The Impacts of Foreign Direct Investment and Export Expansion on the Performance of the High-Tech Manufacturing Industry

Abstract

This study investigates the impact of foreign direct investment and export expansion on firm performance. Using firmlevel data from the Indonesian high-tech manufacturing industry, we employ stochastic frontier analysis to determine firm efficiency. Our study provides evidence of negative backward and positive forward FDI spillovers on firms' efficiency level. The results further show that foreign firms in the high-tech manufacturing industry are more efficient than local firms. Furthermore, a greater degree of fragmented trade integration is related to better performance among firm in the high-tech manufacturing industry. This indicates the significance of the production of component goods relative to the finished goods. In terms of the policy, the authority might need to consider whether the existence of FDI benefits local producers beyond promoting trading of component goods of the high-tech manufacturing industry.

The Effects of Market Concentration, Trade, and FDI on Total Factor Productivity: Evidence from Indonesian Manufacturing Sector

“…are random errors and technical inefficiency effects respectively, and independent of each other. The 4 or on high-tech industries in Sari et al 2021), similar to the case in Vietnam (Newman et al 2015). There is also a less clear link between FDI-supporting firms buying inputs in Indonesia and the performance of domestic exporting firms (Sari 2019;Sugiharti et al 2017;Yasin 2021).…”

“…is the technical inefficiency, which follows a normal distribution but is truncated at zero with mean 4 negative effects on domestic players' efficiency (e.g., on the pharmaceutical or on high-tech industries in Sari et al 2021), similar to the case in Vietnam a less clear link between FDI-supporting firms buying inputs in Indonesia exporting firms (Sari 2019;Sugiharti et al 2017;Yasin 2021). Indonesian firm of foreign-owned firms due to low technological absorptive capability, as s firm's capacity to absorb technology (Orlic et al 2018).…”

“…It is common to find that export-oriented enterprises experience higher levels of efficiency, although the channels via which exports support technical efficiency differ across firms (Ben Yahmed & Dougherty 2017; Sari et al 2021). Two approaches were generally presented in the literature; namely self-selection and learning by exporting (Lemi & Wright 2020;Vu et al 2016;Amornkitvikai et al 2022).…”

“…Firms' technical efficiency can also be influenced by FDI in the form of access to superior technology, advantages in the production process, and access to global networks (Vernon 1966). Efficiency gains can result from spillover effects (externalities) within the host country (Newman et al 2015;Orlic et al 2018;Sari 2019;Sari et al 2021).…”

“…On the other hand, Sari et al (2016) found that foreign-owned firms were less efficient than local firms, although foreign firms showed higher productivity levels. Foreign-owned firms in Indonesia may also exert The Effects of Market Concentration, Trade, and FDI on Total Factor Productivity negative effects on domestic players' efficiency (e.g., on the pharmaceutical industry, in Suyanto & Salim 2011, or on high-tech industries in Sari et al 2021), similar to the case in Vietnam (Newman et al 2015). There is also a less clear link between FDI-supporting firms buying inputs in Indonesia and the performance of domestic exporting firms (Sari 2019;Sugiharti et al 2017;Yasin 2021).…”