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Simultaneity and Heterogeneity in Import and Productivity: Case Study of Indonesian Manufacturing

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  • Putra, Chandra

    (Asian Development Bank Institute)

  • Narjoko, Dionisius

    (Asian Development Bank Institute)

Abstract

We examine the impact of imported intermediates on plant productivity and the role of plant capability in explaining the heterogeneity of the impact. We use a survey database of medium-sized and large Indonesian manufacturing establishments from 2000 to 2015. Imported intermediates are presented as a proportion of total intermediates, while capability factors are represented by the plant’s age, foreign direct investment (FDI) status, exporting status, and capital intensity. We find that import intensity does not significantly affect productivity. However, the impact of import intensity on productivity is positive and significant for exporters and for plants with higher capital intensity. Meanwhile, older and FDI plants do not seem to differ in terms of productivity gain from higher import intensity compared with either younger or non-FDI plants. The result underlines the importance of plant capability in determining productivity gain from imported intermediates. Our study improves policy makers’ understanding for better outcomes in the industry, such as the purpose of trade negotiation. Our study also recommends that policy makers carefully consider implementing a restriction or ban on imported intermediates, as doing so will penalize capable firms and reduce the competitiveness of exporters in the global market.

Suggested Citation

  • Putra, Chandra & Narjoko, Dionisius, 2022. "Simultaneity and Heterogeneity in Import and Productivity: Case Study of Indonesian Manufacturing," ADBI Working Papers 1319, Asian Development Bank Institute.
    • Handle: RePEc:ris:adbiwp:1319
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    More about this item

    Keywords

    imported intermediates; productivity; capability; technology transfer;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts

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