Gifted Kids or Pushy Parents? Foreign Acquisitions and Plant Performance in Indonesia
AbstractThis 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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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5065.
Date of creation: May 2005
Date of revision:
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Other versions of this item:
- Jens Matthias Arnold & Beata Smarzynska Javorcik, 2005. "Gifted Kids or Pushy Parents? Foreign Acquisitions and Plant Performance in Indonesia," Development Working Papers 197, Centro Studi Luca d\'Agliano, University of Milano.
- Arnold, Jens Matthias & Javorcik, Beata Smarzynska, 2005. "Gifted kids or pushy parents? Foreign acquisitions and plant performance in Indonesia," Policy Research Working Paper Series 3597, The World Bank.
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-06-14 (All new papers)
- NEP-DEV-2005-06-14 (Development)
- NEP-SEA-2005-06-14 (South East Asia)
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