POLITICAL RISK INDICATORS AND FOREIGN DIRECT INVESTMENT (FDI) ATTRACTION IN INDONESIA

Abstract: The objective of this research is to analyze the influence of political stability on foreign direct investment in Indonesia. The data used is secondary data sourced from the Central Bureau of Statistics and the PRS Group. The analysis tool used in this research is multiple linear regression using time series data during the period 2000-2022. Based on the regression results, it was obtained that the variables Political Stability and Absence of Violence partially had a negative effect on foreign direct investment (FDI) in Indonesia, while the variables Government Effectiveness and Regulatory Quality, respectively, had a positive and significant effect on foreign direct investment (FDI) in Indonesia. Meanwhile, simultaneously, the variables Political Stability and Absence of Violence, Government Effectiveness, and Regulatory Quality have a positive effect on foreign direct investment (FDI) in Indonesia. Although Political Stability and Absence of Violence do not have a direct effect on FDI in Indonesia, other factors such as Government Effectiveness and Regulatory Quality greatly influence investment decisions. Both of these variables can give investors a sense of security and confidence that despite political uncertainty, they can still operate well in Indonesia thanks to supportive government policies and transparent regulations. Therefore, although Indonesia can face political challenges, if the government can improve the effectiveness of government administration and the quality of regulations, this can be a more dominant factor in attracting foreign investment. The Indonesian government needs to focus on ensuring that existing policies and regulations can provide the necessary guarantees for investors to invest and run their businesses smoothly.