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The Potential Horizontal and Vertical Spillovers from Foreign Direct Investment on Indonesian Manufacturing Industries
Author(s) -
Sari Dyah Wulan
Publication year - 2019
Publication title -
economic papers: a journal of applied economics and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.245
H-Index - 19
eISSN - 1759-3441
pISSN - 0812-0439
DOI - 10.1111/1759-3441.12264
Subject(s) - foreign direct investment , horizontal and vertical , indonesian , upstream (networking) , competitor analysis , business , multinational corporation , downstream (manufacturing) , industrial organization , panel data , manufacturing , international economics , vertical integration , economics , marketing , engineering , geography , linguistics , philosophy , geodesy , macroeconomics , telecommunications , finance , econometrics
This study investigates the potential horizontal and vertical spillovers from FDI towards firms’ efficiency level on Indonesian manufacturing industries, using firm‐level panel data. The result suggests that positive evidence of horizontal spillovers arise instantaneously, but the impacts of vertical spillovers appear a year later. These indicate that foreign competitors cause local firms more efficient in the same industry. Furthermore, after one period of time MNCs running their business in Indonesia, they bring positive impacts on downstream markets but deteriorate manufacturing industries in the upstream markets. Therefore, the Indonesian government must ensure that overall benefits from promoting FDI must overweight their negative impacts.