The Effect of Foreign Direct Investment (FDI) on Gross Domestic Product (GDP) (Comparative Case Study of Indonesia and Malaysia 2010–2024)

Abstract

This study aims to analyze the effect of Foreign Direct Investment (FDI), exports, and labor on economic growth in Indonesia and Malaysia during the period 2010–2024. Economic growth is measured using Gross Domestic Product (GDP). This research is based on the Neoclassical Growth Theory, the Cobb-Douglas Production Function, and the Export-Led Growth Hypothesis. The study employs a quantitative approach using secondary data obtained from the World Bank and other official sources. Panel data regression analysis was conducted in EViews, preceded by stationarity testing using the Augmented Dickey-Fuller (ADF) test. The results indicate that exports and labor have a positive and significant effect on economic growth in both Indonesia and Malaysia. Labor is the most influential variable, with a coefficient of 1.025290, followed by exports with a coefficient of 0.556719. In contrast, FDI does not have a significant effect on economic growth, as indicated by the p-value of 0.5556. Furthermore, the interaction variable of FDI shows no significant difference in the impact of FDI on economic growth between Indonesia and Malaysia. These findings suggest that economic growth in both countries is driven more by labor productivity and export performance than by foreign direct investment. Therefore, policies aimed at improving labor quality and strengthening export competitiveness are essential to achieving sustainable economic growth.