Main Article Content
Abstract
Purpose ― We examine whether the foreign direct investment (FDI) in promoting technical efficiency is controlled by the sector classifications based on the technology intensity (High Technology, Medium-High Technology, Medium-Low Technology, and Low Technology).
Methods ― We use the Indonesian firm-level dataset of the large and medium manufacturing survey from 2007 to 2015 and employ the time-varying stochastic production frontier.
Findings ― We reveal that FDI, technology intensity and absorptive Capacity significantly affect firms' production and efficiency. We also found that the Indonesian manufacturing industry from 2007 to 2015 experienced positive Total Factor Productivity growth, where High-Technology sectors experienced the largest magnitude among others. Meanwhile, technological progress stemming from FDI is enjoyed more by Low Technology sectors. Meaning to say, technology intensity classification does not matter to technological progress.
Implication ― The host country's government should focus on industries with high technical capabilities to accelerate FDI gains for the firms. Simultaneously, human capital improvement also needs to be intensified, for instance, through training or human development, so that firms with lower technical capability can catch up and, consequently, receive similar benefits from FDI activities.
Originality ― Our study accommodates the research gap by including the FDI effect in both productivity and efficiency in a single equation. Many studies merely categorize technology intensity following the stochastic production frontier estimation to obtain technical efficiency or TFP growth. In this sense, those studies did not control the impact of the technology-specific effect.
Keywords
Article Details
Copyright (c) 2022 Mohammad Zeqi Yasin
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References
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- Baltabaev, B. (2014). Foreign direct investment and total factor productivity growth: New macro-evidence. World Economy, 37(2), 311–334. https://doi.org/10.1111/twec.12115
- Carbonell, J. B., & Werner, R. A. (2018). Does foreign direct investment generate economic growth? A new empirical approach applied to Spain. Economic Geography, 94(4), 425–456. https://doi.org/10.1080/00130095.2017.1393312
- Christensen, L. R., Jorgenson, D. W., & Lau, L. J. (1973). Transcendental logarithmic production frontiers. The Review of Economics and Statistics, 55(1), 28–45. https://doi.org/1927992
- Coad, A. (2018). Firm age: A survey. Journal of Evolutionary Economics, 28(1), 13–43. https://doi.org/10.1007/s00191-016-0486-0
- De Loecker, J. (2013). Detecting learning by exporting. American Economic Journal: Microeconomics, 5(3), 1–21. https://doi.org/10.1257/mic.5.3.1
- Djankov, S., & Hoekman, B. (2000). Foreign investment and productivity growth in Czech enterprises. World Bank Economic Review, 14(1), 49–64.
- Farrell, M. J. (1957). The measurement of productive efficiency. Journal of the Royal Statistical Society. Series A (General), 120(3), 253–290. https://doi.org/2343100
- Fu, X., & Gong, Y. (2011). Indigenous and foreign innovation efforts and drivers of technological upgrading: Evidence from China. World Development, 39(7), 1213–1225. https://doi.org/10.1016/j.worlddev.2010.05.010
- Gopalan, S., Hattari, R., & Rajan, R. S. (2016). Understanding foreign direct investment in Indonesia. Journal of International Trade Law and Policy, 15(1), 28–50. https://doi.org/10.1108/JITLP-01-2016-0003
- Haddad, M., & Harrison, A. (1993). Are there positive spillovers from direct foreign investment? Evidence from panel data from Morocco. Journal of Development Economics, 42(1), 51–74. https://doi.org/10.1016/0304-3878(93)90072-U
- Henry, M., Kneller, R., & Milner, C. (2009). Trade, technology transfer and national efficiency in developing countries. European Economic Review, 53(2), 237–254. https://doi.org/10.1016/j.euroecorev.2008.05.001
- International Monetary Fund (IMF). (2004). Definition of foreign direct investment (FDI) terms, IMF committee on balance of payments statistics and OECD. In Workshop on International Investment Statistics, Direct Investment Technical Expert Group (DITEG), Issues Paper (DITEG) #20, Statistics Canada.
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- Keller, W. (2010). International trade, foreign direct investment, and technology spillovers. Handbook of the Economics of Innovation (Vol. 2). Elsevier B.V. https://doi.org/10.1016/S0169-7218(10)02003-4
- Kokko, A. (1994). Technology, market characteristics, and spillovers. Journal of Development Economics, 43(2), 279–293. https://doi.org/10.1016/0304-3878(94)90008-6
- Kokko, Ari, & Kravtsova, V. (2008). Innovative capability in MNC subsidiaries: Evidence from four European transition economies. Post-Communist Economies, 20(1), 57–75. https://doi.org/10.1080/14631370701865722
- Kumar, S., & Russell, R. R. (2002). Technological change and catch-up and capital deepening: Relative contributions to growth and convergence. The American Economic Review, 92(3), 527–548.
- Kumbhakar, S. C., & Wang, H. J. (2005). Estimation of growth convergence using a stochastic production frontier approach. Economics Letters, 88(3), 300–305. https://doi.org/10.1016/j.econlet.2005.01.023
- Kumbhakar, S. C., Wang, H. J., & Horncastle, A. P. (2015). A practitioner’s guide to stochastic frontier analysis using Stata. Cambridge: Cambridge University Press.
- Le Mens, G., Hannan, M. T., & Pólos, L. (2015). Organizational obsolescence, drifting tastes, and age dependence in organizational life chances. Organization Science, 26(2), 550–570. https://doi.org/10.1287/orsc.2014.0910
- Liu, X., Siler, P., Wang, C., & Wei, Y. (2000). Productivity direct spillovers from foreign from data. Journal of International Business studies, 31(3), 407–425.
- Lucas, R. E. (1988). On the mechanics of economic development. Journal of Monetary Economics, 22(1), 3–42. https://doi.org/10.1016/0304-3932(88)90168-7
- Machmud, A., Nandiyanto, A. B. D., & Dirgantari, P. D. (2018). Technical efficiency chemical Industry in Indonesia: Stochastic Frontier Analysis (SFA) Approach. Pertanika Journal of Science & Technology, 26(3), 1453–1464.
- Mastromarco, C., & Ghosh, S. (2009). Foreign capital, human capital, and efficiency: A stochastic frontier analysis for developing countries. World Development Review, 37(2), 489–502. https://doi.org/10.1016/j.worlddev.2008.05.009
- Mok, V., Yeung, G., Han, Z., & Li, Z. (2010). Competition between online and physical stores: The implications of providing product information by Pure-Play E-tailer Ryohei. Managerial and Decision Economics, 31, 453–463. https://doi.org/10.1002/mde
- Narjoko, D. A., & Hill, H. (2007). Winners and losers during a deep economic crisis: Firm-level evidence from Indonesian manufacturing. Asian Economics Journal, 21(4), 343–368. https://doi.org/10.1111/j.1467-8381.2007.00261.x
- OECD. (2011). ISIC REV. 3 technology intensity definition.
- Orlic, E., Hashi, I., & Hisarciklilar, M. (2018). Cross-sectoral FDI spillovers and their impact on manufacturing. International Business Review, 27(4), 777–796. https://doi.org/10.1016/j.ibusrev.2018.01.002
- Rebelo, S. (1991). Long-run policy analysis and long-run growth, 99(3), 500–521. https://doi.org/10.1086/261764
- Romer, P. M. (1986). Increasing returns and long-run growth. Journal of Political Economy, 94(5), 1002–1037. https://doi.org/10.1086/261420
- Sari, D. W. (2019). The potential horizontal and vertical spillovers from foreign direct investment on Indonesian manufacturing Industries. Economic Papers, 38(4), 299–310. https://doi.org/10.1111/1759-3441.12264
- Sari, D. W., Khalifah, N. A., & Suyanto, S. (2016). The spillover effects of foreign direct investment on the firms’ productivity performances. Journal of Productivity Analysis, 46(2–3), 199–233. https://doi.org/10.1007/s11123-016-0484-0
- Sengupta, J. K. (1995). Dynamics of data envelopment analysis: Theory of system efficiency. Springer Science Business Media B.V. https://doi.org/10.1007/978-94-015-8506-4
- Smeets, R. (2008). Collecting the pieces of the FDI knowledge spillovers puzzle. World Bank Research Observer, 23(2), 107–138. https://doi.org/10.1093/wbro/lkn003
- Suyanto, & Salim, R. A. (2010). Sources of productivity gains from FDI in Indonesia: Is it efficiency improvement or technological progress? Developing Economies, 48(4), 450–472. https://doi.org/10.1111/j.1746-1049.2010.00115.x
- Walheer, B., & He, M. (2020). Technical efficiency and technology gap of the manufacturing industry in China: Does firm ownership matter? World Development, 127, 104769. https://doi.org/10.1016/j.worlddev.2019.104769
- Wang, M., & Wong, M. C. S. (2012). International R&D transfer and technical efficiency: Evidence from panel study using stochastic frontier analysis. World Development, 40(10), 1982–1998. https://doi.org/10.1016/j.worlddev.2012.05.001
- Yang, S. F., Chen, K. M., & Huang, T. H. (2013). Outward foreign direct investment and technical efficiency: Evidence from Taiwan’s manufacturing firms. Journal of Asian Economics, 27, 7–17.
- Yasin, M. Z. (2021). Technical efficiency and total factor productivity growth of Indonesian manufacturing industry: Does openness matter? Studies in Microeconomics, 1–30. https://doi.org/10.1177/23210222211024438
- Zhao, G., & Zhang, Z. (2010). Uncovering the relationship between FDI, human capital and technological progress in Chinese high-technology industries. China and World Economy, 18(1), 82–98. https://doi.org/10.1111/j.1749-124X.2010.01182.x
References
Atkin, D., Khandelwal, A. K., & Osman, A. (2017). Exporting and firm performance: Evidence from a randomized experiment. The Quarterly Journal of Economics, 132(2), 551–615. https://doi.org/10.1093/qje/qjx002.Advance
Baltabaev, B. (2014). Foreign direct investment and total factor productivity growth: New macro-evidence. World Economy, 37(2), 311–334. https://doi.org/10.1111/twec.12115
Carbonell, J. B., & Werner, R. A. (2018). Does foreign direct investment generate economic growth? A new empirical approach applied to Spain. Economic Geography, 94(4), 425–456. https://doi.org/10.1080/00130095.2017.1393312
Christensen, L. R., Jorgenson, D. W., & Lau, L. J. (1973). Transcendental logarithmic production frontiers. The Review of Economics and Statistics, 55(1), 28–45. https://doi.org/1927992
Coad, A. (2018). Firm age: A survey. Journal of Evolutionary Economics, 28(1), 13–43. https://doi.org/10.1007/s00191-016-0486-0
De Loecker, J. (2013). Detecting learning by exporting. American Economic Journal: Microeconomics, 5(3), 1–21. https://doi.org/10.1257/mic.5.3.1
Djankov, S., & Hoekman, B. (2000). Foreign investment and productivity growth in Czech enterprises. World Bank Economic Review, 14(1), 49–64.
Farrell, M. J. (1957). The measurement of productive efficiency. Journal of the Royal Statistical Society. Series A (General), 120(3), 253–290. https://doi.org/2343100
Fu, X., & Gong, Y. (2011). Indigenous and foreign innovation efforts and drivers of technological upgrading: Evidence from China. World Development, 39(7), 1213–1225. https://doi.org/10.1016/j.worlddev.2010.05.010
Gopalan, S., Hattari, R., & Rajan, R. S. (2016). Understanding foreign direct investment in Indonesia. Journal of International Trade Law and Policy, 15(1), 28–50. https://doi.org/10.1108/JITLP-01-2016-0003
Haddad, M., & Harrison, A. (1993). Are there positive spillovers from direct foreign investment? Evidence from panel data from Morocco. Journal of Development Economics, 42(1), 51–74. https://doi.org/10.1016/0304-3878(93)90072-U
Henry, M., Kneller, R., & Milner, C. (2009). Trade, technology transfer and national efficiency in developing countries. European Economic Review, 53(2), 237–254. https://doi.org/10.1016/j.euroecorev.2008.05.001
International Monetary Fund (IMF). (2004). Definition of foreign direct investment (FDI) terms, IMF committee on balance of payments statistics and OECD. In Workshop on International Investment Statistics, Direct Investment Technical Expert Group (DITEG), Issues Paper (DITEG) #20, Statistics Canada.
Javorcik, B., Fitriani, F., Iacovone, L., Varela, G., & Duggan, V. (2012, September). Productivity performance in Indonesia’s manufacturing sector. Open Knowledge Repository World Bank Group. World Bank Group. https://doi.org/10.1596/26715
Keller, W. (2010). International trade, foreign direct investment, and technology spillovers. Handbook of the Economics of Innovation (Vol. 2). Elsevier B.V. https://doi.org/10.1016/S0169-7218(10)02003-4
Kokko, A. (1994). Technology, market characteristics, and spillovers. Journal of Development Economics, 43(2), 279–293. https://doi.org/10.1016/0304-3878(94)90008-6
Kokko, Ari, & Kravtsova, V. (2008). Innovative capability in MNC subsidiaries: Evidence from four European transition economies. Post-Communist Economies, 20(1), 57–75. https://doi.org/10.1080/14631370701865722
Kumar, S., & Russell, R. R. (2002). Technological change and catch-up and capital deepening: Relative contributions to growth and convergence. The American Economic Review, 92(3), 527–548.
Kumbhakar, S. C., & Wang, H. J. (2005). Estimation of growth convergence using a stochastic production frontier approach. Economics Letters, 88(3), 300–305. https://doi.org/10.1016/j.econlet.2005.01.023
Kumbhakar, S. C., Wang, H. J., & Horncastle, A. P. (2015). A practitioner’s guide to stochastic frontier analysis using Stata. Cambridge: Cambridge University Press.
Le Mens, G., Hannan, M. T., & Pólos, L. (2015). Organizational obsolescence, drifting tastes, and age dependence in organizational life chances. Organization Science, 26(2), 550–570. https://doi.org/10.1287/orsc.2014.0910
Liu, X., Siler, P., Wang, C., & Wei, Y. (2000). Productivity direct spillovers from foreign from data. Journal of International Business studies, 31(3), 407–425.
Lucas, R. E. (1988). On the mechanics of economic development. Journal of Monetary Economics, 22(1), 3–42. https://doi.org/10.1016/0304-3932(88)90168-7
Machmud, A., Nandiyanto, A. B. D., & Dirgantari, P. D. (2018). Technical efficiency chemical Industry in Indonesia: Stochastic Frontier Analysis (SFA) Approach. Pertanika Journal of Science & Technology, 26(3), 1453–1464.
Mastromarco, C., & Ghosh, S. (2009). Foreign capital, human capital, and efficiency: A stochastic frontier analysis for developing countries. World Development Review, 37(2), 489–502. https://doi.org/10.1016/j.worlddev.2008.05.009
Mok, V., Yeung, G., Han, Z., & Li, Z. (2010). Competition between online and physical stores: The implications of providing product information by Pure-Play E-tailer Ryohei. Managerial and Decision Economics, 31, 453–463. https://doi.org/10.1002/mde
Narjoko, D. A., & Hill, H. (2007). Winners and losers during a deep economic crisis: Firm-level evidence from Indonesian manufacturing. Asian Economics Journal, 21(4), 343–368. https://doi.org/10.1111/j.1467-8381.2007.00261.x
OECD. (2011). ISIC REV. 3 technology intensity definition.
Orlic, E., Hashi, I., & Hisarciklilar, M. (2018). Cross-sectoral FDI spillovers and their impact on manufacturing. International Business Review, 27(4), 777–796. https://doi.org/10.1016/j.ibusrev.2018.01.002
Rebelo, S. (1991). Long-run policy analysis and long-run growth, 99(3), 500–521. https://doi.org/10.1086/261764
Romer, P. M. (1986). Increasing returns and long-run growth. Journal of Political Economy, 94(5), 1002–1037. https://doi.org/10.1086/261420
Sari, D. W. (2019). The potential horizontal and vertical spillovers from foreign direct investment on Indonesian manufacturing Industries. Economic Papers, 38(4), 299–310. https://doi.org/10.1111/1759-3441.12264
Sari, D. W., Khalifah, N. A., & Suyanto, S. (2016). The spillover effects of foreign direct investment on the firms’ productivity performances. Journal of Productivity Analysis, 46(2–3), 199–233. https://doi.org/10.1007/s11123-016-0484-0
Sengupta, J. K. (1995). Dynamics of data envelopment analysis: Theory of system efficiency. Springer Science Business Media B.V. https://doi.org/10.1007/978-94-015-8506-4
Smeets, R. (2008). Collecting the pieces of the FDI knowledge spillovers puzzle. World Bank Research Observer, 23(2), 107–138. https://doi.org/10.1093/wbro/lkn003
Suyanto, & Salim, R. A. (2010). Sources of productivity gains from FDI in Indonesia: Is it efficiency improvement or technological progress? Developing Economies, 48(4), 450–472. https://doi.org/10.1111/j.1746-1049.2010.00115.x
Walheer, B., & He, M. (2020). Technical efficiency and technology gap of the manufacturing industry in China: Does firm ownership matter? World Development, 127, 104769. https://doi.org/10.1016/j.worlddev.2019.104769
Wang, M., & Wong, M. C. S. (2012). International R&D transfer and technical efficiency: Evidence from panel study using stochastic frontier analysis. World Development, 40(10), 1982–1998. https://doi.org/10.1016/j.worlddev.2012.05.001
Yang, S. F., Chen, K. M., & Huang, T. H. (2013). Outward foreign direct investment and technical efficiency: Evidence from Taiwan’s manufacturing firms. Journal of Asian Economics, 27, 7–17.
Yasin, M. Z. (2021). Technical efficiency and total factor productivity growth of Indonesian manufacturing industry: Does openness matter? Studies in Microeconomics, 1–30. https://doi.org/10.1177/23210222211024438
Zhao, G., & Zhang, Z. (2010). Uncovering the relationship between FDI, human capital and technological progress in Chinese high-technology industries. China and World Economy, 18(1), 82–98. https://doi.org/10.1111/j.1749-124X.2010.01182.x