FOREIGN DIRECT INVESTMENT AND WAGE SPILLOVERS IN THE INDONESIAN MANUFACTURING INDUSTRY

Mohammad Yasin, Miguel Angel Esquivias and Nur Arifin
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Miguel Angel Esquivias: Department of Economics, Universitas Airlangga
Nur Arifin: BPS-Statistics Indonesia

Bulletin of Monetary Economics and Banking, 2022, vol. 25, issue Special Issue, 125-160

Abstract: We examine whether Foreign Direct Investment (FDI) influences wage spillover in the manufacturing sector in Indonesia from the perspective of three recipients (dimensions): industry, province, and technology intensity. Annual data of Indonesian manufacturing firms from 2011 to 2015 is employed. Using the Fixed Effect Model, we found the spatial (province) dimension to matter the most as it consistently indicates that inward FDI depresses wages in the recipient province. When we split the observation based on firm size, FDI inflows within the technology intensive subsectors were found to discourage wages. Only FDI inflows within the host industries support higher salaries for smaller domestic firms and gains in labour productivity. The coordination between central and local governments remains essential to ensure that local companies are sufficiently competitive with foreign companies.

Keywords: FDI; Wage Spillover; Manufacturing industry; Indonesia (search for similar items in EconPapers)
JEL-codes: F23 J31 L60 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:idn:journl:v:25:y:2022:i:spg:p:125-160

DOI: 10.21098/bemp.v25i0.1821

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