Foreign Investment and Labour-Intensive Industries

Abstract

Basically one can distinguish three kinds of foreign private direct investment, namely natural resource-oriented investment, market-oriented investment, and labour-oriented investment. Natural resource-oriented investment is undertaken with a view towards exploiting the natural resources of the host country, while marketoriented investment is carried out primarily with the aim of capturing the domestic market of the host country» On the other hand, labour-oriented investment is mainly motivated by the availability of abundant and cheap labour in the host country» However, the distinction between these three kinds of foreign investment is not watertight, since labour-oriented investment might also be stimulated by the lure of a potentially big market in the host country.

This paper intends to discuss some of the ways in which foreign investment, particularly of the labour-oriented variety, might assist fin solving the unemployment problem in Indonesia. To that end, some recent developments in the world economy favorable to the establishment of labour-intensive industries in Indonesia will be reviewed as well as some of the -policies Indonesia might adopt in order to lure such industries to Indonesia.