THE SPILLOVER EFFECTS OF FDI ON LABOR PRODUCTIVITY OF FIRMS
EVIDENCE FROM THE FIVE PRIORITY MANUFACTURING INDUSTRIES IN INDONESIA
DOI:
https://doi.org/10.14203/JEP.28.1.2020.1-16Keywords:
Foreign Direct Investment, Spillover Effects, Productivity, Manufacturing, IndonesiaAbstract
This study aims to investigate the effects of FDI spillover on labor productivity of the firms in the five priority manufacturing sector industries in Indonesia, namely food and beverages, textiles, wearing apparel and footwear, chemicals and pharmaceuticals, electronics, and automotive and transport equipment industries. Using firm- level data from 2000 to 2015, we find positive effects in the horizontal spillover, which measure the presence of foreign firms on the labor productivity of local firms in the same industry. However, the effects of FDI on the labor productivity of domestic in backward spillovers shows negative results, which means foreign buyers, fail to give benefits to domestic suppliers. Moreover, the relationship between foreign suppliers and domestic buyers in the forward spillovers also show negative effects. These findings are also in line when the analyses are disaggregated into each industry, except for the electronics industry. Based on the different results of the three spillovers, our findings suggest that the FDI spillover has not provided comprehensive benefits for local firms.Downloads
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