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The role of foreign direct investment in Indonesia's manufacturing exports

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  • Rudy Rahmaddi
  • Masaru Ichihashi

Abstract

This article examines whether foreign direct investment (FDI) has contributed to the changing structure of Indonesia's manufacturing exports. It uses industry-level data from 1990 to 2008, classified by factor intensity. Our analysis reveals that FDI promotes exports in most panel observations, especially exports from physical-capital-intensive (PCI), human-capital-intensive (HCI) and technology-intensive (TI) industries. Yet by applying a differentiated cross-section-effect model, we determine that the export-generating potential of FDI is stronger in PCI, HCI and TI industries than in natural-resource-intensive or unskilled-labour-intensive industries, in which Indonesia has a comparative advantage. We also assess the influence of other determinants of export performance -- namely, private domestic capital investment, GDP growth and exchange rates. Our findings have implications for policymakers seeking to sustain Indonesia's export performance.

Suggested Citation

  • Rudy Rahmaddi & Masaru Ichihashi, 2013. "The role of foreign direct investment in Indonesia's manufacturing exports," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 49(3), pages 329-354, December.
    • Handle: RePEc:taf:bindes:v:49:y:2013:i:3:p:329-354
    DOI: 10.1080/00074918.2013.850632
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    References listed on IDEAS

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    1. Mona Haddad & Ben Shepherd, 2011. "Managing Openness : Trade and Outward-oriented Growth After the Crisis," World Bank Publications - Books, The World Bank Group, number 2283.
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    Cited by:

    1. Güzin Bayar, 2022. "Turkey's sectoral exports: A competitiveness approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 2268-2289, April.
    2. Cabral Torres René & Alvarado Jorge, 2019. "Manufacturing Exports Determinants across Mexican States, 2007-2015," Working Papers 2019-11, Banco de México.
    3. René Cabral & Jorge Alberto Alvarado, 2021. "The Role of FDI on Exports Performance: Evidence from the Mexican States," International Regional Science Review, , vol. 44(6), pages 684-708, November.
    4. Sayed Farrukh Ahmed & A. K. M. Mohsin & Syed Far Abid Hossain, 2023. "Relationship between FDI Inflows and Export Performance: An Empirical Investigation by Considering Structural Breaks," Economies, MDPI, vol. 11(3), pages 1-17, February.
    5. Güzin Bayar, 2018. "Estimating export equations: a survey of the literature," Empirical Economics, Springer, vol. 54(2), pages 629-672, March.
    6. Shinta R. I. Soekro & Triono Widodo, 2015. "Mapping And Determinants Of Intra-Asean Foreign Direct Investment (FDI): Indonesia Case Study," Working Papers WP/12/2015, Bank Indonesia.
    7. Radovan Kastratović, 2020. "The impact of foreign direct investment on host country exports: A meta‐analysis," The World Economy, Wiley Blackwell, vol. 43(12), pages 3142-3183, December.

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