Do FDI spillovers vary among home economies?: Evidence from Indonesian manufacturing

Abstract

The paper addresses the question of whether effects on economic growth of inward FDI differ according to the origin of investors. Implications are derived for trends of regionalism. To address the question, the magnitudes of productivity spillovers from foreign firms to local firms are measured using groups of foreign investors' home regions with data for Indonesian manufacturing. The results of analyses suggest that MNCs from eastern Asian economies impart positive externalities to local firms, whereas MNCs from non-Asian countries did not impart significant effects. Furthermore, the results suggest that eastern Asian countries' MNCs impart stronger effects than Japanese MNCs do, whereas the presence of Japanese MNCs enhanced the magnitude of spillovers from eastern Asian countries MNCs. These results support regionalism in eastern Asian economies, including Japan. JEL classification: F23, O14

The Potential Horizontal and Vertical Spillovers from Foreign Direct Investment on Indonesian Manufacturing Industries

“…These spillovers can work through two broad channels (Girma, G€ org, & Pisu, 2008;Lin, Liu, & Zhang, 2009;Keller, 2010;Takii, 2011). These spillovers can work through two broad channels (Girma, G€ org, & Pisu, 2008;Lin, Liu, & Zhang, 2009;Keller, 2010;Takii, 2011).…”

“…Hence, the existence of FDI can encourage increased gross domestic product or economic growth and tax revenues (Takii, 2005). In the literature, indirect benefits from FDI are known as externalities or spillovers, which are generated through non-market mechanisms into the economy of the recipient countries (Takii, 2011 as well as Lu, Tao, & Zhu, 2017).…”

The Heterogeneity of FDI in Sub-Saharan Africa How Do the Horizontal Productivity Effects of Emerging Investors Differ from Those of Traditional Players?

“…Finally, spillovers through labor market turnover are also more likely to occur when the knowledge and skills acquired by working in an MNC are more adapted to local market conditions and the technology available in the country. Additional evidence that South-South investments enhance spillovers is provided by Takii (2011) for Indonesia, where foreign investors from East Asian economies make a greater contribution to productivity than Japanese firms do. Gorodnichenko et al (2007) find that horizontal spillovers in 17 emerging economies are greater for non-OECD than OECD investors.…”

Resource Allocation, Structural Change, and the Dynamics of Manufacturing Productivity in Indonesia

“…Meanwhile, Indonesia remains an attractive FDI destination for Japanese multinational corporations, because they are more conservative in their approach to investing in China. As indicated in Takii (2011), Japanese multinational corporations continued to invest in Indonesia in the early 2000s and the number of Japanese affiliates accounts for about 30% of foreign-owned plants.…”