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Foreign Direct Investment and Wage Spillovers in the Indonesian Manufacturing Industry

Author

Listed:
  • Mohammad Zeqi Yasin

    (The University of Jember)

  • Miguel Angel Esquivias

    (Department of Economics, Universitas Airlangga)

  • Nur Arifin

    (BPS-Statistics Indonesia)

Abstract

We examine whether Foreign Direct Investment (FDI) influences wage spillover in the manufacturing sector in Indonesia from the perspective of three recipients (dimensions): industry, province, and technology intensity. Annual data of Indonesian manufacturing firms from 2011 to 2015 is employed. Using the Fixed Effect Model, we found the spatial (province) dimension to matter the most as it consistently indicates that inward FDI depresses wages in the recipient province. When we split the observation based on firm size, FDI inflows within the technology intensive subsectors were found to discourage wages. Only FDI inflows within the host industries support higher salaries for smaller domestic firms and gains in labour productivity. The coordination between central and local governments remains essential to ensure that local companies are sufficiently competitive with foreign companies.

Suggested Citation

  • Mohammad Zeqi Yasin & Miguel Angel Esquivias & Nur Arifin, 2022. "Foreign Direct Investment and Wage Spillovers in the Indonesian Manufacturing Industry," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 25(Special I), pages 125-160, March.
    • Handle: RePEc:idn:journl:v:25:y:2022:i:spg:p:125-160
    DOI: https://doi.org/10.21098/bemp.v25i0.1821
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    References listed on IDEAS

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    Cited by:

    1. Mohammad Zeqi Yasin & Miguel Angel Esquivias & Fichrie Fachrowi Adli, 2025. "The Double-Edge Sword: Does FDI Exacerbate Inefficiency Traps? Evidence of Indonesian Manufacturing Firms," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 28(Spesial I), pages 137-176, February.

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    Keywords

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    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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