IDEAS home Printed from https://ideas.repec.org/p/era/wpaper/dp-2023-01.html
   My bibliography  Save this paper

Foreign Direct Investment, Agglomeration, and Production Networks in Indonesian Manufacturing

Author

Listed:
  • Dionisius A. Narjoko

    (Economic Research Institute for ASEAN and East Asia)

Abstract

This study examines the importance of globalisation - defined by international production networks - in determining foreign direct investment (FDI) flows into Indonesian manufacturing since 2000. It is motivated by the fact that the extent of connection between the Indonesian and the global economy had increased after the 1997-98 Asian financial crisis. Models of FDI are estimated by utilising plant-level data and various trade and tariff data. Production networks or agglomeration are found to play an important role in driving FDI in Indonesia's manufacturing sector, at least for the period 2000-2015. This study provides the insight that agglomeration could be utilised to increase FDI in Indonesia. This not only improves the productivity of the sector targeted by the investment but also promotes productivity growth. Creating more agglomeration areas could therefore be a policy direction taken by Indonesia to help increase FDI.

Suggested Citation

  • Dionisius A. Narjoko, 2023. "Foreign Direct Investment, Agglomeration, and Production Networks in Indonesian Manufacturing," Working Papers DP-2023-01, Economic Research Institute for ASEAN and East Asia (ERIA).
    • Handle: RePEc:era:wpaper:dp-2023-01
    as

    Download full text from publisher

    File URL: https://www.eria.org/uploads/media/discussion-papers/FY23/ERIA-2023-01-(No-473)/Foreign-Direct-Investment-Agglomeration-and-Production-Networks-in-Indonesian-Manufacturing-.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Primandita Fitriandi & Makoto Kakinaka & Koji Kotani, 2014. "Foreign Direct Investment and Infrastructure Development in Indonesia: Evidence from Province Level Data," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 4(1), pages 79-94.
    2. Edward L. Glaeser & Glenn Ellison, 1999. "The Geographic Concentration of Industry: Does Natural Advantage Explain Agglomeration?," American Economic Review, American Economic Association, vol. 89(2), pages 311-316, May.
    3. Primandita Fitriandi & Makoto Kakinaka & Koji Kotani, 2014. "Foreign direct investment and infrastructure development in Indonesia: Evidence from province level data," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 4(1), pages 79-94, January.
    4. Kimura, Fukunari & Ando, Mitsuyo, 2005. "Two-dimensional fragmentation in East Asia: Conceptual framework and empirics," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 317-348.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kashif Munir & Mehwish Iftikhar, 2021. "Impact of Transport and Technological Infrastructure in Attracting FDI in Pakistan," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 7, pages 93-106.
    2. Nik Azmiah Binti Nik Azin & Norhayati bt Alias, 2019. "Value Relevance of Intangible Assets Before and After FRS 138 Adoptions: Evidence From Malaysia," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 10(3), pages 267-279, May.
    3. Sodik, Jamzani & Sarungu, JJ. & Soesilo, AM. & Tri Rahayu, Siti Aisyah, 2019. "The Determinants of Foreign Direct Investment Across Provinces in Indonesia: The Role of Market Size, Resources, and Competitiveness," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 53(3), pages 141-152.
    4. Hui Wang & Xin Zhong, 2023. "An Empirical Study on the Impact of Chinese OFDI on the Global Value Chain Positions of Countries Along the Belt and Road and Threshold Effects," SAGE Open, , vol. 13(1), pages 21582440231, February.
    5. Zalina Zainudin & Zarina Mohd Zaki & Abdul Razak Abdul Hadi & Hafezali Iqbal Hussain & Mazhar Hallak Kantakji, 2019. "Investor Sentiment and Firm Financial Performance of Malaysian IPO Firms: Pre and Post Financial Crisis," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(5), pages 450-458, August.
    6. Farrokhi, Farid & Jinkins, David, 2019. "Wage inequality and the location of cities," Journal of Urban Economics, Elsevier, vol. 111(C), pages 76-92.
    7. Oyer, Paul & Schaefer, Scott, 2011. "Personnel Economics: Hiring and Incentives," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 20, pages 1769-1823, Elsevier.
    8. Lu, Jiangyong & Tao, Zhigang, 2009. "Trends and determinants of China's industrial agglomeration," Journal of Urban Economics, Elsevier, vol. 65(2), pages 167-180, March.
    9. Taguchi, Hiroyuki & Murofushi, Harutaka, 2014. "International production networks in ASEAN economies," MPRA Paper 64409, University Library of Munich, Germany.
    10. Federico Curci, 2015. "The taller the better? Agglomeration determinants and urban structure," ERSA conference papers ersa15p991, European Regional Science Association.
    11. Yilin Dong, 2020. "Determinants of entry: Evidence from new manufacturing firms in the U.S," Growth and Change, Wiley Blackwell, vol. 51(4), pages 1542-1561, December.
    12. Masahisa Fujita & Nobuaki Hamaguchi, 2011. "Regional Integration of Production Systems and Spatial Income Disparities in East Asia," Chapters, in: Miroslav N. Jovanović (ed.), International Handbook on the Economics of Integration, Volume II, chapter 11, Edward Elgar Publishing.
    13. Reyer Gerlagh, Nicole A. Mathys and Thomas O. Michielsen, 2015. "Energy Abundance, Trade and Specialization," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    14. Florian Noseleit, 2020. "The Role of Entry and Market Selection for the Dynamics of Regional Diversity and Specialization," Regional Studies, Taylor & Francis Journals, vol. 49(1), pages 76-94, July.
    15. Lei, Weiqian & Jiao, Limin & Xu, Zhibang & Zhu, Xinhua, 2024. "Evolution of urban land and population system coupling micro–dynamics and macro-stability: Trends and paths," Land Use Policy, Elsevier, vol. 141(C).
    16. Seth Morgan & Alexander Pfaff & Julien Wolfersberger, 2022. "Environmental Policies Benefit Economic Development: Implications of Economic Geography," Annual Review of Resource Economics, Annual Reviews, vol. 14(1), pages 427-446, October.
    17. Mingshu Wang, 2021. "Polycentric urban development and urban amenities: Evidence from Chinese cities," Environment and Planning B, , vol. 48(3), pages 400-416, March.
    18. Michalski, Tomasz & Ors, Evren, 2012. "(Interstate) Banking and (interstate) trade: Does real integration follow financial integration?," Journal of Financial Economics, Elsevier, vol. 104(1), pages 89-117.
    19. Erika Sandow & Olle Westerlund & Urban Lindgren, 2014. "Is Your Commute Killing You? On the Mortality Risks of Long-Distance Commuting," Environment and Planning A, , vol. 46(6), pages 1496-1516, June.
    20. Nadreau, Timothy P. & Fortenbery, T. Randall, 2020. "Odessa Sub-area Potato Production & Processing Impacts Under an Irrigation-Water Shortage," Western Economics Forum, Western Agricultural Economics Association, vol. 18(2), December.

    More about this item

    Keywords

    Indonesia; foreign direct investment; production networks; agglomeration;
    All these keywords.

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:era:wpaper:dp-2023-01. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ranti Amelia (email available below). General contact details of provider: https://edirc.repec.org/data/eriadid.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.