Foreign Direct Investment and Economic Growth in Indonesia: A Literature Review of Contribution Mechanisms and Effectiveness Factors
DOI:
https://doi.org/10.54518/rh.6.4.2026.1500Keywords:
Economic Growth, Foreign Direct Investment, Human Capital, Literature ReviewAbstract
Economic growth is a fundamental indicator of national development because it reflects improvements in production capacity, income generation, and economic welfare. This study aims to analyze the relationship between foreign direct investment and economic growth in Indonesia, identify the contribution mechanisms of foreign direct investment in promoting economic growth, and examine the factors that determine the effectiveness of foreign direct investment based on previous empirical findings. This research employs a literature review method with a descriptive qualitative approach by analyzing relevant national and international journal articles related to foreign direct investment and economic growth. The findings indicate that foreign direct investment generally contributes positively to economic growth by increasing capital availability, improving productivity, strengthening technological capabilities, and supporting industrial transformation. However, the effectiveness of foreign direct investment depends on complementary factors, including human capital quality, institutional conditions, macroeconomic stability, and domestic industrial readiness. The study concludes that optimizing the role of foreign direct investment requires not only attracting foreign investment inflows but also strengthening domestic economic capabilities to achieve sustainable and inclusive growth.
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