The study by Todo and Miyamoto (2002) differs most of the others by defining the FDI variable as the absolute amount of FDI in a sector. They argued that this measure is more strongly related to the foreign knowledge stock and therefore preferred over the foreign share of a sector. The result showed a positive effect of FDI on local firms’ labor productivity after controlling for R&D and training of the workforce.
Blalock and gertle (2002) also used a translog production function to examine spillovers between 1988 and 1996. Local firms in sector within regions with a high foreign share of output had high levels of productivity. Moreover, they found a positive effect on spillovers from the technology gap between domestic and foreign plants; spillovers were also positively affected by local firms' R&D and by high levels of education of workers in local firms.
In a second study, Blalock and Gertler (2003), using the same data and a very similar translog production function, found no evidence of positive intraindustry spillovers from FDI. A second measure of FDI in this study is the main difference between the two: Blalock and Gertler (2003) measured FDI in upstream markets to capture spillovers from FDI to local suppliers. They found that downstream FDI was highly significant in the econometric estimations. This variable was constructed by using and input-output table at a sector level, which also includes purchases from its own sector. Therefore, one possibility is that the variable on downstream FDI also captured the effect of horizontal spillovers.
To summarize the result from these seven production spillover studies on Indonesia manufacturing, all cross-section studies and three out of four panel data studies found statistically significant intraindustry spillovers. The one study that failed to find intraindustry spillovers found intraindustry spillovers from FDI instead. Judging by these studies of Indonesia, we conclude that the design of econometric studies does not cause the different result found in the literature. Therefore, differences between countries or firms may explain the extent of spillovers. The studies on Indonesia might shed some further light on what these differences could be. Previous literature suggests the competition, the technology gap, and local firms’ absorptive capacity will affect the extent of spillovers. Starting with competition, the studies by Sjoholm (1999b) and by Blalock and Gertler (2003) show that spillovers are highest in sectors with high competition.
The study by Todo and Miyamoto (2002) differs most of the others by defining the FDI variable as the absolute amount of FDI in a sector. They argued that this measure is more strongly related to the foreign knowledge stock and therefore preferred over the foreign share of a sector. The result showed a positive effect of FDI on local firms’ labor productivity after controlling for R&D and training of the workforce.
Blalock and gertle (2002) also used a translog production function to examine spillovers between 1988 and 1996. Local firms in sector within regions with a high foreign share of output had high levels of productivity. Moreover, they found a positive effect on spillovers from the technology gap between domestic and foreign plants; spillovers were also positively affected by local firms' R&D and by high levels of education of workers in local firms.
In a second study, Blalock and Gertler (2003), using the same data and a very similar translog production function, found no evidence of positive intraindustry spillovers from FDI. A second measure of FDI in this study is the main difference between the two: Blalock and Gertler (2003) measured FDI in upstream markets to capture spillovers from FDI to local suppliers. They found that downstream FDI was highly significant in the econometric estimations. This variable was constructed by using and input-output table at a sector level, which also includes purchases from its own sector. Therefore, one possibility is that the variable on downstream FDI also captured the effect of horizontal spillovers.
To summarize the result from these seven production spillover studies on Indonesia manufacturing, all cross-section studies and three out of four panel data studies found statistically significant intraindustry spillovers. The one study that failed to find intraindustry spillovers found intraindustry spillovers from FDI instead. Judging by these studies of Indonesia, we conclude that the design of econometric studies does not cause the different result found in the literature. Therefore, differences between countries or firms may explain the extent of spillovers. The studies on Indonesia might shed some further light on what these differences could be. Previous literature suggests the competition, the technology gap, and local firms’ absorptive capacity will affect the extent of spillovers. Starting with competition, the studies by Sjoholm (1999b) and by Blalock and Gertler (2003) show that spillovers are highest in sectors with high competition.
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