energy reserve, playing a key role in achieving sustainable economic growth and development [17]. A study by
Nepal and Paija stated that a shortage in the supply of electrical energy can indirectly hinder future economic growth [18].
The Human Development Index (HDI) is a benchmark introduced by the United Nations Development Programme
(UNDP) to measure human development (HD) from a multidimensional perspective [19]. HDI is a composite measure that
evaluates the average achievement across three fundamental dimensions of human development: health and longevity,

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knowledge, and a decent standard of living [20]. HDI was introduced in the first Human Development Report (HDR) in 1990.
UNDP uses four elements in human development, namely productivity, equity, sustainability, and empowerment. The
calculation of HDI involves several calculation components, including the life expectancy of babies at birth, estimated years of
schooling, average years of schooling, and gross national income (GNI) per capita. Life expectancy from birth serves as an
indicator of lifespan and healthy living conditions. The average years of schooling and expected years of schooling indicators
reflect the duration of education for individuals aged 25 and older. The third indicator of GNP per capita reflects the per capita
expenditure of a country [10]. A study from Indrajaya and Iskamto states that HDI and economic growth significantly and
negatively affect poverty reduction in Indonesia [21].
This research uses four variables. The independent variables are electricity and HDI, while the dependent variable is
FDI. This research has a period from 2012 to 2021. There are differences in each result because, in 2016, there was an
Economic Census, which resulted in missing data on the electricity variable, so interpolation was carried out on the missing
data. The author also realizes that from 2012-2021, there was a COVID-19 pandemic crisis. To explore in further depth, this
study intends to find the relationship between important factors such as electricity and HDI with FDI in three industries in
Indonesia. Then, the data in this study are sourced from the Indonesia Central Statistics Agency and the Indonesia Investment
Coordinating Board. Based on research conducted by Budiono and Purba, the variables of electricity, clean water, and HDI
exert a highly positive influence on FDI. The study also reveals a strong correlation between each Indonesian province and the
regression of electricity, water, and HDI. However, in this study, only electricity and HDI are examined on FDI because
electricity and water are similar in categorizing as public infrastructure. The framework and the hypothesis of this research are
as follows:

Fig. 1 Research Framework

Hypothesis 1: Electricity has a significant effect on FDI
Hypothesis 2: HDI has a significant effect on FDI
Hypothesis 3: Independent variables have a significant effect on FDI
In analyzing the data, this study involves stages of econometric testing using time-series data to determine the
appropriate model. Moreover, this study also uses data analysis methods and techniques by conducting stationarity tests,
correlation matrices, F tests, t-tests, coefficient of determination tests, and classical assumption tests. In addition, this study
uses the Ordinary Least Square (OLS) model or multiple linear regression analysis, which refers to the model below [22].
𝐹𝐷𝐼𝑀𝐼𝑁 = α + β1 ELCT + β2 HDI + ε (1)

𝐹𝐷𝐼𝐵𝑀 = α + β1 ELCT + β2 HDI + ε (2)

𝐹𝐷𝐼𝐸𝐺𝑊 = α + β1 ELCT + β2 HDI + ε (3)

where: FDIMIN: FDI for Mining Industry

FDIBM: FDI for Basic Metal, Metal Goods, Non-Machinery, and Equipment Industry
FDIEGW: FDI for Electricity, Gas, and Water Industry
α: C
β: Coefficient
ε: Error
ELCT: Electricity as an independent variable
HDI: HDI as independent variable

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III. RESULTS AND DISCUSSION

A) Mining Industry
Table 1: Stationarity Test for FDIMIN
Variables on Lag=1 Augmented Dickey-Fuller test statistic (2nd difference)
FDIMIN 0.0408
ELCT 0.0142
HDI 0.0113

The results from Table 1 show that the unit root test in 2 nd difference is stationary for all variables. This is considered to
qualify for the stationary test.
Table 2: Correlation Matrix for FDIMIN
FDIMIN ELCT HDI
FDIMIN 1 0.023333 -0.676908
ELCT 0.023333 1 0.438859
HDI -0.676908 0.438859 1

The results show that the correlation between FDIMIN and electricity, with a coefficient of 0.23333, is very weak and
positive, with almost no linear relationship between the variables. The correlation between FDIMIN and HDI with a coefficient
of -0.676908 is strongly negative, indicating that when FDIMIN increases, HDI will decrease significantly. Then, the
correlation between electricity and HDI with a coefficient of 0.438859 has a moderate positive correlation, indicating that there
is a positive relationship between the variables.
5
Series: Residuals
Sample 2012 2021
4 Observations 10

3 Mean -1.34e-08
Median 105788.2
Maximum 1036397.
2 Minimum -930862.5
Std. Dev. 653403.6
1 Skewness 0.078671
Kurtosis 1.833520

0 Jarque-Bera 0.577263
-1000000 0 1000000 Probability 0.749288

Fig. 2 Normality Test for FDIMIN

The test results in Figure 2 show a probability value of 0.749288. This value is more than 5%, meaning that the data for
the FDIMIN variable is normally distributed.
Table 3: Multicollinearity Test for FDIMIN
Variable Coefficient Variance Uncentered VIF Centered VIF
C 1.75E+15 31913.20 NA
ELCT 305.5454 26.61540 1.238539
HDI 3.56E+11 32687.45 1.238539

In Table 3, the Centered VIF on Electricity is 1.238539, and the HDI is 1.238539, which means the VIF value is less
than 10, so it qualifies for the multicollinearity test.
Table 4: Heteroscedasticity Test for FDIMIN
F-statistic 4.779445 Prob. F(2,7) 0.0491
Obs*R-squared 5.772663 Prob. Chi-Square(2) 0.0558
Scaled explained SS 1.178850 Prob. Chi-Square(2) 0.5546

The results in Table 4 above use the Breusch-Pagan-Godfrey heteroscedasticity test on the FDIMIN variable that shows
the prob. value on Obs*R-squared is at 0.0558, so there is no heteroscedasticity.
Table 5: Autocorrelation Test for FDIMIN
Mean dependent var 3598941.
S.D. dependent var 1014705
Akaike info criterion 30.11242
Schwarz criterion 30.20319

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Hannan-Quinn criter. 30.01284

Durbin-Watson stat 1.592468

The autocorrelation test results in Table 5 show the Durbin-Watson (DW) value at 1.5924, which means there is no
autocorrelation.
Table 6: Multiple Linear Regression Analysis for FDIMIN
Variable Coefficient Std. Error t-Statistic Prob.
C 13549606 41854190 3.224543 0.0146
ELCT 25.60898 17.47986 1.465056 0.1863
HDI -1875813. 597004.4 -3.142043 0.0163

The data processing results of the regression equation in Table 6 can be concluded that the coefficient of electricity is
25.60898. This indicates that if PLN produces and distributes electricity to customers, FDI in this industry will increase by
US$25.60898 million. Then, the regression coefficient on HDI is -1875813, which means that if the value of the HDI index
increases, then FDI decreases by US$1,875,813 million. So that the equation obtained is as follows:
𝐹𝐷𝐼𝑀𝐼𝑁 = 13549606 + 25.60898 ELCT − 1875813 HDI + ε (4)

B) Basic Metal, Metal Goods, Non-Machinery, and Equipment Industry

Table 7: Stationarity Test for FDIBM
Variables on Lag=1 Augmented Dickey-Fuller test statistic (1st difference)
FDIBM 0.1660*
ELCT 0.0252
HDI 0.7407*

The results from Table 7 show that in the unit root test in 1st difference, only the Electricity variable is stationary, while
the FDIBM and HDI variables are not stationary, causing them not to qualify for the stationary test.
Table 8: Correlation Matrix for FDIBM
FDIBM ELCT HDI
FDIBM 1 0.502757 0.803707
ELCT 0.502757 1 0.827729
HDI 0.803707 0.827729 1

The results show a correlation between FDIBM and electricity with a coefficient of 0.502757, which is medium
positive, indicating a significant positive relationship between the variables. The correlation between FDIBM and HDI with a
coefficient of 0.803707 is strongly positive, indicating that when FDIBM increases, HDI will also increase significantly. Then,
the correlation between electricity and HDI with a coefficient of 0.827729 has a strong positive correlation, indicating a
significant relationship between variables.
4
Series: Residuals
Sample 2012 2021
Observations 10
3
Mean 0.000000
Median -164980.1
2
Maximum 1739881.
Minimum -1185223.
Std. Dev. 948347.2
1 Skewness 0.429209
Kurtosis 2.031892

0 Jarque-Bera 0.697548
-1000000 0 1000000 2000000
Probability 0.705553

Fig. 3 Normality Test for FDIBM

The test results in Figure 3 show a probability value of 0.705553. This value is more than 5%, meaning that the data for
the FDIBM variable is normally distributed.
Table 9: Multicollinearity Test for FDIBM
Variable Coefficient Variance Uncentered VIF Centered VIF
C 8.74E+15 75543.76 NA
ELCT 7074.366 324.8309 3.175968
HDI 1.93E+11 83819.93 3.175968

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In Table 9, the Centered VIF on Electricity is 3.175968, and the HDI is 3.175968, which means the VIF value is less
than 10, so it qualifies for the multicollinearity test.
Table 10: Heteroscedasticity Test for FDIBM
F-statistic 0.760322 Prob. F(2,7) 0.5026
Obs*R-squared 1.784649 Prob. Chi-Square(2) 0.4097
Scaled explained SS 0.451186 Prob. Chi-Square(2) 0.7980

The results in Table 10 above using the Breusch-Pagan-Godfrey heteroscedasticity test on the FDIBM variable show the
prob. value on Obs*R-squared is at 0.4097, so there is no heteroscedasticity.
Table 11: Autocorrelation Test for FDIBM
Mean dependent var 3255962.
S.D. dependent var 1824430
Akaike info criterion 30.85747
Schwarz criterion 30.94824
Hannan-Quinn criter. 30.75789
Durbin-Watson stat 1.331006

The autocorrelation test results in Table 11 show the Durbin-Watson (DW) value at 1.331, which means there is no
autocorrelation.
Table 12: Multiple Linear Regression Analysis for FDIBM
Variable Coefficient Std. Error t-Statistic Prob.
C -33384608 93462820 -3.571967 0.0091
ELCT -123.9731 84.10925 -1.473953 0.1840
HDI 4877890. 1387543 3.515487 0.0098

The data processing results of the regression equation in Table 12 can be concluded that the coefficient of electricity is -
123.9731. This indicates that if PLN produces and distributes electricity to customers, FDI in this industry will decrease by
US$123.9731 million. Then, the regression coefficient on HDI is 4877890, which means that if the value of the HDI index
increases, then FDI increases by US$4,877,890 million. So that the equation obtained is as follows:
𝐹𝐷𝐼𝐵𝑀 = −33384608 − 123.9731 ELCT + 4877890 HDI + ε (5)

C) Electricity, Gas, and Water Industry

Table 13: Stationarity Test for FDIEGW
Variables on Lag=1 Augmented Dickey-Fuller test statistic (1st difference)
FDIEGW 0.0477
ELCT 0.0715*
HDI 0.7407*

The results from Table 13 show that in the unit root test in 1st difference, only the Electricity variable is stationary,
while the FDIBM and HDI variables are not stationary, causing them not to qualify for the stationary test.
Table 14: Correlation Matrix for FDIEGW
FDIEGW ELCT HDI
FDIEGW 1 0,736983 0,736852
ELCT 0,736983 1 0,757817
HDI 0,736852 0,757817 1

The results show a correlation between FDIEGW and electricity with a coefficient of 0.736983, which is strongly
positive, indicating a significant positive relationship where if FDIEGW increases, then electricity tends to increase as well. The
correlation between FDIEGW and HDI with a coefficient of 0.736852 is strongly positive, indicating that when FDIEGW
increases, HDI will also increase significantly. Then, the correlation between electricity and HDI with a coefficient of
0.757817 has a strong positive correlation, indicating a significant relationship between the variables.

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6
Series: Residuals
5 Sample 2012 2021
Observations 10
4
Mean -1.49e-09
Median 91452.46
3
Maximum 1462244.
Minimum -1909547.
2 Std. Dev. 937737.5
Skewness -0.716158
1 Kurtosis 3.181038

0 Jarque-Bera 0.868459
-2000000 -1000000 0 1000000
Probability 0.647763

Fig. 4 Normality Test for FDIEGW

The test results in Figure 4 show a probability value of 0.647763. This value is more than 5%, meaning that the data for
the FDIEGW variable is normally distributed.
Table 15: Multicollinearity Test for FDIEGW
Variable Coefficient Variance Uncentered VIF Centered VIF
C 6.47E+15 57183.74 NA
ELCT 3968.731 176.7854 2.349002
HDI 1.39E+11 61994.70 2.349002

In Table 15, the Centered VIF on Electricity is 2.349002, and the HDI is 2.349002, which means the VIF value is less
than 10, so it qualifies for the multicollinearity test.
Table 16: Heteroscedasticity Test for FDIEGW
F-statistic 1.211682 Prob. F(2,7) 0.2322
Obs*R-squared 3.410750 Prob. Chi-Square(2) 0.1817
Scaled explained SS 1.822549 Prob. Chi-Square(2) 0.4020

The results in Table 16 above using the Breusch-Pagan-Godfrey heteroscedasticity test on the FDIEGW variable show
that the prob. value on Obs*R-squared is at 0.1817, so there is no heteroscedasticity.
Table 17: Autocorrelation Test for FDIEGW
Mean dependent var 3225265.
S.D. dependent var 1516957.
Akaike info criterion 30.83497
Schwarz criterion 30.92574
Hannan-Quinn criter. 30.73539
Durbin-Watson stat 1.769818

The autocorrelation test results in Table 17 show the Durbin-Watson (DW) value at 1.769, which means there is no
autocorrelation.
Table 18: Multiple Linear Regression Analysis for FDIEGW
Variable Coefficient Std. Error t-Statistic Prob.
C -99922875 80406242 -1.242725 0.2540
ELCT 73.79919 62.99787 1.171455 0.2797
HDI 1380471. 1179951 1.169939 0.2809

The data processing results of the regression equation in Table 18 can be concluded that the coefficient of electricity is
73.79919. This indicates that if PLN produces and distributes electricity to customers, FDI in this industry will increase by
US$73.79919 million. Then, the regression coefficient on HDI is 1380471, which means that if the value of the HDI index
increases, then FDI increases by US$1,380,471 million. So that the equation obtained is as follows:
𝐹𝐷𝐼𝐸𝐺𝑊 = −99922875 + 73.79919 ELCT + 1380471 HDI + ε (6)

D) T-test, F-test, and Coefficient of Determination

The results of the t-test on the three industries have been summarized in Table 19.

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Table 19: T-test for three industries in Indonesia

Basic Metal, Metal Goods,
Electricity, Gas, and
Mining Industry Non-Machinery, and
Water Industry
Equipment Industry
ELCT 0.1863 0.1840 0.2797
HDI 0.0163 0.0098 0.2809
Hypothesis H1 Rejected, H2 Accepted H1 Rejected, H2 Accepted H1 and H2 Rejected

Then, there are also the results of the F-test with the coefficient of determination test that have been carried out with the
results in Table 20.
Table 20: F-test and Coefficient of Determination for three industries in Indonesia
ELCT & HDI to FDI Hypothesis (H3) Adjusted R2
Mining Industry 0.045909 Accepted 53.4%
Basic Metal, Metal Goods, 0.010254 Accepted 65.2%
Non-Machinery, and
Equipment Industry
Electricity, Gas, and 0.034495 Accepted 50.8%
Water Industry

E) Discussions
While electricity is a critical component of mining operations, other factors are more important in attracting foreign
investment to Indonesia's mining industry. One of them is the abundance of natural resource commodities, such as gold, tin,
bauxite, copper, coal, nickel and silver [23]. The Ministry of Energy and Mineral Resources said that using of electricity is too
much, and it is a challenge for the government to find ways to support industry with green energy. In terms of New Renewable
Energy (EBT), in 2025, the government targets a 23% contribution of EBT to the electricity generation mix [24]. The entry of
FDI into Indonesia through the establishment of manufacturing plants and companies in various sectors creates a large demand
for electricity.
The significant negative influence of the human development index on foreign direct investment in Indonesia can be
understood through the lens of economic cost structures. Higher HDI typically indicates better education, health, and living
standards, which correlate with higher labor costs. Investors seeking cost-efficiency might find countries with lower HDI more
attractive due to cheaper labor and operational costs. In Indonesia's context, as HDI improves, the cost of doing business
increases, making it less appealing for foreign investors whose primary motive is to capitalize on lower production expenses.
Thus, while a higher HDI represents socio-economic progress, it can inadvertently deter cost-sensitive FDI. This results in an
adequate availability of skilled labor, becoming an attraction for foreign investors to invest in the industries [10]. These
findings are corroborated by a study indicating that the HDI negatively and significantly impacts FDI [25]. However, some
studies dispute this statement with their research stating that HDI with life expectancy has no influence on FDI supported by
the significance value in the t test exceeding 5% [26], [27].
IV. CONCLUSION
The outcomes of this research indicate that the electricity factor has no influence on FDI inflows in three industries:
namely, the Mining Industry, the Basic Metal Industry, Metal Goods, the Non-Machinery and Equipment Industry, and the
Electricity, Gas, and Water Industry. Then, the HDI factor has a significant negative effect on the Mining Industry and a
significant positive effect in the Basic Metal, Metal Goods, Non-Machinery, and Equipment Industries, nevertheless not for the
Electricity, Gas, and Water Industry, where HDI does not influence FDI in Indonesia.
The influence of electricity and HDI on FDI inflows in the Mining Industry is 46.6% and the remaining 53.4% is
influenced by other independent variables not discussed in the context of this study. Then, the electricity and HDI factors that
influence FDI inflows in the Basic Metal, Metal Goods, Non-Machinery, and Equipment Industry are 65.2%, and the
remaining 34.8% is influenced by other independent variables not discussed in the context of this study. The electricity and
HDI factors affecting FDI inflows in the Electricity, Gas, and Water Industry by 50.8% and the remaining 49.2% is influenced
by other independent variables not discussed in the context of this study.
For better research, future researchers can investigate more deeply by using a variety of different industries and the
number of samples with a longer data span than 10 years. Then, add other variables that can affect FDI besides electricity and
HDI, such as gross domestic product (GDP), exchange rates, or inflation [28], to gain a deeper understanding of the factors that
affect FDI inflows in Indonesia. The purpose of adding other variables and changing objects in future research is so that
investors can understand more deeply the other factors that can affect the entry of FDI into a country, especially in Indonesia.

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Also, it can find information about 20 other sectors recorded at the Indonesia Investment Coordinating Board. Ensuring
widespread electricity provision and improving distribution are major policy concerns for both central and local governments
to address the needs of industries and households throughout Indonesia. Furthermore, Indonesia is among the countries where
the human development index—which measures living conditions, health, and education—is a top worldwide policy objective.
Other factors or macroeconomics that influence the inflow of foreign investment into Indonesia can be taken into consideration
for the largest recipient industries in Indonesia when playing a role in making policies related to foreign investment.
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