Title: Competition, Foreign Investment, and Technical Efficiency: 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. By using Stochastic Frontier Analysis in a company panel dataset covering 400 sub-sectors, the results of this thesis show that competition in the domestic market is positively related to technical efficiency and the same results are also found for the effect of horizontal spillover (which comes from foreign investment), foreign competition (through import-export activities) and company size. However, in different industries categorized based on technological intensity, the empirical results are mixed in different industries. Furthermore, this research also tests whether the interaction variable of domestic competition at the sub-sectoral level and other exogenous variables is correlated with technical efficiency. The results show that horizontal spillover affects the technical efficiency of domestic firms operating in sectors with high industrial concentration. A decrease in the level of technical efficiency also occurs in companies with high export and import intensity.
Keywords: Competition, Technical Efficiency, Stochastic Frontier Analysis, Indonesian Manufacturing Industry, Industrial Concentration
