Do Foreign Direct Investment Spillovers Differ Across Industries with Different Technological Gaps? (Case Study of Indonesian Manufacturing Industries)
Yuhana Astuti

Telkom University

Abstract

The interaction between multinational enterprises (MNEs) and domestic firms in the host country has become a central issue. This paper aims to examine the impact of the increasing presence of MNEs on the domestic firms^ productivity and whether the different level of technology gap plays any role in influencing the spillovers focusing on the productivity of domestic firms. The research questions are: (1) Has the productivity of domestic firms in the Indonesian manufacturing industry increased due to the presence of MNEs? (2) Do differences in the level of technology between foreign and domestic firms affect the productivity of domestic firms?. This study covered the difference in the technology gap between MNEs and domestic firms in 24 industries and its impact on productivity. It employed a panel dataset of Indonesian medium and large firms between 2010 and 2015. Fixed-effects estimation methods have been used along with the different specifications of the model. The results reveal that the productivity of most MNE is higher than the domestic firms in all industries. However, even in industries where MNEs are productive, the evidence of technology spillovers resulting from the presence of MNEs is mixed and depends on the industry considered. Similarly, by dividing industries into large-technology-gap and small-technology-gap groups, this paper finds that the level of the technology gap plays a varied role in influencing spillovers in different industries.

Keywords: Foreign Direct Investment, Productivity, Spillovers, Manufacturing Industries, Technology gap

Topic: Economics