Determinants of foreign direct investment and its links to Indonesian trade

This thesis is concerned with two things. First, the determinants of foreign direct investment (FDI) and second, the relationship between FDI and trade in Indonesia. This study focuses on two major investors, Japan and America. Although there are a number of theories and empirical studies explaining FDI determinants, most of these works focus on developed countries, mainly the European and American economies. In this study we opted to use Vernon's and Kojima's hypotheses of the catching-up product cycle and comparative advantage which are more appropriate to explaining FDI in developing economies, especially Japanese FDI in Indonesia. For American FDI, we use the eclectic theory of Dunning, with a core theory derived from Hymer's hypothesis of firm-specific advantage.