The Contribution of Foreign Direct Investment on Indonesia’s Manufacturing Industry

Suyanto, Suyanto (2008) The Contribution of Foreign Direct Investment on Indonesia’s Manufacturing Industry. Ekonomi dan Bisnis, 10 (2). pp. 109-126. ISSN 1410-9204

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The current study assesses the contributions of foreign direct investment (FDI) on Indonesian manufacturing. By taking advantage of the availability of plant-level survey data from Badan Pusat Statistik (BPS), for the period 1975-2005, this study assesses the impacts of FDI on five strategic factors: capital, employment, technology transfer, domestic suppliers, and trade performance. The results show that foreign firms in Indonesian manufacturing played an important role on these five factors. Although foreign firms were minor in manufacturing sector, their share on capital in this sector was significant. They also played an increasingly important role on employment over the last four decades. Sectors that received significant employment effect from foreign firms were metal products and textiles. Besides creating employment opportunity, foreign firms in Indonesian manufacturing also generated high value added to Indonesian manufacturing sector. The contribution of foreign firms to technology transfer depends on several factors, such as the level of research and development in domestic firms, labour skills for the new technology, and technological gaps between foreign and domestic firms. Based on the ratio of local procurement, foreign firms in manufacturing has contributed to upstream industries through domestic input contains. The upward trend in local procurement suggests that the linkages of foreign firms and domestic suppliers are getting stronger overtime. Moreover, foreign firm also played crucial roles in manufacturing exports, which accounted to more than 30 percent of total export in manufacturing. However, foreign firms in Indonesia manufacturing relied heavily on imported material. The value of their imported material accounted for more than 40 percent of total imported material in manufacturing.

Item Type: Article
Uncontrolled Keywords: Foreign Direct Investment, Manufacturing Industry, Economic Contribution
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
Divisions: Faculty of Business and Economic > Department of Economic
Depositing User: Suyanto 3198
Date Deposited: 19 Aug 2015 02:19
Last Modified: 24 Mar 2021 15:53

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