The Double-Edge Sword: Does FDI Exacerbate Inefficiency Traps? Evidence of Indonesian Manufacturing Firms

Authors

Mohammad Zeqi Yasin, Department of Economics, University of JemberFollow
Miguel Angel Esquivas, Universitas Airlangga - IndonesiaFollow
Fichrie Fachrowi Adli, Universitas Airlangga, IndonesiaFollow

Document Type

Call for Paper

Abstract

Employing a firm-level panel dataset from Statistik Industri for 2008-2015, this study investigates the effect of incoming Foreign Direct Investment (FDI) on inefficiency traps in Indonesia. Firms often face transient and persistent inefficiencies in production and resource utilization, impeding optimal efficiency and productivity. Stochastic Frontier Analysis and Tobit estimates quantify the positive impact of FDI spillovers on inefficiency traps, with FDI spillovers reducing both inefficiencies, particularly transient inefficiencies. Foreign investment externalities diminish inefficiencies through spatial and sectoral spillovers, with spatial spillovers exerting a larger influence. Improved human capital and increased access to foreign inputs also contribute to the mitigation of inefficiency traps.

Recommended Citation

Yasin, Mohammad Zeqi; Esquivas, Miguel Angel; and Adli, Fichrie Fachrowi (2025) "The Double-Edge Sword: Does FDI Exacerbate Inefficiency Traps? Evidence of Indonesian Manufacturing Firms," Bulletin of Monetary Economics and Banking: Vol. 28: No. 0, Article 9.
DOI: https://doi.org/10.59091/2460-9196.2370
Available at: https://bulletin.bmeb-bi.org/bmeb/vol28/iss0/9

First Page

137

Last Page

176

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Country

Indonesia

Affiliation

University of Jember, Universitas Airlangga