Firm dynamics and regional development in Indonesia

by Robert Genthner
Cumulative thesis
Date of Examination:2022-01-11
Date of issue:2022-01-25
Advisor:Prof. Dr. Krisztina Kis-Katos
Referee:Prof. Dr. Krisztina Kis-Katos
Referee:Prof. Dr. Hâle Utar
Referee:Prof. Dr. Udo Kreickemeier
Persistent Address: http://dx.doi.org/10.53846/goediss-9048

 

 

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Abstract

English

Like all economic actors, firms continuously need to adjust to changes of the environment they are operating in. Since firms do not only produce goods or provide services, but also act on the demand side of input factors like labor and capital, any policy change or external shock may not only affect firms directly, but also has an indirect impact on the whole economy. This thesis adds to the understanding of these adjustment dynamics in three particular settings using empirical methods based on micro data from Indonesia. The first chapter of the thesis presents evidence for productivity drops and input factor adjustments due to rising temperatures as a result of climate change. In total, the input factor compensation enables firms to keep their sales levels constant despite rising temperatures. In the second chapter, this thesis adds to the understanding of foreign direct investment (FDI) productivity spillovers among manufacturing firms by splitting vertical spillovers across industries depending on their sectoral distance. The results indicate that the size of FDI spillovers hinges on whether foreign and domestic firms are direct competitors, and the ability of local enterprises to absorb new technology from multinational enterprises. The third chapter shows that the regulation and restriction of FDI flows directly result in productivity drops among firms through a substitution of more productive foreign capital with inferior domestic capital. Even though firms are able to avoid general capital shortages, the findings highlight the tremendous importance of FDI for the international competitiveness of the local economy. In the forth chapter, this thesis addresses the effects of the latter FDI regulation on regional dynamics on local labor markets, finding that a higher regulatory penetration leads to sizable positive employment spillovers in both the manufacturing and the service sector. In conclusion, the last two chapters show that policy makers may face a trade-off between negative productivity effects within firms and employment gains on labor markets when introducing protectionist policies like foreign capital regulation.
Keywords: Indonesia; firms; temperature; FDI; FDI regulation; local labor markets
 
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