Can Open Service Sector FDI Policy Enhance Manufacturing Productivity? Evidence from Indonesia

Drawing on the findings of recent research, this note examines the extent to which changes to policy restrictions on foreign direct investment (FDI) in the Indonesian service sector affected the performance of downstream manufacturers during 1997-2009. The analysis uncovers two important findings: first, that relaxing restrictions toward FDI in service sectors was associated with improvements in the perceived performance of those sectors, and second, more importantly, that this relaxation accounted for 8 percent of the total observed increase in manufacturers' total factor productivity (TFP) during this period. The results show that these TFP gains accrue disproportionately to those firms that are relatively more productive and that gains are related to the relaxation of restrictions in the transport as well as the electricity, gas, and water sectors. TFP gains are associated, in particular, with the relaxation of foreign equity limits, screening and prior approval requirements, but less so with discriminatory regulations that prevent multinationals from hiring key personnel from abroad.

Bibliographic Details

Main Authors:	Duggan, Victor, Rahardja, Sjamsu, Varela, Gonzalo
Language:	English en_US
Published:	World Bank, Washington, DC 2013-02
Subjects:	ACCESS TO SERVICES, ACCESSIBILITY, ACCOUNTING, AIR, AIR TRANSPORT, BUSINESS ACTIVITY, BUSINESS ENVIRONMENT, BUSINESS OPPORTUNITIES, BUSINESS SERVICES, CAPABILITIES, COMMODITIES, COMMUNICATIONS MEDIA, CONFIDENCE, DEVELOPING COUNTRIES, DOMESTIC MARKET, DOMESTIC PROVIDERS, DRIVING, DRIVING COSTS, ECONOMIC DEVELOPMENT, ELECTRICITY, ENTERPRISE SURVEYS, EQUIPMENT, EXPORT MARKETS, FINANCIAL SERVICES, FOREIGN DIRECT INVESTMENT, FOREIGN ENTRY, FOREIGN EQUITY, FOREIGN EXCHANGE, FOREIGN FIRMS, FOREIGN INVESTMENT, FOREIGN OWNERSHIP, FOREIGN PARTICIPATION, FREIGHT, FREIGHT SECTOR, GLOBAL MARKETPLACE, GLOBAL TRADE, GROSS DOMESTIC PRODUCT, GROWTH RATE, IMPORTANCE OF SERVICES, INCREASED COMPETITION, INNOVATION, INSURANCE, INTELLECTUAL PROPERTY, INTERNATIONAL BUSINESS, INTERNATIONAL TRADE, LIBERALIZATION, MANUFACTURING, MANUFACTURING INDUSTRIES, MARKET FAILURES, MONOPOLIES, MONOPOLY, MULTINATIONALS, OUTPUT, PENSION, PRIVATE SECTOR, PRIVATE SECTOR INVESTMENT, PRODUCTIVITY, QUALITY OF SERVICES, RADIO, REAL ESTATE, REGULATORY BODIES, REGULATORY ENVIRONMENT, REGULATORY FRAMEWORK, REGULATORY REGIME, REGULATORY RESTRICTIONS, RESULT, RESULTS, ROAD, SERVICE PROVIDERS, SERVICE QUALITY, SERVICE SECTOR, SERVICE SECTORS, SERVICES INPUTS, SERVICES LIBERALIZATION, SERVICES SECTOR, TECHNOLOGY TRANSFER, TELECOM, TELECOMMUNICATIONS, TELEVISION, TRADE IN SERVICES, TRADE POLICY REFORM, TRANSPORT, TRANSPORT SECTOR, TRANSPORT SECTORS, UNIVERSAL ACCESS, USER, USERS, USES, VEHICLES, WORLD INVESTMENT REPORT, WORLD TRADE,
Online Access:	http://documents.worldbank.org/curated/en/2013/02/17291077/can-open-service-sector-fdi-policy-enhance-manufacturing-productivity-evidence-indonesia https://hdl.handle.net/10986/17014
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