Does Foreign Direct Investment Lead to Productivity Spillovers? Firm Level Evidence from Indonesia

• Published in: World development Vol. 37; no. 12; pp. 1861 - 1876
• Main Authors: Suyanto, Salim, Ruhul A., Bloch, Harry
• Format: Journal Article
• Language: English
• Published: Oxford Elsevier Ltd 01.12.2009; Elsevier; Pergamon Press Inc
• Series: World Development
• Subjects: Chemical industry; Economic Models; Enterprises; FDI spillovers; FDI spillovers frontier production function Malmquist index total factor productivity growth; Foreign direct investment; Foreign Investment; frontier production function; Indonesia; Malmquist index; Panel data; Pharmaceutical industry; Production functions; Productivity; Productivity growth; R&D; Research & development; Research and Development; Spillovers; Stochastic models; Studies; Technological Progress; Technology Transfer; Total factor productivity; total factor productivity growth; Indonesia; FDI spillovers; frontier production function; Malmquist index; total factor productivity growth
• ISSN: 0305-750X; 1873-5991
• DOI: 10.1016/j.worlddev.2009.05.009

This paper examines whether spillovers from foreign direct investment (FDI) make any contribution to productivity growth in the Indonesian chemical and pharmaceutical firms using plant-level panel data. The spillover effects from FDI are analyzed using a stochastic frontier approach and productivity growth is decomposed using a generalized Malmquist output-oriented index. The results show positive productivity spillovers from FDI; higher competition is associated with larger spillovers; and domestic firms with R&D gain more spillover benefits compared to those without R&D. FDI spillovers are found to be positive and significant for technological progress and positive, but not significant, for technical and scale efficiency change.