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

Saito, Hisamitsu (2018): Foreign multinationals, selection of local firms, and regional productivity in Indonesia.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Firm selection; Regional productivity; Spillovers
• Subjects: F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R12 - Size and Spatial Distributions of Regional Economic Activity

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