Foreign Ownership and Productivity in the Indonesian Automobile Industry

Keiko Ito

in Growth and Productivity in East Asia

Published by University of Chicago Press

Published in print August 2004 | ISBN: 9780226386805
Published online February 2013 | e-ISBN: 9780226387079 | DOI:
Foreign Ownership and Productivity in the Indonesian Automobile Industry

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In the traditional theory of multinational corporations (MNCs), foreign direct investment (FDI) by MNCs is regarded as the movement of managerial resources. Many researchers have investigated productivity gaps between MNCs and local firms, and technology transfer from MNCs to local firms. This chapter addresses two questions, taking the Indonesian automobile industry as a case. First, are foreign plants more productive than local plants, as MNC theory predicts? Second, if so, what are the determinants of the productivity of plants? Most automobile firms in Indonesia were established by the country's major conglomerates as a joint venture or under a licensing agreement with foreign (principally Japanese) automakers. The chapter first provides an overview of the development of the Indonesian automobile industry and discusses industrial organization aspects of the industry. It then calculates and compares various partial productivity measures in time series and between local and foreign establishments. It also describes the econometric model of the cost function estimation and states the methodology for the decomposition of total factor productivity growth.

Keywords: multinational corporations; foreign direct investment; total factor productivity; Indonesia; automobile industry; industrial organization; local firms

Chapter.  17428 words.  Illustrated.

Subjects: Business and Management

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