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The Impact Of Foreign Direct Investment On Indonesia'S Manufacturing Sector

Author

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  • Shafiq Dhanani
  • Syed Asif Hasnain

Abstract

Though FDI accounted for a quarter of manufacturing production in Indonesia in the late 1990s, its contribution was rather moderate in total capital formation, generating net export revenues, creating manufacturing employment, developing supplier and support industries, transferring technology and generating tax revenues. FDI had a negative impact on the balance of payments, and contributed to the persistent deficit in manufacturing goods due to its larger propensity to import production inputs from abroad. This does not mean that FDI should be restricted. Implications for maximizing the positive contribution that FDI can make to development, while minimizing its negative effects, include the provision of world-class infrastructure, education and skills; focused investment promotion; public-private partnerships to build local manufacturing capabilities; technology-based collaboration between foreign and domestic firms; lowering bureaucratic hurdles; monitoring mergers and acquisitions; instituting effective competition policies; avoiding an incentive race between regions; adopting minimum environmental and labour standards; and restoring stability and security in the country.

Suggested Citation

  • Shafiq Dhanani & Syed Asif Hasnain, 2002. "The Impact Of Foreign Direct Investment On Indonesia'S Manufacturing Sector," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 7(1), pages 61-94.
    • Handle: RePEc:taf:rjapxx:v:7:y:2002:i:1:p:61-94
    DOI: 10.1080/13547860120110470
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    References listed on IDEAS

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    1. Robert E. Lipsey & Fredrik Sjoholm, 2001. "Foreign Direct Investment and Wages in Indonesian Manufacturing," NBER Working Papers 8299, National Bureau of Economic Research, Inc.
    2. Ng, Francis & Yeats, Alexander, 1999. "Production sharing in East Asia : who does what for whom, and why?," Policy Research Working Paper Series 2197, The World Bank.
    3. John Weeks, 2001. "Exports, Foreign Investment and Growth in Latin America: Scepticism by Way of Simulation," Working Papers 117, Department of Economics, SOAS University of London, UK.
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    Cited by:

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    2. Cassidy, John F. & Andreosso-O'Callaghan, Bernadette, 2006. "Spatial determinants of Japanese FDI in China," Japan and the World Economy, Elsevier, vol. 18(4), pages 512-527, December.
    3. Elbaar, Evi Feronika & Masliani, 2024. "Renewable Energy Intentions in Indonesian Agriproduct Purchasing: Exploring Product Quality, Customer Orientation, Perceived Environmental Knowledge, and Farmers’ Knowledge with a Moderation Effect," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 16(4), December.
    4. Mohamed A.M. Sallam, 2021. "Determinants of Growth in Manufacturing Industries: Empirical Evidence from Egypt Using the ARDL Approach," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(3), pages 137-153.
    5. Chan Sok GEE & Mohd Zaini Abd KARIM, 2011. "Fdi´S Country Of Origin And Output Growth: The Case Of Malaysia?S Manufacturing Sector, 1991-2006," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 11(1).
    6. N. A. Phelps, 2004. "Archetype for an archipelago? Batam as anti-model and model of industrialization in reformasi Indonesia," Progress in Development Studies, , vol. 4(3), pages 206-229, July.

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