Energy savings through foreign acquisitions? Evidence from Indonesian manufacturing plants

The link between foreign ownership and environmental performance remains a controversial issue. This paper contributes to our understanding of this subject by analyzing the impact of for- eign acquisitions on plant-level energy intensity. The analysis applies a difference-in-differences approach combined with propensity score matching to the data from the Indonesian Manufac- turing Census for the period 1983-2001. It covers 210 acquisition cases where an acquired plant is observed two years before and at least three years after an ownership change and for which a carefully selected control plant exists. The results suggest that while foreign ownership increases the overall energy usage due to expansion of output, it decreases the plant's energy intensity. Specifically, compared to plants that remained domestic, acquired plants reduce energy inten- sity by about 30% two years after acquisition. In contrast, foreign divestments tend to increase energy intensity. At the aggregate level, we find that entry of foreign-owned plants is associated with industry-wide reduction in energy intensity.