Indonesia’s Poverty Reduction: Driving Economic Growth through Foreign Direct Investment

Poverty reduction is one of the basic problems in national development. One of the sources of financing in development programs including poverty reduction is foreign direct investment (FDI). Wherewith sources of that funds initiate an increase in the production of goods and services by the community so that transactions related to capital and production resources also increase as one of the efforts to alleviate poverty due to an increase in nominal income per capita. This study examines the indirect effect of FDI on poverty in Indonesia, through the analysis of numerical data calculations. This quantitative research on the State of Indonesia was carried out domestically using panel data from 34 provinces during the 2007-2018 periods with a fixed effect estimation method. The estimation results with the selected calculation model show that all independent variables are statistically significant. It means that the ratio of FDI to GRDP, the number of the working population, GRDP per capita, and the realization of government spending have a significant and negative effect on poverty with a confidence level of 5 percent. Based on the calculation results, if the ratio of FDI to GRDP increases by 1 percent, it will reduce the poor by 0.037 percent, (ceteris paribus). This finding encourages the government to pay more attention to the flow of foreign investment into Indonesia so that funding is more targeted in reducing poverty in Indonesia. Through the provision of employment opportunities and improvement of supporting facilities, productivity can run more efficiently and effectively.