The Impact of Foreign Direct Investment Spillover, Technology and Firm Size on the Productivity of Domestic Firm in Food Industry

Abstract

Foreign direct investment (FDI) is necessary for Indonesia since the rate of saving is still low compared to the higher demand for investment in Indonesia. FDI contributes not only to the higher rate of investment but also to the spillover of other industrial sectors through technology transfer.The FDI spillover could be in the form of horizontal or vertical spillover with upstream and downstream linkages. The spillover of FDI can give a positive or negative impact on the productivity of sectors or other industries. The objective of this study is to analyze the impact of FDI spillover on the productivity of the domestic food industry. The food industry had the highest value of FDI during 1990-2014, but it had a low value of total factor productivity. The research results show that the FDI spillover gives positive impact to the productivity of domestic food industry which has the highest foreign investment with upstream and downstream linkages. The horizontal and vertical spillover of FDI on upstream linkages gives positive impact to big domestic companies with higher levels of technologies. Meanwhile, the vertical spillover of FDI on downstream linkages gives positive impact to local companies with lower levels of technologies.

The impacts of foreign direct investment on total factor productivity: an empirical study of agricultural enterprises

“…When dividing each industry aggregation into "high-medium" and "low" technology groups, however, they find evidence of FDI spillovers. Yuliani et al (2019) search for evidence of horizontal and vertical productivity FDI spillovers (defined shortly) in the Indonesian food industry. Using a more disaggregated characterization of the food industry than Blanchard and Mathieu (2016), Yuliani et al (2019) conclude some food sub-industries experience negative spillover effects, some experience positive spillover effects and some experience no spillover effects.…”

“…When dividing each industry aggregation into “high-medium” and “low” technology groups, however, they find evidence of FDI spillovers. Yuliani et al. (2019) search for evidence of horizontal and vertical productivity FDI spillovers (defined shortly) in the Indonesian food industry.…”