The Effect of Domestic Investment, Foreign Investment, Labor, Unemployment, Human Development Index, and Inflation on Poverty in Indonesia

Rauzatul Muna; Muhammad Abrar; Muhammad Nasir

doi:10.56225/ijfeb.v3i2.309

Authors

Rauzatul Muna Department of Economics, Faculty of Economics and Business, Universitas Syiah Kuala, Kopelma Darussalam, 23111 Syiah Kuala, Banda Aceh, Aceh, Indonesia
Muhammad Abrar Department of Economics, Faculty of Economics and Business, Universitas Syiah Kuala, Kopelma Darussalam, 23111 Syiah Kuala, Banda Aceh, Aceh, Indonesia
Muhammad Nasir Department of Economics, Faculty of Economics and Business, Universitas Syiah Kuala, Kopelma Darussalam, 23111 Syiah Kuala, Banda Aceh, Aceh, Indonesia

DOI:

https://doi.org/10.56225/ijfeb.v3i2.309

Keywords:

Poverty, Domestic Investment, Foreign Investment, Labour, Unemployment

Abstract

Indonesia continues to contend with elevated levels of poverty, reflecting the diminished well-being experienced by a segment of its population. Various socio-economic factors influence the poverty rate. It is hypothesized that domestic and foreign investments, workforce participation, and the Human Development Index (HDI) could reduce poverty, while unemployment and inflation might exacerbate it. However, previous research has not reached a consensus on these relationships. This study examines the impact of domestic and foreign investments, labor force, unemployment, HDI, and inflation on poverty levels in Indonesia. The research employs panel data regression analysis, utilizing data from 34 Indonesian provinces spanning 2006 to 2022. The findings indicate that the fixed effect model is the most appropriate for this analysis. The study concludes that domestic investment, foreign investment, and labor force have a significant negative correlation with poverty. Conversely, unemployment demonstrates a significant positive relationship with poverty rates. Notably, the HDI and inflation do not significantly affect poverty in Indonesia. To address these issues, the Indonesian government should focus on enhancing domestic and foreign investor confidence by improving legal certainty and offering various incentives to stimulate investment. Furthermore, the government must prioritize improving education and healthcare services to elevate HDI and alleviate poverty.

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