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Gifted Kids or Pushy Parents? Foreign Acquisitions and Plant Performance in Indonesia

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Author Info
Arnold, Jens
Smarzynska Javorcik, Beata

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Abstract

This paper uses micro data from the Indonesian Census of Manufacturing to analyse the causal relationship between foreign ownership and plant productivity. To control for the possible endogeneity of the FDI decision, a difference-in-differences approach is combined with propensity score matching. An advantage of this method, which has not been previously applied in this context, is the ability to follow the timing of observed changes in productivity and other aspects of plant performance. The results suggest that foreign ownership leads to significant productivity improvements in the acquired plants. The improvements become visible in the acquisition year and continue in subsequent periods. After three years, the acquired plants outperform the control group in terms of productivity by 34 percentage points. The data also suggest that the rise in productivity is a result of restructuring, as acquired plants increase investment outlays, employment and wages. Foreign ownership also appears to enhance the integration of plants into the global economy through increased exports and imports.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5065.

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Date of creation: May 2005
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Handle: RePEc:cpr:ceprdp:5065

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Related research
Keywords: acquisition; foreign direct investment; productivity;

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Find related papers by JEL classification:
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes

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