Investment and Unemployment Reduction: An Empirical Study of

Indonesia using Panel Data Regression

Bahrul Ilmi Nasution

, Adelia Christine Br. Tarigan

and Sri Indriyani Siregar

Jakarta Smart City-Department of Communication, Informatics, and Statistics, DKI Jakarta, Indonesia 10110

BPS-Statistics Sorong, West Papua, Indonesia 98417

STIS Statistical Polytechnics, DKI Jakarta, Indonesia 13330

Keywords: Domestic Direct Investment, Foreign Direct Investment, Unemployment, Indonesia, Feasible Generalized

Least Squares with Seemingly Unrelated Regression

Abstract: One of Indonesia’s seven development agendas is the improvement of competitive human resources.

Therefore, government concerns in reducing employment. Currently, one of the government’s efforts to

reduce unemployment is to increase investment in various regions. This study aims to identify the effect of

investment realization to the unemployment in Indonesia by using provincial panel d ata from 2006 to 2018.

Furthermore, investments in this study are divided into foreign and domestic direct investment. The panel

data evaluation gives a result that Feasible Generalized Least Squares with Seemingly Unrelated Regression

(FGLS-SUR) is a suitable estimation for the analysis. Based on the model, this study finds that both foreign

and domestic direct investments give a significant effect in reducing unemployment. This study can be used

as a recommendation for the government to increase investment, especially the domestic, as well as sectors

that absorb labor to accelerate the economic wheel and reduce the unemployment simultaneously.

1 INTRODUCTION

The Indonesian Government has set 7 Development

Agenda in The Mid-Term National Development

Plan (Rencana Pembangunan Jangka

Menengah/RPJMN) 2020-2024 (BAPPENAS, 2019).

One of the Development Agenda is "improvement of

competitive human resources". Therefore, reducing

unemployment is one of the government’s main

concerns. Through 2020-2024, the government sets

Indonesia's unemployment target of 4.0-4.6 percent in

2024. Various efforts have been made by the

government to reduce unemployment, such as using

external sources.

One of the external sources used by the

government in reducing unemployment is through

investment. The various government policies are

expected to attract both domestic and foreign

investors to invest in Indonesia. According to Act No.

25 of 2007 on Investment, attracting investors to

invest in Indonesia aims to increase economic growth

and create jobs. Besides, investment also aims to

improve the competitiveness of the domestic business

world. As a result, investment can reduce

unemployment and improve people's welfare by

creating new jobs that will reduce the unemployment

rate (Mankiw, 2009).

The interdependence between investment and the

unemployment rate varies greatly from one region to

another depending on the structure of the economy

and type of investment received (Strat, 2015).

Moreover, investment and unemployment rates also

have various patterns because the economic structure

and type of investment can change significantly in the

long run (Parker, 2010). As a result, the government

must consider investment when developing policies

to reduce unemployment (Strat, 2015).

Blanchard (2011) argues that countries with

higher unemployment have two big advantages in the

eyes of foreign investors: a) a lot of available labor;

b) has a great opportunity to find workers with lower

wages. But when the unemployment rate in a country

is too high, the foreign investor sees this as an

indication of macroeconomic instability. Therefore,

the country is not seen as a suitable place for potential

investment (Brozen, 1958).

Various studies that discussed the impact of

investment on unemployment proved that investment

has a significant effect on reducing unemployment,

both in the short and long term (Chaudhuri &

Nasution, B., Br. Tarigan, A. and Siregar, S.

Investment and Unemployment Reduction: An Empirical Study of Indonesia using Panel Data Regression.

DOI: 10.5220/0010356600710079

In Proceedings of the 2nd International Conference on Applied Economics and Social Science (ICAESS 2020) - Shaping a Better Future Through Sustainable Technology, pages 71-79

ISBN: 978-989-758-517-3

Banerjee, 2010; Mucuk & Demirsel, 2013; Schmerer,

2014; Strat et al., 2015). In Indonesia, Tegep et al.

(2018) stated that unemployment and foreign

investments did not have a direct relationship.

Furthermore, unemployment and investment had two

intermediary variables, namely economic growth,

and regional minimum wages. To complete this gap,

this study aims to prove that there is a direct effect

between investments to unemployment. This study

does not only cover foreign direct investments (FDI),

but also domestic direct investments (DDI). This

study also aims to see which investments have a

greater impact on reducing unemployment.

Therefore, this study is expected to be one of the

considerations for the government to increase

investment in reducing unemployment in Indonesia.

This study consists of five parts. The next section

is a brief review of unemployment and investment

and their relationship based on previous literature.

After that, the third part presents data and study

methodology. Part 4 presents the results of the study

and is followed by discussion. This paper concludes

with conclusions and brief recommendations to the

government regarding investment to reduce

unemployment.

2 LITERATURE REVIEW

2.1 Unemployment

Unemployment is part of the workforce that does not

have a job and is looking for work; who do not have

a job and prepare a business; those who do not have

work and do not look for work, because they feel it is

impossible to get a job; and those who already have

jobs, but have not yet started working (BPS, 2020).

The unemployment rate is used as an indicator to

capture the reactions of labor markets to the change

of the economy. Furthermore, unemployment is

useful to determine the efficiency and effectiveness

of the economy to hire labor and measure labor

market performance (Benes & Walsh, 2018).

Unemployment is an endless problem. Nowadays,

technology continues to develop until it is finally able

to replace human work. This leads people to worry

that they will lose their jobs due to technology rather

than job competition (Schmerer, 2014). It is not

surprising that unemployment is one of the most

frequently encountered topics in political debates

(Mankiw, 2009). Unemployment in a region can be

caused by various factors, including economic

factors.

One of the economic factors that cause

unemployment is the determination of minimum

wages. This results in wages being unable to reach a

level of balance between demand and supply of

employment. The Indonesian Government, through

regional heads, sets minimum wages annually in

every province. As a result, there is a decrease in

opportunities to find jobs and increase unemployment

(Mankiw, 2009).

The regional minimum wage (RMW) changes

every year considering inflation conditions and the

decent living needs in the province in the previous

year (BPS, 2020a). This is useful for adjusting wages

to the current conditions of goods and services so that

workers are still able to meet their needs properly. As

a result, inflation also has a role in reducing this

unemployment as stated in the Phillips Curve

(Mankiw, 2009).

Okun's Law stated that economic growth has the

opposite relationship to unemployment (Mankiw,

2009). The basic assumption of this idea is that when

economic growth grows more than 2.25%, every 1%

increase in output will reduce unemployment by

0.5%. In other words, an increase in economic growth

in an area causes a decrease in unemployment. This

is in line with the study by Tiger et al. (2018) that

economic growth in Indonesia has a negative impact

on unemployment. This means that the Okun law

applies in Indonesia

Based on the previous paragraphs, it can be

summarized that despite of investments, the factors

that correspond to the unemployment are regional

wages, economic growth, and inflation (Mankiw,

2009; Tegep et al., 2018). This is also supported by

various economics theories such as Phillips Curve

and Okun’s Law. Thus, these factors are included in

this study.

2.2 Investment

According to Act No. 25 of 2007 on Investment,

foreign direct investments (FDI) is defined as all

forms of capital investing activity by foreign capital

investors, to undertake business within the

Indonesian Territory. Meanwhile, domestic direct

investments (DDI) are the investment activity to

conduct business in the Indonesian territory by

domestic investors using domestic capital.

Investment has goals to accelerate the economic

wheel such as increasing economic growth,

sustainable economic development, competitiveness

of the domestic business world, as well as national

technological capacity and capability. Furthermore,

investments also can be optimized to create jobs,

ICAESS 2020 - The International Conference on Applied Economics and Social Science

encouraging the development of a populist economy,

turning potential economies into real economic

strength by using funds both from domestic and

foreign, as well as improving the welfare of the

community. As a result, President’s Regulation

No.20 in 2018 stated that in making investments,

investment companies should prioritize Indonesian

citizens in meeting the needs of workers, except if

certain positions cannot be filled with Indonesian

citizens.

Keynes (1936) asserted that the point of economic

equilibrium occurs when aggregate demand is equal

to aggregate expenditure. Unemployment occurs

when aggregate demand is smaller than aggregate

expenditure so that long-term output will not be

absorbed by consumers and will result in

unemployment. One factor driving aggregate demand

is investment demand (Froyen, 2009). Meanwhile,

Schumpeter’s Theory (1942) emphasized the

importance of the role of entrepreneurs in realizing

economic growth, where entrepreneurs act as a group

that is constantly making updates and innovations in

economic and technological activities. These

innovations such as introducing new goods,

expanding the market of goods, developing new

sources of raw materials, and making changes in the

organization to increase the efficiency of company

activities. Thus, the awareness of entrepreneurs about

the possibility of making profitable innovations

causes them to make loans and investments that

increase the balance of economic development.

Investment is useful to increase the country’s

economic activities. Furthermore, investments have

an impact on increasing employment, income, and

consumption of the population (Mankiw, 2009).

Investments also increase profits for the company

which encourages them to produce more goods and

expands their investments. As a result, the demand for

new jobs is increased so that these conditions form a

cyclic flow that will continue to drive economic

growth in a country. (Schumpeter, 1939).

2.3 Relationship between Investment

and Unemployment

Karlsson et al. (2009) found that FDI had a positive

influence on employment growth in which they used

a sample of manufacturing companies from China in

the period 1998 - 2004. In line with the study, Ajaga

and Nunnekamp (2009) also found that in the United

States, FDI has a positive long- term effect on the

employment rate. Meanwhile, Lipsey et al. (2010)

found that the shift in ownership from local to foreign

had a significant influence on growing employment

in Indonesia.

Muafiqie (2018) through the Granger Causality

analysis showed that FDI has a significant influence

on the unemployment rate in Indonesia in 2000-2016.

Furthermore, the analysis of the VAR model showed

that FDI with a one-year lag has a negative

relationship with the unemployment rate while a two-

year lag has a positive relationship. Malik and Saima

(2013) through the Johanson Co-integration approach

found that there was a long-term relationship between

FDI and the unemployment rate in Pakistan in 1970-

2011. Meanwhile, the study of Adam and Zurek

(2011) with the VAR approach shows that there is a

short-term relationship between FDI and

unemployment in Poland in 1995-2009.

In contrary to the studies mentioned previously,

Rizvi and Nishat (2009) state that FDI has no direct

impact on unemployment for the countries studied

(China, India, and Pakistan in 1985 - 2008 period).

Then, Sandika (2014) found that investment (FDI and

DDI) in Pelalawan district, Indonesia in 2003-2012

had a positive but not significant effect on

employment. This study also explained that domestic

direct investment is more oriented to the development

of sectors that do not absorb labour, so it does not

increase employment opportunities for the

community.

Based on the paragraphs that were mentioned

above that investment has important roles in the

economy. The investment is not only useful to

accelerate the economic wheel but also opens jobs for

society in the region so that the employment rate can

be increased particularly when the investors expand

their investments. Thus, this study hypothesized that

the investment, both domestic and foreign, can reduce

the unemployment in Indonesia.

3 METHODOLOGY

3.1 Data

This study uses balanced panel data of 33 provinces

in Indonesia with an annual period from 2006 to

2019. Analysis using panel data has several

advantages compared to using only cross-sectional or

time-series data, particularly in controlling individual

heterogeneity and the wealth of information obtained

(Baltagi, 2008). Based on the literature review, the

dependent variable used in this study is

unemployment. Furthermore, the independent

variables used in this study are domestic and foreign

Investment and Unemployment Reduction: An Empirical Study of Indonesia using Panel Data Regression

investment, economic growth, and inflation. This data

is disseminated on the BPS.

website (https://bps.go.id).

3.2 Analysis Method

This study uses two analytical approaches. The first

is a descriptive analysis to get a brief overview of the

correlation between investment and unemployment.

After that, an inference analysis regarding the

relationship between investment and unemployment

is carried out using the model which is explained in

equation 1.

(1)

With UNEMP being the level of open

unemployment, DDI and FDI are respectively the

realizations of domestic and foreign investment

(trillion rupiahs). GROWTH is economic growth.

RMW is the regional minimum wage in thousand

rupiahs and INF is inflation for the year. The i and j

explain the index of province and time, respectively.

Since this study uses panel data, the inferential

analysis cannot be answered using ordinary multiple

linear regression because it can lead to bias and

autocorrelation because of individual heterogeneity

(Moulton, 1986; 1987). This study uses panel data

regression to deal with these problems. Panel data

regression has three common types of models,

namely fixed (FEM), random (REM), and common

effect models (CEM) (Greene, 2018). These three

models have differences in the assumptions of the

effects contained in the model. Common effects

assume there are no individual or time effects so

estimates can be made directly with OLS. Fixed

effects assume that individual effects are estimated

and a fixed value. Meanwhile, random effects assume

that individual effects are estimated and have random

values.

The panel data analysis starts with testing which

model is the most suitable for the data. There are three

panel data tests namely Chow (CEM vs FEM),

Hausman (FEM vs. REM), and Breusch-Pagan

Lagrange Multiplier (BP-LM) test (CEM vs REM).

The detail of these tests can be seen in Greene (2018)

and Baltagi (2008). In summary, if REM is selected,

the estimation can be done directly using the

generalized least squares method. Meanwhile, if

CEM or FEM are selected, the variance-covariance

structure with LM needs to be carried out. If the LM

test gives an insignificant result, the estimation is

sufficient using ordinary least squares (OLS).

Otherwise, a generalized least square (GLS) is

utilized as the estimation method and a Lambda-LM

test is employed to evaluate the cross-sectional

correlation. The GLS is used for the estimation if

there is no cross-sectional dependence and the

feasible GLS with seemingly unrelated regression

(FGLS-SUR) is used if otherwise.

The SUR approach was developed by Zellner

(1962) to account the efficiency of the error

correlation from the equation. The traditional panel

estimation such as OLS suffered from large degrees

of freedom. Meanwhile, generalized least squares

(GLS) estimator do not always produce efficient

variance component, particularly when there is a

cross-sectional dependence (Baltagi, 2008). Thus, the

combination of FGLS and SUR provides best linear

unbiased estimator (BLUE) and efficient result when

the data encounters heteroscedasticity and cross-

sectional dependence. The details of FGLS and SUR

can be found in Zellner (1962) and Baltagi (2008).

However, it should also be noted that since panel

data regression is also solved by the least-squares

method, classical assumptions of BLUE (normality,

multicollinearity,heteroscedasticity,autocorrelation)

is necessary to be tested so that the estimation results

are consistent and unbiased. If the estimation method

used is GLS or FGLS, heteroscedasticity and

autocorrelation do not need to be tested because this

method is robust to these assumptions.

Overall, this study uses R to conduct descriptive

analysis and panel data for the initial stage (R Core

Team, 2020). The descriptive analysis visualization is

done using the ggplot2 package. Also, the best panel

model evaluation is done using the plm package.

Specifically, for FGLS with SUR weight (FGLS-

SUR), the simulation is carried out using the Eviews

application because the R does not provide this

facility.

4 RESULTS AND DISCUSSIONS

4.1 Descriptive Analysis

Indonesia is a country that has abundant natural

resource potential. This is shown by many countries

that came to Indonesia in search of various materials.

Until now, the potential of resources in Indonesia is

huge, but Indonesia still cannot process the available

resources optimally. As a result, this has triggered

various parties including foreign countries to invest in

Indonesia.

ICAESS 2020 - The International Conference on Applied Economics and Social Science

Figure 1: Investment development (left) and unemployment (right) in Indonesia.

Figure 1 presents the development of domestic

and foreign investment while unemployment is

presented side by side. From Figure 1, investment,

both domestic and foreign in Indonesia has a trend

that tends to increase from time to time, although

there is a slight decline. Meanwhile, unemployment

in Indonesia has the opposite trend, i.e., decreases

from year to year. This indicates that investment in

Indonesia has an inverse relationship with

unemployment.Figure 2 shows the unemployment

trend, which is indicated by a line graph, as well as

the amount of investment indicated by the shaped

point that represents the province. The picture in the

left shows foreign investment and the right shows

domestic investment. A larger point means larger

investments made in the province. From the left side

figure 2, the top five FDI are dominated by provinces

in Java. While investments made in areas outside of

Java Island are found in several provinces in Sumatra.

The Papua region is also one of the places to invest

because the area has natural resources such as gold

and uranium. Like North Sumatra, Riau is also an

investment area because of the abundant oil and gas

in the province. Furthermore, the trend of

unemployment in each province also tends to decline

annually. This indicates that in general, foreign

investment in each province can reduce

unemployment.

Figure 2: Unemployment and Investment trends in 10 provinces with the highest FDI (left) and DDI (right).

Meanwhile, DDI is mostly realized outside Java

Island, such as the Kalimantan Island which also has

a lot of mining areas such as coal, aluminium, and

gold. Furthermore, dense forest areas on the Island

make it potential to create a plantation. As a result,

the Kalimantan region attracts domestic investors to

invest. Just like FDI, several regions on the island of

Sumatra, such as South Sumatra and Lampung, also

attract domestic investors to make investments. From

the unemployment view, the trend in each province

also tends to decrease every year. This indicates that

domestic investment also contributed to reducing

unemployment.

Based on the paragraphs above, it can be

concluded that investments made in each region

contribute to the reduction in unemployment. To

prove this, the next section discusses the effect of the

Investment and Unemployment Reduction: An Empirical Study of Indonesia using Panel Data Regression

investment on unemployment. The method used has

been discussed in the previous section.

4.2 Results

Based on the model evaluation results (see appendix),

Chow and Hausman test show rejection to the null

hypothesis which means that the best model used in

this study is FEM. The produced model does not

violate the multicollinearity between independent

variables. However, the model violates several

assumptions namely the significant heteroscedasticity

and serial autocorrelation. Consequently, this study

uses FGLS-SUR as the estimation method. The result

of Shapiro-Wilk normality test shows that the residual

of FGLS-SUR estimation is normally distributed (p-

value=0.067), i.e. the model produced is consistent

and unbiased so that it can be interpreted

appropriately.

(2)

Table 1 presents the results of a simulation of the

relationship between investment, inflation, UMR, and

economic growth using FEM with FGLS-SUR as the

estimation method. The model produced in table 1

can be written mathematically as follows:

Table 1. FGLS-SUR Simulation Result

Variable Coeff Std. Error t-Statistic Prob.

C 7.302 0.3820 19.139 0.000

FDI

- 0.0080 -2.017 0.044

DDI

024

0.0115 -2.048 0.041

INF

0.053 0.0303 1.763 0.078

RMW

001

0.0003 -3.340 0.000

GROWTH

0.021 0.0179 1.194 0.233

Based on table 1, it can be seen that at 5%

significance level, the variables that influence the

unemployment rate are both domestic and foreign

investment, as well as regional minimum wage.

These variables give a negative effect to

unemployment. Meanwhile, inflation and economic

growth gives insignificant positive effect to the

unemployment rate. Based on equation 2, it can be

seen that in a constant state, the general

unemployment rate is 7.302 percent. Meanwhile,

when FDI in a province increases by 1 trillion rupiahs,

the unemployment rate in a region decreases by

0.016 percent. When compared with foreign

investment, domestic investment of 1 trillion rupiahs

has a greater influence, namely reducing

unemployment by 0.024 percent. On the other hand,

an increase in regional minimum wage by one

thousand rupiahs can reduce unemployment by 0.001

percent. In other words, an increase of one hundred

thousand rupiahs would reduce the unemployment

rate by 0.1 percent. Therefore, it can be concluded

that not only both domestic and foreign investment

which give good impact in reducing unemployment

in Indonesia, but also the regional minimum wage.

4.3 Discussions

From the results, it can be seen that this study finds

the expected results as hypothesized previously that

both domestic and foreign investment has a direct

relationship to the reduction in unemployment in

Indonesia which can be seen from the significance of

the coefficients on the two variables. This is contrary

to the study of Tegep et al. (2018) which states that

investment has no direct relationship to

unemployment. This is in line with Keynes (1936)

theory which views the investment as one of the

factors that drive labour demand. Schumpeter (1942)

theory also states that the importance of the role of

entrepreneurs in investing to reduce unemployment.

Besides, investment at a high level will encourage

high labour demand so that more jobs will be created,

and this will lead to a decrease in unemployment

(Mankiw, 2009).

Meanwhile, the unemployment reduction in

Indonesia due to the increase of foreign investment is

in line with the study by Lipsey et al. (2010) which

states that increasing foreign investment in Indonesia

will open up new jobs which will reduce the

unemployment rate. Based on the data from the

Indonesia Investment Coordinating Board (BKPM),

the most foreign investors investing in Indonesia in

2018 came from Singapore (US$ 9.2 billion, 31.4%

of total FDI) and Japan (US$ 5 billion, 16.7% of total

FDI). Both countries do not send a lot of labours so

that more domestic workers are absorbed in Indonesia

(BKPM, 2019). When viewed from the sectors

entered, Singapore tends to be involved in the paper

& printing, chemical & pharmaceutical, food,

electronics, and machinery & metal sectors with a

workforce of 1,880 people. From this point of view,

Indonesia is quite benefited because in addition to

obtaining investment it also receives benefits in the

form of absorbing large numbers of domestic

workers.

In addition to unemployment reduction,

increasing foreign investment can be useful to

ICAESS 2020 - The International Conference on Applied Economics and Social Science

increase domestic trade competitiveness (Gamariel

and Hove, 2019). This will also trigger domestic

entrepreneurs to continue to make better innovations

so that domestic work has a high level of

competitiveness towards foreign countries. Besides,

the output produced will continue to be of better

quality so that each investor will expand and open up

new jobs while encouraging economic growth

(Alvaro, 2006). However, even though foreign

investment encourages economic growth, the country

does not get a full profit from the trade results because

some of the profits go back to their home countries

(OECD, 2002).

Meanwhile, the increase in domestic investment

can be useful to increase economic growth in the

country as a whole because of the profits that are

returned to the country itself so that the country can

become less dependent on other countries (Djulius et

al, 2019). In 2018, DDI which amounted to Rp328.6

trillion (Approx. US$ 22.3 Billions) was dominated

by the transportation, warehouse, and

telecommunications sectors (17.8%) and construction

(13.7%) (BKPM, 2019). This is in line with the

Indonesian government's program in recent years

where the sectors related to human resources such as

infrastructure and construction, telecommunications,

health, and tourism sectors are further enhanced

(BAPPENAS, 2019). Therefore, the existence of the

program is an attraction for domestic investors

because of the prospect of large profits going forward,

while also being able to reduce the level of domestic

unemployment due to labour demand to develop these

sectors to achieve economic growth for social

welfare, as in line with the investment purpose which

stated in the Act No. 25 of 2007.

On the other hand, inflation has a positive but not

significant effect on unemployment. This means that

the Phillips curve does not apply in Indonesia. This

result is in line with the study of Trimurti and

Komalasari (2014) which says that the positive effect

of inflation on the level of open unemployment in

Indonesia is caused by Indonesia's dependence on

imported goods, the weakening of the rupiah against

foreign currencies which causes an increase in the

price of goods, as well as a higher inflation rate in

Indonesia caused by rising fuel prices and

transportation tariffs not caused by an increase in

aggregate demand, as assumed on the Philips curve

(Mankiw, 2009). Inflation caused by an increase in

aggregate demand will cause producers to increase

their production capacity by increasing the number of

workers, which means the number of unemployed

will decrease.

Minimum wages in a region have a significant

impact on reducing unemployment in Indonesia,

which is in line with findings from Comola and de

Mello (2011) about the lighthouse effect in

employment. According to lighthouse effect, the

inactive labours are attracted to the labour market due

to the escalated wages. Therefore, an increase in the

minimum wage that is relatively stable is needed so

that it will provide companies, economic sectors, and

the community with the readiness and ability to

develop and improve the business activities. Also, a

conducive business climate also needs to be created

by the government to widen the level of community

economic participation to improve welfare and

benefit from economic development.

Besides inflation, economic growth does not have

a significant impact on unemployment. These results

indicate the incompatibility of Okun's law in

Indonesia in the study period. Institute for

Development of Economics and Finance asserted that

economic growth in Indonesia has not been able to

create increased employment opportunities due to the

lack of improvement in the tradable sector compared

to the non-tradable sector, even though the tradable

sector is a sector that can absorb more labour

(INDEF, 2017). The study is also supported by 2018

investment data from BKPM where Indonesia relies

on economic growth in the service sector (non-

tradable sector) which minimally absorbs labour.

According to the Indonesian Ministry of Trade, the

tradable sector is a sector that produces output

products that can be traded on foreign markets, while

the non-tradable sector produces output products that

cannot be traded on foreign markets (BPPKP, 2018).

5 CONCLUSIONS

This study aims to describe the direct relationship

between investment and unemployment in Indonesia

using panel data at the provincial level from 2006 to

2018. The investment studied in this study is not only

foreign direct investment but also domestic direct

investment. This study concludes that both domestic

and foreign investment has a direct impact on

unemployment. Therefore, the government needs to

improve its investment strategy to increase state

revenue while at the same time reducing

unemployment. Moreover, potential investments to

achieve these objectives are investments in sectors

that absorb a lot of labours. Although foreign

investment has a good impact on domestic innovation

in terms of increasing resources that have

competitiveness, increasing domestic investment is

Investment and Unemployment Reduction: An Empirical Study of Indonesia using Panel Data Regression

also very much needed to improve the domestic

economic cycle. As a result, the welfare of the people

in Indonesia has increased, which is then followed by

an economy that is growing higher.

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Investment and Unemployment Reduction: An Empirical Study of Indonesia using Panel Data Regression