TESTING THE VALIDITY OF THE IS CURVE IN INDONESIA ARDL APPROACH

Abstract

This study aims to determine the effect of interest rates, exchange rates, inflation and GDP on the flow of foreign direct investment (FDI) in Indonesia and the relationship of interest rate variables to FDI using the IS curve. This study utilizes time series data from the first quarter of 2010 to the fourth quarter of 2023, the data is from the website of Bank Indonesia and the Central Bureau of Statistics. The model used in this study is ARDL (Autoregressive Distributed lag), then processed using Eviews 10. The data used Maximum Lag 2 and Minimum Lag 4. The study found that the interest rate variable had a significant positive effect in the short term but a significant negative effect in the long term on FDI. The exchange rate variable has a significant negative effect at the 10% level in the short term and has no effect in the long term on FDI. Meanwhile, Inflation and GDP variables in the long run and short run have no influence on FDI.