Description: Service Sector Reform and Manufacturing Productivity : Evidence from Indonesia

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Service Sector Reform and Manufacturing Productivity : Evidence from Indonesia

This paper examines the extent to which policy restrictions on foreign direct investment in the Indonesian service sector affected the performance of manufacturers over the period 1997-2009. It uses firm-level data on manufacturers' total fact...

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Bibliographic Details
Main Authors:	Duggan, Victor, Rahardja, Sjamsu, Varela, Gonzalo
Language:	English en_US
Published:	World Bank, Washington, DC 2013
Subjects:	ACCOUNTING AIR AIR TRANSPORT AUDITORS BANK INDONESIA BARRIERS TO ENTRY BROADCAST BUS BUSINESS CLIMATE BUSINESS OPPORTUNITIES BUSINESS PURPOSES BUSINESS REGULATION BUSINESS SERVICES CAPABILITIES CAPITAL REQUIREMENT CAPITAL REQUIREMENTS COMMUNICATION COSTS COMPARATOR COUNTRIES COMPETITION POLICIES COMPETITIVE PRICES COMPETITIVENESS CORPORATE GOVERNANCE COUNTRY COMPARISONS DATA AVAILABILITY DEVELOPING COUNTRIES DEVELOPING COUNTRY DEVELOPMENT INVESTMENTS DOMESTIC MARKET DRIVING DRIVING COSTS ECONOMIC INTEGRATION ECONOMIC PERFORMANCE ELASTICITY ELECTRICITY EMPLOYMENT ENTERPRISE SURVEY ENTERPRISE SURVEYS EQUIPMENT EXCHANGE BANKS EXPORT MARKETS EXPOSURE FINANCIAL COMPANIES FINANCIAL CRISIS FINANCIAL INSTITUTIONS FINANCIAL SECTORS FINANCIAL SERVICES FIRM PERFORMANCE FOREIGN BANKS FOREIGN COMPANIES FOREIGN DIRECT INVESTMENT FOREIGN ENTRY FOREIGN EXCHANGE FOREIGN FIRMS FOREIGN INVESTMENT FOREIGN INVESTORS FOREIGN OWNERSHIP FRAMEWORK AGREEMENT FREIGHT FREIGHT COSTS FREIGHT SECTOR GLOBAL MARKETPLACE ID INFRASTRUCTURE CAPACITY INNOVATION INSPECTION INSURANCE INTERNATIONAL AIR SERVICES INTERNATIONAL BUSINESS INTERNATIONAL INVESTMENT INTERNATIONAL SHIPPING INTERNATIONAL STANDARD INTERNATIONAL TRADE INTERNET SERVICE PROVIDERS INVENTORY INVESTMENT POLICIES JOINT VENTURE LABOR COSTS LAND USE LEGISLATION LIBERALIZATION LONG-DISTANCE MANUFACTURING MARKET FAILURES MEDIA MOBILE PHONE MONOPOLIES MONOPOLY NATIONAL AIRLINES OPEN ACCESS OPEN ECONOMIES OUTPUT PENSION PENSION FUNDS PRIVATE INVESTMENT PRIVATE SECTOR PRIVATIZATION PRIVATIZATIONS PRODUCTIVITY PROGRAMS QUALITY OF SERVICES R&AMP;D RADIOS RAILWAYS REAL ESTATE REGIONAL INTEGRATION REGULATOR REGULATORY REFORM REGULATORY RESTRICTIONS RESULT RESULTS REVENUE SHARING ROAD ROAD TRANSPORT SERVICE PROVIDERS SERVICES INFRASTRUCTURE TARGETS TECHNICAL ASSISTANCE TECHNOLOGICAL ADVANCES TECHNOLOGY TRANSFER TELECOM TELECOM SECTOR TELECOMMUNICATIONS TELECOMMUNICATIONS REFORM TELECOMMUNICATIONS SECTOR TELECOMS TELEVISIONS TIME PERIOD TOLL TOLL ROAD TRADE FLOWS TRADES TRAINS TRANSITION ECONOMIES TRANSMISSION TRANSPARENCY TRANSPORT TRANSPORT COSTS TRANSPORT EQUIPMENT TRANSPORT SECTOR TRANSPORTATION TURNOVER USERS USES VEHICLES VENTURE CAPITAL WATER SUPPLY WEB WORLD ECONOMY
Online Access:	http://documents.worldbank.org/curated/en/2013/01/17206424/service-sector-reform-manufacturing-productivity-evidence-indonesia http://hdl.handle.net/10986/13149

Description
Summary:	This paper examines the extent to which policy restrictions on foreign direct investment in the Indonesian service sector affected the performance of manufacturers over the period 1997-2009. It uses firm-level data on manufacturers' total factor productivity and the OECD's foreign direct investment Regulatory Restrictiveness Index, combined with data from Indonesia s input-output tables regarding the intensity with which manufacturing sectors use services inputs. Controlling for firm-level fixed effects and other relevant policy indicators, it finds, first, that relaxing policies toward foreign direct investment in the service sector was associated with improvements in perceived performance of the service sector. Second, it finds that this relaxation in service sector foreign direct investment policies accounted for 8 percent of the observed increase in manufacturers' total factor productivity over the period. The total factor productivity gains accrue disproportionately to those firms that are relatively more productive, and that gains are related to the relaxation of restrictions in both the transport and electricity, gas, and water sectors. Total factor productivity gains are associated, in particular, with the relaxation of foreign equity limits, screening, and prior approval requirements, but less so with discriminatory regulations that prevent multinationals from hiring key personnel abroad.