Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 212: Technology Gap, Competition and Spillovers from Direct Foreign Investment: Evidence from Establishment Data

Fredrik Sjöholm ()
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Fredrik Sjöholm: The European Institute of Japanese Studies, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden

Abstract: Using detailed micro data from the Indonesian manufacturing sector, we examine the effect on productivity of direct foreign investment. The results suggest that direct foreign investment benefits locally owned establishments. The effect differs between groups of industries. Spillovers from DFI are found in sectors with a high degree of competition. The result suggests that the degree of competition affects the choice of technology transferred to the multinationals' affiliates and, hence, the potential for spillovers. Moreover, it seems to be domestic competition rather than competition from imports that affects spillovers from DFI. Our result concerning the effect from technology gap is unclear.

Keywords: Direct foreign investment; spillovers; technology; competition

JEL-codes: F23; O30

26 pages, December 11, 1997

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