한국법제연구원 KLRI

Ⅰ. Background and Purpose
1. Background
“Interdependence” may be overused but it accurately describes our world today. Economic forces flow with great rapidity from one country to the other countries. Despite all the talk about sovereignty and independence, in fact these concepts can be misleading and irrelevant when applied to the today’s world economy. The fact about the interdependence among countries around the world creates a condition of a ‘borderless world’ or economic globalization. It could be said that everyone around the world feels the effects of economic globalization in many aspects of their lives. It affects their jobs, food, health and education. It even affects the price people pay for gasoline, food and the health services accessible to them.
One of the defining features of economic globalization is a process characterized by a high level of international trade and a high level of foreign direct investment (hereinafter called FDI). International trade happened not only among developed countries but also between developed countries and developing countries. In recent years, international trade between developed and developing countries has grown rapidly. This phenomenon is caused by many factors. High availability of natural resources and high level of populations in developing countries are the main reasons why developing countries are interested with investment.
The high availability of natural resources and high level of population in developing countries attract developed countries to initiate economic partnership (international trade) through FDI with groups of developing countries. This was underlined by the 2003 World Investment Report, which gives overall figures on the growing importance of overseas investment in developing countries. FDI stocks in developing countries represents about one?third of their GDP in 2002, compared with just 13 per cent in 1980.
The effect of globalization has affected the Indonesian government’s policy in benefiting from this. Indonesia has gone through a lot of phases in their economic development specifically on foreign direct investment. It begins with the era after the independence of Indonesian government, which was under the presidency of Soekarno. During this regime, Indonesia’s economic policy on investment was very strict to any foreign interventions. This was soon changed by the beginning of Suharto regime in 1967. During that era the Indonesian government has started to open access to foreign direct investment in Indonesia. This can be seen by the enactment of Act Nr. 1 of 1967 on Foreign Investment. Entering the 21st century, Indonesia’s economic policy on foreign direct investment began to incorporate international agreements on Foreign Direct Investment. Act Nr. 25 of 2007 marks the beginning of modern foreign direct investment law which contains clauses from the World Trade Organization Agreements, such as the principle of non?discrimination and the right for foreign investors not to be restricted for the improvement of domestic markets.
In the current period, the involvement of foreign trade through foreign direct investment cannot be avoided in the development of Indonesia’s economy. This can be seen by the government’s effort in improving Indonesia’s Investment Climate which was set as one of the top priority in its National Strategy. The Minister of Economic Coordination, Mr. M. Hatta Rajasa, has planned to improve investment policies to support the creation of a more conducive investment climate in the future, such as the formation of investment policy based on the International Best Practices as Policy Framework on Investment OECD which is expected to strengthen Indonesia’s position in attracting foreign investors. Other than that, technically, the ministry of economic coordination has prepared to increase investments by improving the legal certainty; by simplifying the procedure; by improving the information system, and by improving the Special Economic Region (Kawasan Ekonomi Khusus) in Indonesia.
2. Purpose
1) to provide general information concerning the relation between development of Indonesian investment law and economic growth strategies;
2) to explain the importance of development of investment law as a variable affecting economic growth;
3) to provide suggestions in investment regulations matters that the government can undertake to boost economic growth.

Ⅱ. Main Contents
1. Foreign Direct Investment and Economic Growth
2. Development of Indonesian Investment Law
3. General Information on Korean Foreign Direct Investment Law
4. Suggestions for Evaluation and Improvement

Ⅲ. Expected Effect
It is expected that this study would be able to provide comprehensive illustration about development of Indonesian investment law as well as to provide general deion of the relationship between development of investment law and Indonesia’s economic growth.
In addition, this study is projected to generate suggestions and inputs on investment policy and law reform for the government and the House of Representatives, which in the end would improve Indonesia’s economic growth.
This study is a starting point for subsequent and further deeper studies on the actual practices and working enforcement mechanism of the investment law as well as the pathway and strategy for economic development.

Preface 5
Abstract 7

Ⅰ. Introduction 27
A. Background 27
B. Research Objectives 29
C. Research Outcome 30
D. Research Design Methodology 30

Ⅱ. General Theory 33
A. Foreign Direct Investment 33
B. Economic Growth 44

Ⅲ. Research Outcomes and Analysis 81
A. General Information on Indonesia 81
B. Hierarchy of Statutory Regulations in Indonesia 82
C. The Development of Investment Law in Indonesia 91
D. The Impact of FDI Law Regime to Indonesia's Economic Growth 203

Ⅳ. General Information on Korea 257
A. History of Korean FDI Law 258
B. Current Investment Law 260
C. Investment Agency 267
D. Protection from Expropriation 268
E. Restricted Investment Areas 269
F. Investment Procedure 270
G. Incentives 275
H. Dispute Resolution 281

Ⅴ. Conclusion 291

References 295