Spillover effects of foreign direct investment on manufacturing exports and imports in Indonesia
Studies in Economics and Finance
ISSN: 1086-7376
Article publication date: 4 April 2023
Issue publication date: 22 August 2023
Abstract
Purpose
This study aims to identify extensive and intensive margins in exports and imports and examine whether incoming foreign direct investments (FDI) benefit local firms in Indonesia through the export and import channels.
Design/methodology/approach
Using Heckman’s two-step selection model to consider the potential of bias of self-selection in export–import participation, this study uses the firm-level data from 2008 to 2015 collected from Statistik Industri and proximate both export and import spillovers.
Findings
The authors found that internal factors are critical for a firm to be an exporter, signaling self-selection in exports and imports. Spillover effects from FDI (spatial properties) support export but lower import propensity and intensity.
Research limitations/implications
This study implies that improving human capital (absorptive capacity) is needed to accelerate export intensity and policies supporting FDI inflows in complementary sectors (noncompeting industries) can increase export propensity and intensity and reduce imports.
Originality/value
This study contributes to the literature in several ways. First, the proposed export spillovers model that accounts for impacts through a demonstration channel is applied to the import channel. Moreover, this study extends the model developed by Franco and Sasidharan (2010) and Yasin et al. (2022) by incorporating spatial spillover effects at the provincial level. Subsequently, the authors test whether a firm’s technological intensity determines export–import propensity and intensity. This can indicate whether specific sectors are more likely to participate in international activities based on their use of technology.
Keywords
Acknowledgements
The authors appreciate the support of Bank Indonesia during The 16th BMEB International Conference and Call for Paper 2022 as the reviewers provided high-quality insights to improve the quality of the paper.
Funding: This research was partially supported by Universitas Airlangga (no research grant available).
Citation
Yasin, M.Z. and Esquivias, M.A. (2023), "Spillover effects of foreign direct investment on manufacturing exports and imports in Indonesia", Studies in Economics and Finance, Vol. 40 No. 4, pp. 625-646. https://doi.org/10.1108/SEF-12-2022-0551
Publisher
:Emerald Publishing Limited
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