The main purpose of this study is to analyze the relationship between the specified macroeconomic variables and inward foreign direct investment (FDI) by using vector autoregression (VAR), and investigate which macroeconomic variables have an influence on the inflow of FDI. The economic factors in this research are gross domestic product (GDP), exchange rate, domestic lending rate, and export value. This study utilizes quarterly secondary data from 1997Q1 to 2008Q2. The analytical methods are the unit root test, vector autoregression (VAR), Johansen and Juselius’s Cointegration, impulse response, and variance decomposition. The results reveal that there are long run stable relationships amongst all of the economic variables. Impulse response and variance decomposition show that export value has the largest influence on FDI, while FDI has the largest influence on GDP. Export value also has the largest influence on exchange rate, while exchange rate has a huge effect on domestic lending rate as well as has the largest influence on export value.

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