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

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  • Dyah Wulan Sari

Abstract

This study investigates the potential horizontal and vertical spillovers from FDI towards firms’ efficiency level on Indonesian manufacturing industries, using firm‐level panel data. The result suggests that positive evidence of horizontal spillovers arise instantaneously, but the impacts of vertical spillovers appear a year later. These indicate that foreign competitors cause local firms more efficient in the same industry. Furthermore, after one period of time MNCs running their business in Indonesia, they bring positive impacts on downstream markets but deteriorate manufacturing industries in the upstream markets. Therefore, the Indonesian government must ensure that overall benefits from promoting FDI must overweight their negative impacts.

Suggested Citation

  • Dyah Wulan Sari, 2019. "The Potential Horizontal and Vertical Spillovers from Foreign Direct Investment on Indonesian Manufacturing Industries," Economic Papers, The Economic Society of Australia, vol. 38(4), pages 299-310, December.
    • Handle: RePEc:bla:econpa:v:38:y:2019:i:4:p:299-310
    DOI: 10.1111/1759-3441.12264
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    References listed on IDEAS

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    4. Esquivias, Miguel Angel & Purwono, Rudi & Sugiharti, Lilik & Heriqbaldi, Unggul & Handoyo, Rossanto Dwi, 2020. "Value Chains, Production Networks and Regional Integration: The Case of Indonesia," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 54(1), pages 135-151.
    5. Ferdian Timur Satyagraha & Rudi Purwono & Dyah Wulan Sari, 2022. "An Analysis of the Performance of Regional Development Banks (RDB) in Indonesia: Stochastic Frontier Analysis Approach," Economies, MDPI, vol. 10(9), pages 1-12, September.
    6. Mohammad Zeqi Yasin, 2020. "Productivity: The Growth Accounting and The Stochastic Frontier Approach," Economics Bulletin, AccessEcon, vol. 40(4), pages 3020-3032.

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