JAKARTA (REUTERS) - Monash University has won approval to set up the first foreign university campus in Indonesia, the Australian institution said on Monday (Feb 10), as Southeast Asia's biggest economy moves to free up areas of restricted investment.

Indonesia has a big and young population, but the OECD grouping of rich nations says just about 16 per cent of its young adults have attained a tertiary education.

President Joko Widodo signed a free trade deal with Prime Minister Scott Morrison in Australia's capital of Canberra after the parliaments of both countries ratified the pact.

The campus "will contribute powerfully to Indonesia's economic, social and technological development," Morrison told Australia's parliament.

Though neighbours, the two are not top economic partners and the Indonesia-Australia Comprehensive Economic Partnership Agreement aims to boost lagging trade and investment.

The deal, agreed last year by the trade ministers of the two nations in the Indonesian capital of Jakarta, also allows Australia to invest in higher education in Indonesia, a sector previously closed to foreign business.

Monash Indonesia will offer studies for Master's and PhD degrees, as well as executive programmes and other offerings, the university's president, Margaret Gardner, said in a statement.

The Melbourne-based university will begin short executive programmes this year and enrol Master's degree students in the fourth quarter of 2021, it said.

Tariffs to be scrapped under the newly ratified deal include barriers to Australian agricultural exports and Indonesian-made footwear and textiles.

Indonesia will also push for car exports to Australia as Jakarta develops more capacity to produce hybrid and electric vehicles, Airlangga Hartarto, its chief economic affairs minister, said in a statement.

Australia valued trade between the neighbours at A$17.8 billion (S$16.5 billion) in 2018-2019, making Indonesia its 13th largest trading partner.

Widodo also told Australia's parliament he wanted to work with the traditional Pacific power to expand influence in the region, in the face of China's stepped-up efforts to do the same.