OMI ONGGE. Key words: Individual, Policy-preferences, FDI, Papua, Income

Transcription

1 The individual policy preferences toward FDI-Development nexus in Indonesia. (Case: The individual surrounding PT. Freeport Indonesia in Timika-Papua) Abstract OMI ONGGE This dissertation tries to find out what determines the individual policy preferences toward the FDI-Development nexus in Papua-Indonesia. This research found out that the income of an individual measured by comparing their income with the majority of the people in Papua becomes the preferences of the individual policy on the FDI. The higher income of an individual tends to support the FDI-Development nexus, while, the lower income of an individual tends not to support the FDI. Most of the individuals in Papua agree that Freeport should be nationalized by the government, while the local private companies are not needed to be taken over by the government. It shows that the people in Papua is supporting the protectionism as measured by the nationalist ideology of the people of Papua. Moreover, this research found that the FDI gives a lot of contributions to the development of the local company and the individual who believes so tends to support the FDI-Development nexus. Freeport supports the local company to support the operation of Freeport in every sector of the company. Furthermore, the Age of the individual become the preferences of the individual. The older the individual, they tend to support the FDI. The older people in Papua tend to compare the existence of Freeport since in the very beginning until the present and found out that before the local government interfere with the income of Freeport, the society got more benefits from Freeport. Key words: Individual, Policy-preferences, FDI, Papua, Income 1

2 I. Background The role of Multinational Corporations (MNC) commonly associated with the Foreign Direct Investment (FDI) is assumed to be very important in improving a state s economic growth, especially in developing countries (Blonigen, 2006). Most of the FDI invest heavily in the developing countries, where they believe that they could help the developing countries to manage their natural resources by bringing along their technology into developing countries. Classical Economic Liberalism argues that developing countries should enhance their roles in promoting liberal economy in order to increase the speed of development (Sally, R. 1998). As new emerging economic in the region, Indonesia as a member of G20 proves itself as within the top 20 of the FDI inflows host economies based on the United Nations Conference on Trade and Development (UNCTAD) investment report in In the last five years the Gross Domestic Product of Indonesia decreased, where in 2010 the economic growth was 6.81%, but in 2015 was only 4.71% (BPS, 2015). The decline of Indonesia s economic growth was influenced by the lower number of Indonesia s export production. Moreover, the new regulation on natural resources and mining was legalized by the parliament, where the natural resources could not be able to be exported as raw material. Hence, the raw materials had to be processed in Indonesia before they are exported. In 2015, the Foreign Direct Investment in Indonesia was IDR trillion. This number was increased 19.2% compared to the number in In other words, Indonesia s FDI is edged up from USD 28.5 to USD Moreover, in October, November, and December 2015, the amount of FDI significantly increased by 26% as reported by the Investment Coordinating Board of the Republic of Indonesia (Badan Koordinasi Penanaman Modal-Capital Investment Coordination Body)

3 Source: Investment Coordinating Board of the Republic of Indonesia (BKPM) Figure 1 = Indonesia Foreign Direct Investment development Based on figure 1, basically the trend of FDI in Indonesia is significantly improved for the last 3 years. In Indonesia, there are thousands of MNC associated with FDI in every sector. Pujiastuti (2015) argues that 90% of Indonesia s natural resources are owned by the FDI. Indeed, it creates huge job vacancy for Indonesians, yet it also creates huge social gap between people who work in MNC and those who work in other sectors or companies. Source: Investment Coordinating Board of the Republic of Indonesia (BKPM) Figure 2 = FDI by sector in Indonesia Based on figure 2, the mining sector is the dominant one for FDI in Indonesia. The reason why the main sector of FDI in Indonesia is the mining sector is due to Indonesia s abundance of natural resources. Indonesia is the world largest exporter of steam coal and also the leading exporter of lead, bauxite, gold, 3

4 copper, and zipper (Dutu, 2015). Likewise, Indonesia has also got huge potentials on renewable energy and becomes the world s number one producer and exporter of palm oil. Additionally, Indonesia holds 40% of the world s geothermal energy reserves and also the second largest in producing rubber, Robusta coffee, and fisheries (IEA, 2008). FDI in Indonesia contributes toward the nation s economic growth. Nevertheless, the main obstacle is the huge inequality of development Indonesia. The third largest province of FDI mining sector exploitation is Papua (BKPM, 2013). One of the biggest FDIs in mining sector in Indonesia is PT. Freeport Indonesia with 212,950 HA area of exploration is located in Timika-Papua (PTFI, 2015). Moreover, in terms of the divestiture, only 9.36% government s stake is on Freeport. Hence, most of the revenues of Freeport absolutely goes to its home country United State of America. The condition of Indonesia s society, which is nationalism in terms of the economy, makes the role of FDI is always seen as negative on the society s perspective (Booth, 2016). Therefore, this research tries to look at the individual policy preferences toward the existence of the FDI-Development nexus. This research took samples in the area where the level of the poverty is huge, while FDI is operating mainly in Mimika Regency in Papua. In Mimika, PT. Freeport Indonesia, which comes from the United States of America, has been operating for about 48 years. PT Freeport Indonesia (PTFI) is the Indonesian mining affiliate of Freeport McMoRan Inc. (FCX). It is the world largest and leading producer of copper and gold. The intense news about Freeport in Indonesia has become so popular, because the contract will expire in 5 years. The response of the society whether the government should renew the contract or not has become a current debate. Most of the people in the Indonesian society demand to not renew the contract, because PTFI failed to contribute to the development of Indonesia, especially in Papua. It has been 48 years since PTFI operates in Papua, while Papua remains as the poorest province in Indonesia. According to Statistics Indonesia (Badan Pusat Statistik), the poorest provinces in Indonesia is Papua with 30.66% of poverty percentage (BPS, 2016). Papua is one of the provinces in Indonesia 4

5 considered as the most backward and impoverished province. However, in 2015, the economy of Papua grew significantly by 7.97 percent (Asia News Monitor, 2016). The existence of Freeport becomes the factor for the growth of the economy in Papua, but it then creates more question marks within the society, because there is no improvement at all from the infrastructure of the regional development in Papua. Moreover, Freeport has been operating in Papua for more than 40 years. The economic growth in 2015 would mean nothing compared to how long this giant gold and copper-mining company has operated. The condition in Mimika-Papua is quite ironic, because Papua is considerably rich with its natural resources and the FDI exploitation does not seem to have any significant influence toward the development of the local community. The huge number of natural resources, but the lack of human resources has become the reason for the under-development in Papua. Further, the responsibility to create development is debatable among the society in Papua, whether the lack of development is the responsibility of the local government or the responsibility of Freeport who receives much benefit from the land of Papua. Therefore, this research looks at how the society surrounding the existence of FDI (PT. Freeport Indonesia) responds to whether FDI gives them better life or not. Hence, this research also looks at how the relations between the FDI and the local community basically is. II. Theoretical Framework of Analysis In the study of International Relations (IR), individual is one of the actors in IR. However, the study on the individual policy preferences is greatly underexplored especially on the individual policy preferences on the FDI both in the developed and developing countries. In understanding the individual policy preferences, some research had been conducted on the trade policy preferences. Scheve and Slaughterb (2001) argues that the individual policy preferences were influenced by their personal welfare on how the policy would affect their income. The research shows that the lower skill measured by the level of education and average income would support the trade barrier, while 5

6 employment in industry, which focuses on the trade, measured by tariff rates or net exports does not support the trade barriers. Moreover, home ownership in comparative-disadvantage industries would support for the trade barriers. Therefore, factor income and asset ownership become the factors of welfare on the research and the individual trade-policy preferences depend on the asset value. Analysing the individual trade policy preferences, most of the scholars use either the Ricardo-Viner (RV) or Hecksher-Ohlin (HO) model. The RV model focuses on the comparative advantages in which it believes that every country should specialize in producing goods and services and there is only one factor of production in which is labour. Therefore, looking at the policy preferences, the skill of the labour, and the income of the labour would be a significant factor in identifying the individual policy preferences on the trade policy. Furthermore, RV model argues that the international trade among countries in the world occurs, because there is a labour productivity and technological differences. However, this RV model will only last for a short-run because the development of technology rapidly influences the countries in the world. Meanwhile, H-O model is meant to give an explanation to the cause of the difference in the productivity. H-O theory states that the cause of the differences in the productivity is due to the number or proportion of the production factors owned (endowment factors) by each country, thus further causing differences in the prices of goods produced. Therefore, modern theories H-O is known as The Proportional Factor Theory" (Krugman, Paul R. and Obstfeld, 2003). The countries that have relatively plentiful factors of production or cost will produce specialized production and then export goods. Instead, each country would import certain goods if the country has a relatively scarce factor of production or expensive in producing goods. However, both RV and H-O model believe that the individual trade policy preferences would change if they affect the income factors by changing the relative product prices of a country. The differences of RV and HO models are on the different assumptions about the inter-structural mobility factor (Grossman & Rogoff, 1995). 6

7 Nevertheless, there is only a few empirical research on the individual tradepolicy preferences done in developing countries, because it is mostly done in the developed countries (Bernaur & Nguyen, 2015). One of the studies in environmental concerns and individual trade preferences in developing countries was done in Nicaragua, Costa-Rica, and Vietnam (see Bernauer and Nguyen, 2015). The result of the research shows that the citizens are aware of the negative environmental impact of the trade liberalization and demand to the government for a green technology in trade agreements. Even though in practice the policy makers somehow neglect the individual policy preferences. Ahmed, Bastiaens, and Johnston (2015) firstly made effort to analyse the global attitudes on the FDI. Their research on individual policy preferences on FDI across developed and developing countries showed that relatively wealthy individual will favour the FDI compared to the relatively poor individual. The main reason is because the wealthy individual gets more benefit from the FDI than the poor individual. However, individual in the developing countries tends to be more in favour toward the FDI rather than in the one in the developed countries worldwide. Their research is interesting, since the individual in developing countries tends to support the FDI and they are getting much benefit from the FDI such as the job creation, or high salary compared to the people who work at the non FDI sectors. Meanwhile, developed countries tend to be not in favour of the FDI because they have less needs for foreign capital. In Japan, the endowment effect is one of the determinant factors for the individual in support for the individual policy preferences on the liberal economy to support the international trade (Tomiura E, 2014). The endowment effect significantly makes the individuals to resist the import liberalization and it shows that economic compensation and income distribution are not enough to make political support on the trade liberalization. Furthermore, the level of education of individual is also very important to determine how the individual policy preferences toward the economic liberalization could be the factor of whether the individual is influenced by the endowment or not. 7

8 Moreover, the regional factors effect in Japan may also become a factor for the individual on international trade policy preferences. People who are living in the region where it has considerably high share of agricultural workers are most likely to support protectionism than people who are not living in the region where agricultural is the source of income of the people. It is because in Japan agricultural products is the most protected sector (Ito B, 2014). In Indonesia, the government somehow has the policy to control and subsidise the agricultural sectors. Furthermore, the government policy within the Southeast Asian countries is to open-access market where most of the Southeast Asian countries main products are the agricultural. Nevertheless, the lack of budget make Indonesian government does not have the power to control its agricultural production. Furthermore, the study of individual policy preferences toward the trade policy also shows that the non-economic factor could also become a reason for the individual in trade policy preferences. The culture and ideology are the most prominent factors in deciding whether the individual tends to practice protectionism or support the liberal economy (Kevin H. O, Richard S, J. David. R, and Dani. R, 2001). This study proves that the cultural and ideological factor of the individual is paramount, such as the nationalist attitude of the people may become a determinant in their trade policy preferences as protectionism. Therefore, it is interesting to examine the individual policy preferences in the developing countries because there are abundant variables that could determine the individuals trade-policy preferences. The lack of education, the huge number of unemployment, gender, and the inequality income among the society could become the dependent variables of whether the individual supports the trade liberalization or not, which resulted in the supported Foreign Direct Investment within a country. The impacts of the FDI in the host countries vary among scholars. Some scholars argue that the existence of the FDI in the host countries generate positive influence in development of the economics. The role of the FDI is known not only as a means to finance the direct capital but also as a source of economic advantages such as foreign exchange improvement, technology transfer, 8

9 improvement in balance of payment, organizational framework and managerial skill, job creation, and the promotion of the export products of the countries (Ilie, 2014). These arguments explain the reason why the developing countries are likely to invite the FDI by providing some incentives like tax holiday, in order to support the FDI to invest in their economies. On the other hand, we must also not simply neglect that some scholars also explain that the existence of the FDI creates negative impact to the host countries. The arguments in supporting the FDI as a way to improve the economy somehow is not what actually happens in the developing countries when they are dealing directly with the FDI. The negative wage of spillover, profit repatriation, the dual economy effect and environmental issue become the major arguments of the scholars who are against the FDI as economic boost of the developing countries (Forte & Muora, 2013). One of the reasons for the FDI to come into the developing countries is due to the market access of the resources and to make the firms more productive. According to Poulsen et.al (2016), the expansion of more productive firms has to benefit a host country, even if those firms are foreign and their expansion displaces their less efficient domestic competitors because FDI may generate the indirect benefits such as the spillovers effect from the FDI to the domestic or local firms. Spillovers would impact positively toward the economic growth by spreading knowledge and technology. There are two types of spillover effects. The first is horizontal spillover in which the domestic firms get the knowledge and technology from the foreign firms within the same industry. The second is vertical spillover where the domestic corporations benefit from the foreign corporations across industries that could be by backward linkages or forward linkages (Poulsen et al, 2015). Furthermore, the condition of domestic politics will also determine the impact of the FDI in host countries. Schutter et al (2012) argue that the FDI would only have a positive impact on growth with highly educated workforces. Hence, the FDI will not be able to spread knowledge and technology in highly distorted economic environments. Frankel (2011) contend that often the state with a lot 9

10 of natural resources like in the developing countries in Asia and Africa failed to show better economic performances. This phenomenon is called as Natural Resources Cursed. Most of the African countries like Angola, Nigeria, Sudan, and Congo are rich in oil, mineral, and diamonds, but those countries are living in a significantly low per capita income and low quality of life. Analysing the FDI in developing countries need to be understood in both politics and economics perspectives and theoretical approaches. The role of domestic politics on how the government deal with the foreign investment needs to be analysed as well as the governance system, whether there is corruption or not. This research contribution to the literature on the FDI-development nexus are threefold. First, this research is first study to look at the FDI-development nexus on individual preferences policy in developing countries, because most of the researches on the individual trade-preferences policy have only focused on the developed industrial countries. Second, this research provides the theoretical arguments for what the citizens preferences on FDI-development nexus are likely to differ between the individual trade-policy preferences. Third, this research relies on original survey data to test the theoretical arguments. Moreover, this research will also become the policy recommendation to the government of Indonesia as a democratic country. III. Hypothesis The hypothesis for this research refers to the previous research done by Ahmed, Bastiaens, and Johnston (2015) in looking at the individual policy preferences on FDI based on the income of the individual. H1 = The relatively poor individuals measured by income would prefer to disagree with the FDI-Development nexus. IV. Methodology 10

11 This research applies both qualitative and quantitative research methods. In order to understand the data collected from the questionnaire, this research uses multiple linear regression analysis with STATA. The multiple linear regression model is estimated based on the model below: y = b1 x1 + b2 x2 + b3 x3 + b4 x4 + b5 x5 + b6 x6 + b7 x7 + b8 x8 + b9 x9+ e Table 1. Variable information Variable Symbol Meaning Value Scale Dependent y FDI-Development Nexus 1 = Strongly Likert measured with Foreign Corporation Gives Disagree 2 = Disagree Contribution for 3 = Neither Infrastructure Development in Regional Agree Disagree Nor (Q4.3) 4 = Agree 5 = Strongly Agree Independent x1 Gender (Q1.1) 1 = Man Binary 0 = Woman x2 Age (Q1.2) 1 = Age 20 2 = 20 < Age 25 3 = 25 < Age 30 4 = 30 < Age 35 5 = 35 < Age 40 6 = 40 < Age 45 7 = 45 < Age Interval 11

12 50 8 = Age > 50 x3 Work in MNC (Q2.1) 1 = Yes 0 = No Binary x4 Condition of Infrastructure Development is Compared with Other Province (Q3.7) 1 = Very Bad 2 = Bad 3 = Moderate 4 = Good 5 = Very Good Likert x5 Comparison of Monthly 1 = Not Know Interval Income People in a 2 = Lower Regional Papua (Q3.7) 3 = Same 4 = Higher x6 x7 Foreign Corporation Gives 1 = Strongly Likert Advantage for Family(Q4.1) Disagree 2 = Disagree 3 = Neither Agree Nor Disagree 4 = Agree 5 = Strongly Agree Foreign Corporation should 1 = Strongly Likert be Taken Over by the Disagree Government (Q4.8) 2 = Disagree 3 = Neither Agree Nor Disagree 4 = Agree 5 = Strongly Agree x8 Private Corporation should 1 = Strongly Likert 12

13 be Taken Over by the Disagree Government (Q4.10) 2 = Disagree 3 = Neither Agree Nor Disagree 4 = Agree 5 = Strongly Agree x9 Foreign Corporation Gives 1 = Strongly Likert Influence to Local Disagree Corporation (Q4.12) 2 = Disagree 3 = Neither Agree Nor Disagree 4 = Agree 5 = Strongly Agree The dependent variable is the FDI-Development Nexus (Q4.3) in which it is believed that the existence of the FDI in the region gives a contribution to the development of the infrastructures. There are 38 random sampling data collected within the region of Papua where they represented all the employment sectors of the individuals in Papua namely; Mining, Education, Agricultural, NGO, and Private entrepreneur The main independent variables to prove the hypothesis are Work at the MNC (Q2.1) and Comparison of Monthly income of people in regional Papua (Q3.7). Those two independent variables are the determinant factor whether the income and the sector of employment influences the individual-policy preferences on FDI-Development Nexus As this research is the first one to be conducted at a developing country, therefore, field research by directly interviewing the local community was 13

14 conducted in order to get the primary data and support the quantitative result of the research. V. Findings and Discussions In the last thirty years, the growth of the Foreign Direct Investments shows significant improvement by 25% globally (Mayda and Rodrik, 2005). The globalization era and the open market system globally forced the state to follow the rapid development of technology in factor to increase production as well as labour skill. The developing country such as Indonesia looks at the liberal global economy as new challenges. In Indonesia, the response toward the questions on the relations between growing trade and business ties with other countries are whether (1) very bad, (2) somewhat bad, (3) somewhat good, or (4) very good thing for our country? (PEW 2002 and PEW 2007) is 2.8 and 3.0 respectively, which means that the individuals in Indonesia tend to adopt protectionism more (Wacziarg and Welch 2008). In Papua, I asked the individuals the following questions: (1) The government SHOULD nationalize the FDI and (2) The government SHOULD nationalize the national private company? (1). The government should nationalize the FDI (5) Strongly Agree (4) Agree (3) Neither Agree or Disagree (2) Disagree (1) Strongly Disagree 14

15 (2). The government should nationalize the national private company (5) Strongly Agree (4) Agree (3) Neither Agree or Disagree (2) Disagree (1) Strongly Disagree From those two questions above, it could be analysed that the individuals in Papua tend to support to nationalize the FDI by 31.6 %, but tend to disagree if the government took over the national private company. The reason for some individuals who support to nationalize the FDI is: Indonesia is able to manage it s own natural resources, than to be managed by the foreign with very cheap prices. We are tired of being fooled by the foreign company, we got nothing at all Most of the reasons of the individuals who support to nationalize the FDI tend to see that FDI do not bring more benefit to the local people. They believe that the MNC gets more benefits for its own home countries where the MNC originally come from rather than to the Host countries such as to Papua-Indonesia. Therefore, the people in Papua tend to be adopt more protectionism in the case of FDI. On the other hand, the individual preferences on national private company shows significantly different result as the FDI. Most of the people by 39.5 % totally disagree if the national private company is being nationalized by 15

16 the government. The people of Papua believes that the private company give much contribution to the development and it is owned by the local people. It s owned by the local people, so the government does not need to nationalize and take control of it, what the government should do is to support the local company The local companies are more dedicated than the government for sure Moreover, the skill the individual possessed has also become the reason for the individual policy preferences toward the trade barriers and international trade. The more specific-skilled of the person tend to be adopting more protectionism than others. The reason is because the job in the small number of companies seems to make the person to support in increasing the trade barriers (Urbatsch, R. 2013). The reason is because the small companies somehow need the government protection in order to protect them from the massive production of the foreign company. Hence, the individual policy preferences toward the international trade could also be measured based on the skill of the individual and the sector and place of their work. According to Kevin H. O, Richard S, J. David. R, and Dani. R, (2001), the culture and ideology are the most prominent factors in deciding whether the individuals tend to be adopting protectionism or to support the liberal economy. The culture and ideology of the people in Indonesia is pretty much nationalist, because the experience of being colonialized for about 350 years by the Dutch made the Indonesians become considerably nationalist and even some of them are antiwestern and anti-colonial (Puruhita, 2011). Therefore, there is no doubt that the people of Indonesia especially in Papua tend to be adopting more protectionism when dealing with the liberal economic principles, such as the Foreign Direct Investment. The ideology for most of the Indonesian people might be categorized as nationalist and anti-colonial, therefore the nature of globalization and the impact of global economy somehow make the country to follow the flow of the globalization and become an actor of international market. Even though the individual policy preferences choose not to do so. Hence, it is quite easy to 16

17 find in Indonesia, where the policy of the government somehow does not come from the policy preferences of the individual. Hence, in this research, we found that the individuals in Papua-Indonesia have different point of view in looking at the MNC and local company. We could see on how the different approach of people in Papua looking at the MNC and the local company. The individuals in Papua tend to see the Freeport as the western power to control the country and take all the natural resources that they believe could be done by the local people themselves. On the other hand, the individuals look at the private local company as the people power and symbol of the prosperity of the local people when they have their own company. Therefore, they conclude that it would be much better if the government is taking control of the MNC and let the local company be as a private company without interference from the government.. It is indeed that the people in Papua tend to be adopting more on protectionism. (Translated = 6. The government should attract more FDI) (5) Strongly Agree (4) Agree (3) Neither Agree or Disagree (2) Disagree (1) Strongly Disagree 17

18 Based on this data, we could see that the majority of the people in Papua do not want if the government attract more FDI in the region. The people tend to agree to nationalize the FDI, but disagree to nationalize the local private company. Moreover, the ideology and the culture of the people in Papua in which it is considerably nationalist also become other factors for the policy preferences in FDI-Development nexus. Hence, the protectionism of the society could be seen based on their level of income and the employment sector of the individual in which would be analysed deeper below using multiple regression model. 1. The output coefficient multiple regression model. This research is using Jackknife method, where it is one of the nonparametric methods used to see the standard error from the problematic coefficient regression on the data about the classical assumption of parametric approaches. Therefore, it is done to answer the alternative hypothesis H1 by testing the hypothesis from the linear regression model below: 1) Hypothesis to test the coefficient model by F-test for the regression equation. H0: There is no simultaneous influences of variables x1, x2, x3, x4, x5, x6, x7, x8, and x9 toward variable y. (b1 = b2 = = b9 = 0) 18

19 H1: There is simultaneous influences of variables x1, x2, x3, x4, x5, x6, x7, x8, and x9 toward variables y. (Minimum bi bj 0; i, j = 1, 2,, 9) 2) Hypothesis to test the individual coefficient model by T-test for the regression equation: H0: There is no influence of individual variables x1, x2, x3, x4, x5, x6, x7, x8, and x9 toward variables y. (bi = 0; i = 1,2,,9) H1: There is influence of individual variables x1, x2, x3, x4, x5, x6, x7, x8, and x9 toward variable y. (bi 0; i = 1,2,,9) In the simultaneous test of coefficient model for F-test by STATA, it has significant P-value α with 5%. Table 2. Result of the F-test for coefficient significant of regression model Variable F-Statistic P-value y 42,79 0,0000* *The significant level (α) is 5%. From the result of the output table, F-Statistic [See F (9, 37)] is with the P-value [See Prob > F] is (P-value < 0,05). Therefore, from this test we could conclude that there is significant simultaneous influence of the independent variables x1, x2, x3, x4, x5, x6, x7, x8, and x9 toward dependent variable y. At the individual coefficient model with the T-test, there is a significant influence when the P-value α with α is 10%, 5%, or 1%. Table 2. Result of the T-test for the coefficient significant regression model Dependent Variable Independent Variables Coefficient Regression Standard Error t- Statistic P- value y x1-0, , ,35 0,185 x2 0, , ,98 0,055* x3-1, , ,30 0,027** 19

20 x4 0, , ,60 0,551 x5-0, , ,83 0,075* x6 0, , ,80 0,081* x7-0, , ,29 0,205 x8 0, , ,75 0,456 x9 0, , ,00 0,053* ***The significance level (α) is 1%. ** The significance level (α) is 5%. * The significance level (α) is 10%. From the output table, we could analyse the result below and testing the hypothesis 2. Testing the hypothesis of this research H1 = The relatively poor individuals measured by income would prefer to disagree with the FDI-Development nexus. In the individual trade policy preferences, the income of the individual is also one of the variables in determining the individual preferences. Home ownership with manufacturing in comparative-disadvantage is supporting the trade barriers (Schevea, & Slaughterb, 2001). Further, Ardanaz, M; Murillo, M; Pinto, P (2013) argue that the individual role in economy and its material concern become one of the major reasons for the policy preferences of the individual toward the international trade in Argentina. The more significant its role in the economy the more supportive to the economic integration and support the international trade as a way in supporting the economy of the state. Therefore, in this case of FDI policy preferences, the income of the people is also one of the factors in determining the preferences of the people in supporting the FDI as creator of the development in local area. Based on the table 2, we could see that there is a significant influence of the variable x3 (Work in Foreign Corporation), in which from 38 respondents 20

21 there are 92.1% who do not work at the MNC and 7.9% who work at the MNC toward y (FDI-Development Nexus) by (negative); which means that the individuals who are not working at the MNC tend to disagree with the FDI-Development Nexus. The persons who are working at the MNC get more benefit than the individuals who are not working at the MNC. (Translated: 1. Do you work at the MNC? Blue = Yes, Red = No) In Papua, the persons who work at the MNC has very high income and prosperity compared with the persons who work at any other sectors such as education and agricultural. Based on my observation in Papua, the prosperity of the Freeport employment is much higher than the people who are not working in the Freeport. Freeport creates a very special town, exclusive only for the employees of Freeport called Kuala Kencana, in which its facility is like living in a highly modern town. In Kuala Kencana, there are facilities such as golfing arena, swimming pool, malls, and many other facilities that can only be enjoyed by the Freeport employee. Thus, the people who work at Freeport absolutely have higher income compared with the majority of the local people. Therefore, Freeport employees would agree that the existence of Freeport creates much benefit for them. It also proves that the wealthier individuals tend to support the foreign investment and company (Ahmed, Bastiaens, and Johnston, 2015). Moreover, there is also a significant influence of variable x5 (Comparison of Monthly Income of People in Regional Papua) in which from 38 respondents, around 73.7% have a lower income compared with the majority of the people in Papua, and there are around 26.3% with higher income from the majority of the people in Papua toward y 21

22 (FDI-Development Nexus) by (negative). This means that the lower income of the individuals tends to have a negative influence or disagree toward the FDI-Development nexus in Papua. Related to the individual wealth and their preferences on the FDI, Ahmed, Bastiaens, and Johnston (2015) on their research toward the Global attitudes on the FDI conclude that the wealthier of the individual, they then relatively agree to the FDI and support the open market system. This is because the wealthy individual has the direct access to the foreign capital and could utilize the foreign capital into their business and make their business even bigger. Furthermore, in this research, the wealthier individuals are determined by their sector of employment and comparing their income with the majority of the people in the region. This research shows that the individual policy preferences in Papua related to the FDI-Development Nexus who tend to support the FDI because they experience and enjoy the direct impact of Freeport in their daily life. Meanwhile, the people who are not working at the Freeport would love to say that they got nothing from the existence of Freeport, because the huge gap of living condition between the people who work at the Freeport and not. Those huge gap raise the sentiment from the people of Papua toward the existence of the Freeport in Papua. Some of the respondents response of Freeport in Papua: They got much from our land, but they give very small to us. Indeed, they build some of the infrastructures such as schools, roads, homes, and many others, but compared with what they got from our land, the tons of GOLD that they get from us is still very tiny that the Freeport give to us The corrupt government is also the reason why Freeport fund for development is ineffective, the local government corrupts all the money from Freeport Most of the respondents believe that the corruption and mismanagement of the local government are some of the reasons why the local development 22

23 compared with the other provinces in Indonesia is significantly left behind in Papua. Below are the respond of the individual in Papua to the local development of Papua comparing with other provinces in Indonesia. (1) Very Bad (2) Bad (3) Neither good or bad (4) Good (5) Very Good None of the respondents say that the local development in Papua is good or very good compared to other provinces in Indonesia. This graph shows that even though there is FDI operating in certain area, it does not mean that development will follow. The local government in Mimika-Papua has very significant role in distributing the income that they got from Freeport, because the one responsible for the local development is the government itself with support from the central government. Furthermore, Papua has given the special autonomy from the central government of Indonesia to manage its own local income especially from Freeport (Wayap, 2016). The variables x3 and x5 has similar impact toward the dependent variable y. The reason is because the ones who work at the MNC and the ones who have the higher income level compared to the majority of the people in Papua are basically the same persons. They got higher income level compared to the local people in Papua because they are working at the MNC. In Papua, the persons who work at the PT-Freeport Indonesia as the MNC enjoy a minimum 23

24 of 10 million IDR per month. Meanwhile, the individual who are not working at the MNC only get 2.1 million IDR per month as the minimum local salary standard from the government (Hardjanti, 2015). Furthermore, the level of education is one of the variables that support whether the individual policy preferences are in support the FDI or not. The high income that they get also reflects their high education. It means that when the person has a high income by working at the MNC, it also means that they have a minimum of undergraduate level of education. As explained by Blonigen, Bruce A (2011), the level of education could determine the skill of the labour in the market and that skill of the labour becomes one of the preference factors of the individual in supporting the trade policy. Besides the level of education that becomes the individual preference factors on the trade policy, the task routines are also some of the factors for the individual in the US to support import restriction. The task routine related with the economic and noneconomic factors of the individual have become the determinant factors for men and women in supporting the import restriction (Blonigen, B, A. & Mcgrew, J, 2014). Nevertheless, most of the individuals in Papua based on their income measured by comparing their income to the majority of the society, education, and level of education, creates proof that the lower income of the individuals would not support the FDI-Development Nexus. However, there is a significant influence of variable x6 (Foreign Corporation Gives Advantage for Family) in which 52.7 % of the total 38 respondents believe that there is significant advantages from the MNC into their family, while the other 47.3% of the respondents state that the existence of the FDI has no impact toward their family toward y (FDI-Development Nexus) is (positive). The results shows that the more people believe that FDI has an impact toward themselves and their family tend to agree that the FDI develops the local area. The respondents believe that the existence of the FDI in Papua creates more development than the local government. 24

25 Most of the infrastructures are built by Freeport and the government does nothing, they only corrupt the money The people in Papua believe that most of the school and bridges are built by the Freeport company. Their children could go to school because Freeport build them a school. Moreover, as the Corporate Social Responsibility of Freeport toward the local community, Freeport builds them houses and gives monthly allowance called as Dana 1% or 1% from the total income Freeport monthly received is distributed directly to the indigenous people of Papua. Therefore, basically the local development in Papua is pretty much contributed by PT. Freeport Indonesia. However, inequality still becomes the major problem for the development program in Papua. The development done by the Freeport in Papua is only for their employees. Meanwhile, the society is still living in considerably poor conditions. When I had an interview with one of the employees of Freeport and I asked about the local development, they simply said that the local development and problems of inequality are the problems of the local government, not Freeport, because Freeport has given so much money to the government to support the infrastructures and development in Mimika-Papua. The advantages that the individuals feel by the existence of the FDI make it possible to determine the preferences of the individuals toward the FDI.. The individual preferences toward the FDI are measured by their income level would be justifiable and statistically proven, but the impact of the FDI in the daily life of the society proves that it is better for them to have FDI such as Freeport in their area, rather than nothing. Papua might not be as developed as today if Freeport is not operating in Timika-Papua. Hence, the problem of whether there is spillover effect of the MNC also depends on how the local government is able to manage and regulate the FDI. Therefore, it could benefit both home and host countries. 3. The FDI helps the local company 25

26 Another interesting point found from this research is that there is a significant influence of variable x9 (MNC Gives Influence to Local Corporation) toward y (FDI-Development Nexus), (positive); which means there are more individuals who agree that FDI influences the local corporations and tend to support the FDI-Development Nexus. The FDI gives influence or helps the local company (5) Strongly Agree (4) Agree (3) Neither Agree or Disagree (2) Disagree (1) Strongly Disagree It shows that only less than 10% of the individuals who either disagree or strongly disagree that the FDI influences the local company. I was having an interview with some CEOs of several local companies. They support the FDI- Development nexus because they believe that their company could work due to the help from Freeport. Moreover, the food for the employers in Freeport is provided by a local company, as one of my respondents said: We are glad that Freeport is here to help us in creating the job for us, especially for the local company who supports the Freeport to work, like the Food, Cleaning, even the recruitment staff and many other things There are many small private companies that benefit from Freeport especially the local contractors who basically run some of the Freeport s CSR programmes 26

27 to the local community. Therefore, the person who work at the local company surrounding the FDI would prefer to support the FDI-Development Nexus. The individual preferences toward FDI-Development nexus in Papua tend to see that Freeport as the MNC pretty much help the local company to develop. One of the companies who receives benefits from Freeport is Lembaga Pengembangan Masyarakat Amungme dan Kamoro (LPMAK). In 2014, the number of investment funds for the development of society Freeport, either managed directly by PTFI or through partnerships with LPMAK, reached US $ 92.2 million for the development of the local company who are expected to contribute to the development of Papua (Hidayat, A; 2015). The contribution of Freeport to the local company provides benefits for the local community. It indeed creates more job for the local community and it also helps to improve the local company to become more professional in every sector. Most of the people working at the local company in Papua definitely could feel the impact created by the activity of Freeport, meanwhile the people who are not working at any local company would prefer to say that Freeport has nothing to contribute to the local development. The sentiment of some individuals in Papua also would become one of the preference factors in determining the individual policy preferences on FDI. Most of the people in Papua basically share negative sentiment toward foreign company as it might be a part of the nationalist ideology of the people of Papua. Nevertheless, some of the people in Papua believe that Freeport give much contribution to the local company, but basically the people of Papua would prefer if Freeport is nationalized or taken over by the government. The protectionism principle adopted by the people in Papua could not simply make them to believe that because of its contribution to the local development, then Freeport should work as it used to be. In the focus group discussion that I held by inviting the local people, most of them believe that Freeport should be taken over by the government, so that our natural resources could be benefited by ourselves. The people of Papua is quite disappointed with Freeport because most of the hired employees are not the local people. They are recruiting people from other provinces such as Java, Kalimantan, Sulawesi, and Sumatera. It has 27

28 only significantly limited number of the indigenous people of Papua who are working at Freeport. By interviewing the staff of Freeport about their percentage of indigenous people working at Freeport, they basically acknowledge that only few indigenous people are working in Freeport. The reason is because they do not have the skill and capability to work. They argue that the indigenous people are lacking in education, where most of them are only graduated from elementary school. Therefore, there is no valid reason for Freeport to absorb them as employee because they do not have the skills. Hence, the dilemma of the Freeport is solved by helping the local company or even by supporting some of the local company to provide training for the local people who would like to work in Freeport. 4. The older of the people, the more they support the FDI Another significant of variable identified from the multiple regression model on this research is the variable x2 (Age) toward y (FDI-Development Nexus), where it is (positive); which means that the older the individuals are, they tend to agree with the FDI-Development Nexus. This shows that the older of the individuals means that the longer their share of living and experiencing how Freeport operated, they tend to feel that there is some impacts toward the local development brought by Freeport. One of the respondent states: When Freeport operated in their first 5 up to 10 years, the society really got so much benefit from the Freeport. Freeport built them schools, houses, and creates road way that connected the area with one another. Unfortunately, in the last 10 years when in the government has the special autonomy and regulate the money from Freeport as their Corporate Social Responsibility, the development of infrastructures and everything tend to be stuck and the development is left behind In this research, we found that age is also the factor of the individual policy preferences for the FDI. In the previous research related to the individual policy 28

29 preferences on international trade policy and FDI, there are no statistical evidence that the age of the individual becomes the determinant factor for the individual policy preferences. Indeed, the age could also be another variable in order to look at the preferences of the individual related to the policy preferences. The older of the people means that they have experienced longer period of the policy of the government. Hence, the change of the policy and the different type of policy would be significant to be known by the older people who have longer experience than the younger ones. In understanding the policy preferences, the previous research on the individual policy preferences on trade only focuses on the income factor (see Ahmed, Bastiaens, and Johnston, 2015; Schevea, K. F, & Slaughterb M. J., 2001; Bernauer, T & Nguyen, Q, 2015), the task routine (Blonigen, Bruce A. & Mcgrew, Jacob., 2014) determined by region (Ito Banri, 2014), level of education and endowment factor. Metcalf, H and Meadows, P (2010) conducted the research showing that the Age of the individual could be the determinant factor for the key policies and practices in the public policy sector. The factor of Age becomes considerably important in order to analyse the public policy preferences because the policy somehow needs to be amended or changed following the development of the technology and demand from all of the society. To understand the Age of the individual in making opinion and preferences, there are so many factors that could influence their mind or thought. In the case of FDI policy preferences, the individuals in Papua who are older tend to compare the situation when Freeport firstly come to Papua than the current situation. They are comparing on how the government policy is related to the income they got from Freeport, since the beginning until current condition. The condition in Papua might change over time, but the experience of the individual could never be changed and would always tend to compare the development processes. Therefore, the older of the individuals in Papua, they tend to agree that the FDI at least has a contribution to the development in the region. Analysing other variables based on the STATA, there is no significant influence of the x1 (Gender), x4 (Condition of Infrastructure Development is 29