Foreign Investment, Human Development, and Regional Disparities in Indonesia: A Provincial Comparative Analysis

This study investigates the complex bidirectional relationship between Foreign Direct Investment (FDI) and the Human Development Index (HDI) in Indonesian provinces, with Gross Regional Domestic Product (GRDP), Education, and Health as mediating factors. Addressing interprovincial development inequality, this research uniquely accounts for socioeconomic heterogeneity by classifying provinces into fast, medium, and slow economic growth categories. Using panel data from 2010 to 2023 for 34 provinces, the study applies robust econometric methods, including panel unit root, cointegration, Fully Modified Ordinary Least Squares (FMOLS) for long-run estimation, and Granger causality tests. Findings reveal consistent long-run cointegration among all variables across categories. FMOLS results generally show that FDI, GRDP, Education, and Health positively and significantly influence HDI. However, notable anomalies include a negative impact of Health on HDI in fast-growing provinces and Education in slow-growing provinces. Granger causality tests demonstrate varied dynamics: bidirectional FDI-HDI relationships at the national level and in medium-growth provinces, but unidirectional causality from FDI to HDI in fast and slow-growth provinces. These results underscore the critical need for adaptive, regionally specific investment and human development policies to address persistent disparities and optimize FDI's contribution to equitable development across Indonesia.