Technology Transfer and Firm Competitiveness: The Case of Indonesia
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We examine the foreign direct investment (FDI) spillover effects from foreign to domestic firms in Indonesia and assess the significance of geographic factors on FDI spillover. We use firm-level data from the Indonesian Bureau of Public Statistics covering the period from 2000 to 2009 and focus on 16 manufacturing sectors. We find an absence of FDI spillover at the country level; however, we observe significant province-level forward FDI spillovers. These findings appear to indicate that intermediate goods supplied by foreign firms raise the productivity of domestic firms via learning, variety, and a quality effect. Our analysis reflects the importance of geographic proximity in realizing forward FDI spillovers. These findings show the importance of developing and improving transportation and telecommunication infrastructure to facilitate FDI spillovers by virtually reducing geographic distance between foreign and domestic firms.
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