Is Promoting Foreign Direct Investment Worthwhile? Learning from the East Asian Experience

East Asia presents a new model of industrialization that aggressively utilizes the dynamics of multinational corporations (MNCs). The model puts networks of production into practice, and such networks improve domestic capability and contribution to national output. Promoting foreign direct investment (FDI) is therefore warranted to ensure the sustainability of the production-network model. For this reason, FDI should always be promoted even when demand is less supportive, such as at this moment during the current global economic crisis.

Foreign Presence Spillovers and Firms’ Export Response:Evidence from the Indonesian Manufacturing

This paper examines the existence of spillovers associated with the presence of multinational enterprises (MNEs) on a firm’s decision to export, and on export intensity. It utilizes data from Indonesian manufacturing for the census years 1996 and 2006. Channels through which MNEs can affect other firms’ export behavior are considered and tested. The econometric analysis suggests that the contribution of MNEs in improving technological knowledge raises the likelihood that domestic firms will enter the export market, and improves export performance. The analysis finds weak evidence to support the hypothesis that competition, created by the operation of MNEs, facilitates entry into export markets. Further analysis however shows that the impact of competition depends on the level of productivity of the domestic firms. In particular, the more productive firms are suggested to have been able to benefit more than the less productive ones. The overall analysis suggests that given the mixed evidence, policies to promote MNEs are still worth pursuing. The most obvious justification comes from the positive impact of the increased pool of technological knowledge. Other than this, strengthening trade facilitation seems to be a positive proposition, given the finding that many of the new domestic exporters seem to have been constrained in increasing their exports.

Fighting Irrelevance: The Role of Regional Trade Agreements in International Production Networks in Asia

This chapter reviews the relevant literature in order to provide an analytical framework for the analyses in the subsequent chapters. It covers some sub-topics related to the theme of this study, in particular, the theoretical approach to international production networks, key findings from empirical studies on the subject, and the role of trade policy (often understood as trade liberalization) in creating or sustaining an IPN.trade liberalization, international production networks, regional trade agreements, value chain, Asia, automotive, hard disk drive, textile and clothing, East Asia

International Trade and Inequality

The impact of globalization on equality has become a serious concern for many countries. More evidence that challenges the theoretical prediction of positive impact of international trade on income distribution has increasingly become available recently. This paper addresses this subject, surveying the empirical findings on the impact of international trade on inequalities from various perspectives. The survey reveals that an increase in trade openness by developing countries appears to have contributed to narrowing the development gap vis-à-vis developed countries, while its impacts on income gap between developing countries are not clear. The impacts of increased trade or trade liberalization on within-country inequalities are mixed. In some cases, trade liberalization improved wage-inequality, but in some other cases, the opposite pattern was observed. Similar mixed patterns are found for regional inequalities. These mixed findings are consistent with the fact that theoretical predictions are also mixed. One reason for the mixed findings is the impact of other factors affecting inequalities, including labor market conditions, inflow of capital, and policy reforms. Government needs to implement appropriate policies to deal with the inequalities. Two of the most important are policies to promote human resource development and policies on income redistribution. The former improves quality of labor, with the support from a well-functioning and flexible labor market. The latter covers policies on social safety net or on tax system. The safety net pays some portion of adjustment costs borne by workers who are adversely e tax system (e.g., progressive and inheritance tax) helps distribute income more equally between the rich and the poor

Plant entry in a more liberalised industrialisation process: an experience of Indonesian manufacturing during the 1990s

Some major policy changes towards a more open trade and investment regime occurred in Indonesia during the 1980s and 1990s. The impact of these policy changes on the country’s industrialisation has been generally favourable. However, little is known about the impact on the dynamics of plant in the country’s manufacturing. This study addresses this subject, examining the extent and determinants of plant entry in Indonesian manufacturing over the period 1993-96, and asking how the policy reforms affected plant entry. The key finding suggests that the policy reforms increased the extent of competition within industry. This, however, does not seem to be very strong, and the study puts forward some possible explanations. The discussion reaches a consensus that maybe, during the period under this study, the process of the reform had not really been completed and, at the same time, the (predicted) positive impact of the liberalisation had not been fully realised.Firm-level data; globalisation; firm entry; trade liberalisation

The Effects of Agricultural Trade Liberalisation under the Doha Development Agenda with Special Reference to the Asia Pacific Region: A Brief Survey

This study attempts to fill this gap and aims to draw some lessons from Indonesia’s experience, by examining the export-supply response of firms in Indonesian manufacturing. The study asks two questions. First, what is the picture of export-supply response of firms in Indonesian manufacturing during and after the 1997/98 economic crisis?, and second, which factors determine the firms’ export-supply response?Export, Indonesia, Indonesian Manufacturing

Firm Characteristic Determinants of SME Participation in Production Networks

This paper provides an empirical analysis of small and medium enterprise (SME) participation in production networks. It gauges firm characteristic determinants of SME participation in production networks. The empirical investigation utilizes results obtained from an ERIA Survey on SME Participation in Production Networks, conducted over a three month period at the end 2009 in most ASEAN countries (i.e., Thailand, Indonesia, Malaysia, Philippines, Vietnam, Cambodia, and Laos PDR) and China. The results suggest that productivity, foreign ownership, financial characteristics, innovation efforts, and managerial/entrepreneurial attitudes are the important firm characteristics that determine SME participation in production networks. The paper extends the analysis to identify the determinants that allow SMEs to move from low to high quality or value adding participation in production networks. The results suggest that size, productivity, foreign ownership, and, to some extent, innovation efforts and managerial attitudes, are the important firm characteristics needed by SMEs to upgrade their positions in production networks. The finding suggests that SMEs really exploit competitiveness from economies of scale only when they are able to engage in production networks.