Clustering and firm productivity spillovers in Indonesian manufacturing

Abstract

Earlier studies on foreign direct investment (FDI) and firm productivity have mainly focused on the general impacts of FDI on local firms' productivity. This current research extends the existing literature by examining the heterogeneity issue in firm productivity by clustering Indonesian manufacturing firms into nine industrial groups. Two estimation methods are applied: stochastic frontier analysis and panel data analysis, which emerge three key findings. Firstly, the impacts of FDI vary among firm clusters, with six out of nine clusters are able to grasp the positive benefits of FDI, whereas three out of nine clusters experience negative productivity effects. Secondly, the labor-intensive clusters tend to receive negative productivity effects, whereas the capital-intensives clusters receive positive productivity impacts. Thirdly, the sources of FDI-productivity vary across clusters, with scaleefficiency as the most dominant source and technology advancement as the second dominant source. These findings justify the importance of estimating firms in homogenous industrial groups to gain precision findings of productivity benefits.

Gender diversity, foreign direct investment spillovers, and productivity: Unraveling the role of female workers in Indonesia

“…The results were robust across all empirical observations. This finding is consistent with theories arguing that knowledge transfer occurs more easily between firms in the same geographical location than between those in distant regions (Suyanto et al, 2021). Cainelli (2008) discovered that manufacturing firms significantly influence economic performance when they are part of an industrial zone, where they exhibit higher productivity than those located outside industrial districts.…”

Technical Inefficiency in Nine Clusters of Indonesian Manufacturing Firms And its Determinants: Stochastic Frontier Analysis

“…This study uses the one-stage stochastic frontier analysis (SFA) introduced by Battese & Coelli (1995) to avoid the inconsistency effect found in the two-stage estimation approach (Habiyaremye, 2019;Suyanto et al, 2021a). The one-stage SFA simultaneously estimates the production frontier and inefficiency equation to measure the technical inefficiency scores and variables affecting the inefficiency scores.…”

The Impact of Firm Size and Market Concentration on Firm Productivity

“…Although theoretical literature indicates a potential positive correlation between firm size and productivity, the empirical studies find mixed evidence. Most researchers discover a positive effect of firm size on productivity through capital accumulation [23,24], technology advancement [2,3], skilled workers [4,5], and foreign ownership [7,25]. Several researchers unveil a negative impact of firm size and argue that small and medium enterprises are more productive due to their adaptability in dealing with economic downturn [5], affectivity in learning new knowledge [9], and flexibility in management decisions [8].…”

“…The constructed panel data consists of 6,783 firms for 7 years from 2007 to 2013, so the total observations are 47,481. The procedure to construct a balanced panel follows [7]. This balanced panel data is used for estimations under the two models (AA-OLS and RE-GLS).…”

“…Empirical studies unveil mixed evidence, as some research shows a positive impact of firm size on productivity, whereas others find a negative effect. Those who uncover a positive effect argue that large-scale enterprises can adopt a more sophisticated technology [2,3], employ high-skilled professionals [4,5], and receive more spillover benefits from a foreign direct investment [6,7], allowing them to have higher productivity. In contrast, studies that discover a negative impact argue that small and medium enterprises (SMEs) are more efficient than large firms in management decisions and organizational control [8], more effective in acquiring new capabilities [9], and more adaptable in facing the organization and economic problems [5], pushing them to be more productive.…”