So will capital owners put money in Indonesia?

Yes. But they will only do so if the return is higher. Say 30%. Few businesses give 30% return. So little capital will flow to Indonesia.

Those who do put money in Indonesia will have to be compensated with higher return. So capital owners don’t get hurt.

Now, what about if we have law certainty, no corruption, less governments’ intervention, and no sweeping. Let’s for simplicity sake, we can make investing in Indonesia as save as US bond.

Let’s for simplicity sake the return in Indonesia is still 30%.

Then, capital owners will be willing to put money in Indonesia even if the return is 4%. In fact, the Japanese banks lend money at 0%. Many Japanese will borrow money from Japanese bank and put it in Indonesia.

Capitals will pour to Indonesia. But that’s not the best of the story yet. When there are too many capitals, the market price of capital interest drop.

You see, the interest rate is the rate where the amount of people saving money is the same with the amount of people borrowing money.

When there is a lot of money flowing to Indonesia, not only there will be more capital available, in workers’ perspective, the capital owners get less return.