Title: Competition, Foreign Direct Investment, and Technical Efficiency: A Case Study of the Indonesian Manufacturing Industry
Author: Samuel Kharis Harianto
Affiliations: Master of Economics Program, Faculty of Economics and Business, Universitas Airlangga , Surabaya, Indonesia
Publisher: Universitas Airlangga
Abstract
This study examines the influence of market competition and foreign investment on the technical efficiency of the Indonesian manufacturing industry. Using Stochastic Frontier Analysis in a panel dataset of firms covering 400 sub-sectors, the results of this thesis indicate that competition in the domestic market is positively related to technical efficiency, and similar results are also found for the influence of horizontal spillover (originating from foreign investment), foreign competition (through export-import activities), and firm size. However, in different industries categorized by technological intensity, empirical results vary across industries. Furthermore, this study also examines whether the interaction variable of domestic competition at the sub-sectoral level and other exogenous variables is correlated with technical efficiency. The results indicate that horizontal spillover affects the technical efficiency of domestic firms operating in sectors with high industrial concentration. A decline in the level of technical efficiency also occurs in firms with high export and import intensity.
Keywords: Competition, Technical Efficiency, Stochastic Frontier Analysis, Indonesian Manufacturing Industry, Industrial Concentration