Multinational presence and labour productivity differentials in Indonesian manufacturing, 1975–2001

Abstract

Foreign multinational corporations (MNCs) have accounted for important shares of employment and production in Indonesian manufacturing since 1975, and these shares increased especially rapidly in the early to mid-1990s. These increases were concentrated in the machinery industries and in MNCs with large foreign ownership shares, and continued through the crisis of 1997-98 and beyond, despite apparently large withdrawals of inward foreign direct investment in 1998 and subsequent years. MNCs generally had much higher average labour productivity than local plants and, after controlling for plant-level variation in electricity consumption per employee, size and vintage, we found that these differentials persisted in about three-quarters of the cases examined. However, there was also large variation in MNC presence and in MNC-local productivity differentials across industries and time, with statistically insignificant differentials most common in apparel and footwear, as well as in MNCs with small foreign-ownership shares.

Trade, foreign firms and economic policy in Indonesian and Thai manufacturing

“…This explains why MNEs tend to be important in the chemicals and the machinery industries, and particularly high in the electric, office, and computing machinery industries, but less important in industries with large plant-level scale economies such as steel or in industries where technologies are more standardized such as textiles and apparel. 14 Patterns of MNE activity were generally consistent with these observations for several decades in Thailand (Plummer and Ramstetter 1991;Ramstetter 2003) but were less consistent in Indonesia until the late 1990s when rapid growth of MNEs in electric machinery and transportation machinery industries made the pattern of MNE activity in Indonesia more similar to patterns found elsewhere (Takii and Ramstetter 2004). Similar patterns are also observed in home country data on Japanese and U.S. MNEs in Indonesia and Thailand (James and Ramstetter 2005, Appendix Table 3) 14 Markusen (1991) provides a theoretical explanation of this point.…”

“…8 Indonesian data in Table 3 cover plants with 20 or more workers and come from compilations by Takii and Ramstetter (2004), which do not combine office and computing machinery with electric machinery. In 2001, only 9 plants were classified in office and computing machinery and their output was just US$2.6 million (Indonesia BPS 2003;International Monetary Fund 2005) or only 0.1 percent of Indonesia's office and computing machinery exports reported in Table 1.…”

“…Despite a slowdown in export growth that began in 1996 and continued into 1998 with the Asian financial crisis, neither country reversed its export-oriented trade liberalizing reforms. After the crisis, many MNEs expanded their operations in Indonesia despite large withdrawals of net FDI (Takii and Ramstetter 2004), and there was a boom of new FDI in Thailand in 1997(International Monetary Fund 2005.…”

Technology Transfer and Diffusion among Manufacturing Small and Medium Enterprises in Indonesia

“…Recently, Takii and Ramstetter (2005) compared the average levels of labour productivity, as determined by value added/labour ratio, of foreign-owned and domestic medium and large enterprises within the manufacturing sector in Indonesia.…”

“…See also previous studies on productivity in Indonesia (particularly in manufacturing) from Shepherd et al (1998), Hill (2001, Ito (2004), Takii (2004Takii ( , 2005, Timmer (1999), Rice and Abdullah (2000), Berry et al (2001) and Takii and Ramstetter (2004). 3 See Thee (1990aThee ( , 1990bThee ( , 1991, Hill (1988), Thee and Pangestu (1994) and Sato (1998).…”