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The Potential Horizontal and Vertical Spillovers from Foreign Direct Investment on Indonesian Manufacturing Industries

Dyah Wulan Sari

Economic Papers, 2019, vol. 38, issue 4, 299-310

Abstract: 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.

Date: 2019
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