Foreign multinationals, selection of local firms, and regional productivity in Indonesia

Hisamitsu Saito

MPRA Paper from University Library of Munich, Germany

Abstract: We examine whether the entry of multinational firms into a region induces the exit of low-productivity local firms from the market and the extent to which this improves regional productivity. For this purpose, we employ establishment-level data on the food manufacturing industry in Indonesia. After controlling for spillover effects, we find a greater left truncation in productivity distribution of local firms in regions with larger number of multinational firms. In addition, we find that this effect has greater impacts on regional productivity than spillover effects. Therefore, in order to maximize the regional benefits of foreign direct investment, governments should facilitate the entry and exit of local firms.

Keywords: Firm selection; Regional productivity; Spillovers (search for similar items in EconPapers)
JEL-codes: F23 L11 R12 (search for similar items in EconPapers)
Date: 2018-03-07
New Economics Papers: this item is included in nep-eff, nep-int, nep-sbm, nep-sea and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:85158

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