Can Open Service Sector FDI Policy Enhance Manufacturing Productivity? Evidence from Indonesia
Drawing on the findings of recent research, this note examines the extent to which changes to policy restrictions on foreign direct investment (FDI) in the Indonesian service sector affected the performance of downstream manufacturers during 1997-2...
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2013/02/17291077/can-open-service-sector-fdi-policy-enhance-manufacturing-productivity-evidence-indonesia http://hdl.handle.net/10986/17014 |
| Summary: | Drawing on the findings of recent
research, this note examines the extent to which changes to
policy restrictions on foreign direct investment (FDI) in
the Indonesian service sector affected the performance of
downstream manufacturers during 1997-2009. The analysis
uncovers two important findings: first, that relaxing
restrictions toward FDI in service sectors was associated
with improvements in the perceived performance of those
sectors, and second, more importantly, that this relaxation
accounted for 8 percent of the total observed increase in
manufacturers' total factor productivity (TFP) during
this period. The results show that these TFP gains accrue
disproportionately to those firms that are relatively more
productive and that gains are related to the relaxation of
restrictions in the transport as well as the electricity,
gas, and water sectors. TFP 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 from abroad. |
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