This study examines the effects of market competition and foreign direct investment on the technical efficiency of firms within the Indonesian manufacturing sector using a Stochastic Frontier Analysis. We employ a firm-level panel dataset for the period of 2010–2014, covering 400 subsectors, and employing two measures of industrial concentration as proxies for market competition. The results suggest that firms operating in less competitive sectors in Indonesia experience higher technical efficiency. Additionally, foreign ownership, international activity (export-import), and firm size are positively related to technical efficiency. Such findings suggest that the efficient structure hypothesis (ESH) applies in Indonesia, as more efficient firms gain in market share as a result from dynamic competition. Foreign direct investment (FDI) via horizontal spillovers has contributed to an increase in intra industry firms’ efficiency. Nevertheless, as industrial concentration increases, the positive effects in firm efficiency from FDI and from international trade (imports and export) tend to decrease.

This study examines the impact of foreign presence in the Medium-High and High technology manufacturing industry in Indonesia. Using a balanced panel data that consists of 2,397 firms and in the year of 2010-2014, the data was estimated using the multiple regression method. The results show that there is positive spillover when local and foreign firms are in the same industry. Conversely, in different industries, negative spillover occurs in forward linkage when local firms buy the output of foreign firms and no spillover occurs in backward linkage when local firms become the suppliers of foreign firms. The Indonesian government must assure that foreign investment policies must benefit the domestic companies, considering there are some potential losses for domestic enterprises by the presence of foreign direct investment in the domestic market.

Abstract—This study aims to analyze Foreign Investment which gives spillover impact on productivity growth of Indonesian manufacturing industry companies in 2007-2013. This study applies the application of quantitative analysis, using the data of the Annual Survey of Large and Medium Enterprises of the Central Statistics Agency of Indonesia (BPS). The data was processed by applying the method of panel data analysis and OLS regression. This research shows that PMA holistically gives a positive impact and gives different impacts to manufacturing industry sub-sector. With different findings, in each sector, different regulations related to PMA in Indonesian manufacturing industry are needed. Keywords: foreign investment, spillover, productivity, manufacturing industry.   Abstrak—Penelitian ini bertujuan untuk menganalisis Penanaman Modal Asing (PMA) yang memberikan dampak spillover pada pertumbuhan produktivitas perusahaan- perusahaan industri manufaktur Indonesia periode 2007-2013. Dalam penelitian ini diterapkan pengaplikasian analisis kuantitatif dengan menggunakan data Survey Tahunan Perusahaan Besar dan Menengah Badan Pusat Statistika Indonesia (BPS). Data diolah dengan menerapkan metode analisis panel data dan regresi OLS. Hasil penelitian dengan menggunakan analisis data panel menunjukkan bahwa PMA memberikan dampak positif secara menyeluruh dan memberikan dampak yang berbeda-beda terhadap subsektor industri manufaktur. Dengan hasil temuan yang berbeda di setiap sektornya, maka diperlukan adanya kebijakan yang berbeda pula terkait peraturan PMA di industri manufaktur Indonesia. Kata kunci: penanaman modal asing, spillover, produktivitas, industri manufaktur