The Influence of Foreign and Domestic Investment on Regional GDP Growth: A Panel Data Analysis

Abstract

Economic growth in regions depends heavily on investment flows, both from foreign and domestic sources. Understanding how Foreign Direct Investment (FDI) and Domestic Investment (DI) affect regional development is crucial, especially in resource-rich but diverse areas like Sumatra. This study aims to analyze the influence of FDI and DI on Gross Regional Domestic Product (GRDP) growth across ten provinces in Sumatra and to explore their role in achieving Sustainable Development Goal 9 (SDG 9), which promotes inclusive and sustainable industrialization. Using panel data from 2010 to 2023 and employing a fixed effects model, the research examines provinces including Aceh, North Sumatra, West Sumatra, Riau, Jambi, South Sumatra, Bengkulu, Lampung, Riau Islands, and Bangka Belitung. The results indicate that both FDI and DI positively and significantly contribute to GRDP growth across all provinces studied. The findings also emphasize the critical role of government policies in fostering sustainable investment practices that align with SDG 9 targets. The study recommends that local governments prioritize sustainable investment strategies and strengthen the local industrial sector to promote long-term economic growth, supporting both regional development and global sustainability agendas.