The role of foreign direct investment in Indonesia's manufacturing exports

Rudy Rahmaddi () and Masaru Ichihashi

Bulletin of Indonesian Economic Studies, 2013, vol. 49, issue 3, 329-354

Abstract: This article examines whether foreign direct investment (FDI) has contributed to the changing structure of Indonesia's manufacturing exports. It uses industry-level data from 1990 to 2008, classified by factor intensity. Our analysis reveals that FDI promotes exports in most panel observations, especially exports from physical-capital-intensive (PCI), human-capital-intensive (HCI) and technology-intensive (TI) industries. Yet by applying a differentiated cross-section-effect model, we determine that the export-generating potential of FDI is stronger in PCI, HCI and TI industries than in natural-resource-intensive or unskilled-labour-intensive industries, in which Indonesia has a comparative advantage. We also assess the influence of other determinants of export performance -- namely, private domestic capital investment, GDP growth and exchange rates. Our findings have implications for policymakers seeking to sustain Indonesia's export performance.

Date: 2013
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DOI: 10.1080/00074918.2013.850632

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Bulletin of Indonesian Economic Studies is currently edited by Firman Witoelar Kartaadipoetra, Arianto Patunru, Robert Sparrow, Sarah Xue Dong and Sean Muir

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