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Foreign Ownership and Employment Growth in Indonesian Manufacturing

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  • Robert E. Lipsey
  • Fredrik Sjöholm
  • Jing Sun

Abstract

Many developing countries would like to increase the share of modern or formal sectors in their employment. One way to accomplish this goal may be to encourage the entrance of foreign firms. They are typically relatively large, with high productivity and good access to foreign markets, and might therefore be better at creating jobs than domestic firms are. However, previous research on the issue has been limited by the paucity of long data sets for firm operations. We examine employment growth in Indonesia in a large panel of plants between 1975 and 2005, and especially in plants taken over by foreign owners from domestic ones. Employment growth is relatively high in foreign-owned establishments, although foreign firms own relatively large domestic plants, which in general grow more slowly than smaller plants. For plants that change the nationality of ownership during our period, we find a strong effect of shifts from domestic to foreign ownership in raising the growth rate of employment, but no significant effects of shifts from foreign to domestic ownership. The faster growth of employment in the foreign-owned plants in general is concentrated in the takeovers, especially in the year of acquisition. Foreign takeover of a domestically-owned plant, on average, brings a large immediate expansion of employment.

Suggested Citation

  • Robert E. Lipsey & Fredrik Sjöholm & Jing Sun, 2010. "Foreign Ownership and Employment Growth in Indonesian Manufacturing," NBER Working Papers 15936, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:15936
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    Cited by:

    1. Sanjaya Kumar Malik, 2019. "Foreign Direct Investment and Employment in Indian Manufacturing Industries," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 62(4), pages 621-637, December.
    2. AM.Priyangani Adikari & Haiyun Liu & MMSA. Marasinghe, 2021. "Inward Foreign Direct Investment-Induced Technological Innovation in Sri Lanka? Empirical Evidence Using ARDL Approach," Sustainability, MDPI, vol. 13(13), pages 1-16, June.
    3. M. Bini & L. Nascia & A. Zeli, 2023. "Foreign ownership of enterprises and employment: the pre-crisis period in Italy," SN Business & Economics, Springer, vol. 3(1), pages 1-20, January.
    4. Nino Kokashvili & Irakli Barbakadze & Ketevani Kapanadze, 2017. "How Participating In The Shadow Economy Affects The Growth Of Latvian Firms," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 101, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    5. Horst Feldmann, 2013. "Technological unemployment in industrial countries," Journal of Evolutionary Economics, Springer, vol. 23(5), pages 1099-1126, November.
    6. Sandra M. Leitner, 2015. "Firm growth and financing constraints in the NMS-10 and the Western Balkan countries – a comparative analysis," wiiw Balkan Observatory Working Papers 115, The Vienna Institute for International Economic Studies, wiiw.
    7. Siedschlag Iulia & Kaitila Ville & McQuinn John & Zhang Xiaoheng, 2014. "International Investment and Firm Performance: Empirical Evidence from Small Open Economies," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 234(6), pages 662-687, December.
    8. Kokko Ari & Söderlund Bengt & Tingvall Patrik Gustavsson, 2014. "Redirecting International Trade: Contracts, Conflicts, and Institutions," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 234(6), pages 688-721, December.
    9. Lipsey, Robert E. & Sjöholm, Fredrik, 2011. "South–South FDI and Development in East Asia," Asian Development Review, Asian Development Bank, vol. 28(2), pages 11-31.
    10. World Bank Group, 2017. "Investment Policy and Promotion Diagnostics and Tools," World Bank Publications - Reports 28281, The World Bank Group.
    11. Horst Feldmann, 2011. "The Unemployment Puzzle of Corporate Taxation," Public Finance Review, , vol. 39(6), pages 743-769, November.
    12. Feldmann, Horst, 2015. "Banking system concentration and unemployment in developing countries," Journal of Economics and Business, Elsevier, vol. 77(C), pages 60-78.
    13. Nilsson Hakkala, Katariina & Heyman, Fredrik & Sjöholm, Fredrik, 2008. "Multinational Firms and Job Tasks," Working Paper Series 781, Research Institute of Industrial Economics.
    14. Ramstetter, Eric D., 2016. "Multinational Enterprise Growth and Vietnam's Employment and Wages in Manufacturing and Trade Industries: Did Takeovers Play a Role?," AGI Working Paper Series 2016-05, Asian Growth Research Institute.
    15. Renu Bansal & Dibyendu Maiti, 2024. "Capital Inflow, Strategic Subcontracting, and Formal Employment," Working papers 348, Centre for Development Economics, Delhi School of Economics.
    16. Kristina Matuzeviciute & Mindaugas Butkus & Akvile Karaliute, 2017. "Do Technological Innovations Affect Unemployment? Some Empirical Evidence from European Countries," Economies, MDPI, vol. 5(4), pages 1-19, December.
    17. repec:lic:licosd:31812 is not listed on IDEAS
    18. Raymond Robertson, 2020. "Lights On: How Transparency Increases Compliance in Cambodian Global Value Chains," ILR Review, Cornell University, ILR School, vol. 73(4), pages 939-968, August.
    19. Noor Fauziah Isnaeni & Khoirunurrofik Khoirunurrofik, 2021. "The effect of knowledge spillovers and human capital through technological intensity on employment growth in Indonesia," Asia-Pacific Journal of Regional Science, Springer, vol. 5(1), pages 21-39, February.

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    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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