Superstars or Super-Villains? Productivity Spillovers and Firm Dynamics in Indonesia

Do industrial "superstars" help others up or crowd them out? We examine the relationship between the spillovers of superstar firms (those with the top market share in their industry) and the productivity dynamics in Indonesia. Employing data on Indonesian manufacturing firms from 2001 to 2015, we find that superstar exposures in the market raise both the productivity level and the growth of non-superstar firms through horizontal (within a sector-province) and vertical (across sectors) channels. When we distinguish by ownership, foreign superstars consistently encourage productivity except through the horizontal channel. In contrast, domestic superstars generate positive spillovers through both horizontal and vertical linkages, indicating that foreign firms do not solely drive positive externalities. Furthermore, despite overall productivity growth being positive in 2001-2015, the source of negative growth is mainly driven by within-group reallocation, evidence of misallocation among surviving firms, notably by domestic superstars. Although Indonesian superstar firms are more efficient in their operations, their relatively modest growth rates suggest a potential stagnation, which can be plausibly attributed to limited innovation activity or a slow pace of adopting new technologies.