Institutional Quality and Foreign Direct Investment in Indonesia

Foreign Direct Investment (FDI) plays a vital role in supporting economic growth in developing countries like Indonesia. Despite its vast market potential and abundant resources, Indonesia’s FDI inflows lag behind those of neighboring countries. This study analyzes the impact of institutional quality on FDI in Indonesia during the 2002–2023 period, focusing on six indicators: voice and accountability, political stability, government effectiveness, regulatory quality, rule of law, and control of corruption. A quantitative approach is employed to assess the relationship between these variables. The results show that political stability and voice and accountability are the most influential factors in attracting FDI, as they foster a stable and transparent investment climate. This study emphasizes the importance of institutional reform to enhance investor confidence and support long-term economic growth.