Are foreign multinationals more efficient? A stochastic production frontier analysis of Malaysia's automobile industry

This paper compares the sources of total factor productivity (TFP) growth of foreign (establishments with 51% and above foreign equity ownership) and local establishments in Malaysia’s automotive sector by applying a stochastic production frontier to a panel of 510 plants for the period 2000-2004. The results showed that TFP growth for local automobile plants was minimal at 0.63% and minimally negative at -0.27% for foreign plants. On average,over the study period, technical efficiency changes contributed positively toward TFP growth but scale efficiency changes were negative for both local and foreign establishments. Technical progress was minimally positive for local establishments and minimally negative for foreign establishments.The small size of plants and the lower share of white-collar workers were significant in explaining plant inefficiency in Malaysia’s automobile sector. A higher capital-labour ratio was positively related to plant inefficiency and this may be due to excess capacity in the automobile sector as a result of a small domestic market. Finally, foreign multinationals are significantly more efficient than locally owned plants

Technical efficiency of establishments in Malaysia’s electrical and electronics industries: exporting or vertical trade?

This study compares export intensity and vertical trade intensity in determining technical efficiency (TE) of establishments in Malaysia’s electrical and electronics industries (E&E) amongst other explanatory variables. We measure fragmentation or vertical trade intensity as two-way trade or the overlap of exports and imported inputs weighted by gross output of establishments. In the overall sample of establishments, vertical trade intensity is a significant determinant of (TE) whereas export intensity is not. A bigger scale of production, a higher degree of vertical integration and higher labour quality are positively related to TE whereas higher industrial concentration is negatively associated with TE. In the sub-sample of ordinary trading establishments, export intensity is a significant determinant of technical efficiency whereas in the sub-sample of vertical trading establishments, export intensity is not a significant determinant of TE. Higher export intensity does not necessarily mean higher efficiency of establishments and hence, an unqualified policy of export expansion within the context of vertical trade and global value chains in production should be conducted with caution. Technical progress is not significant in all of the models estimated

The effects of foreign R&D and triadic patent propensity on developing economies efficiency and convergence

This research relies on the theory of endogenous growth, where the role of foreign imported capital and triadic patent propensity is assumed to endogenously determine the growth process of a group of 36 developing and emerging economies for the years 1990-2010. Our results confirm the monotonicity hypothesis from both foreign imported technology and triadic patent propensity toward technical efficiency improvement with no indication of pure TFP growth. The results indicate that initial foreign capital and initial triadic patent propensity only minimally improve the technical efficiency change for a small number of economies with nearly halve of the sample deviating from the convergence point

The spillover effects of foreign direct investment on the productivity and efficiency in Indonesian manufacturing industry

The study aims to examine foreign direct investment spillover effects on the firms’ productivity performances and to examine the most important component of total factor productivity growth in explaining output growth. This study employs a time-varying stochastic frontier approach for firm level panel data of Indonesian manufacturing industry and performs a non-parametric test of the closeness of two distributions. The results demonstrate that foreign firms achieve higher productivity but less efficient than domestic firms. Increasing degrees of foreign ownership is negatively related to firms’ productivity but positively related to firms’ efficiency. There are positive horizontal spillover effects of foreign direct investment on the firms’ productivity and efficiency. The backward spillovers have positive impact on firm’s efficiency, and the forward spillovers have positive impact on firm’s productivity. However, there are negative backward spillover effects on firms’ productivity and negative forward spillover effects on firms’ efficiency. Besides that, within the same market technology spillover from FDI are smaller with higher level of labour quality. In the upstream market, the degree of absorptive capacity of suppliers has a negative impact on firms’ productivity but have a positive impact on reducing inefficiency. In the downstream markets, the greater ability of the buyers to identify, assimilate and exploit knowledge spillovers, the greater the impact on increasing productivity but the lesser the impact on reducing inefficiency. Finally, this study finds that all components of productivity; technological progress, technical efficiency change and scale efficiency change significantly contribute in explaining the TFP growth

Trade linkages and skill demand : empirical evidence for the Malaysian electrical and electronics industries

This article empirically investigates whether trade linkages have any contribution to skill upgrading in the Malaysian electrical and electronics (E&E) firms by using establishment level data. The richness of data provided by Department of Statistics Malaysia (DOSM) enable us to explore the direct impact of each aspect of trade linkages, including exports of goods, imported inputs (outsourcing), and foreign ownership (FDI). More crucially, this research analyse the effects of the modern trade pattern, i.e. vertical trade which would best capture the current trend in the Malaysian E&E sector – high overlap in exports and imported inputs. The skill demand is analysed using dynamic skill share demand equation and GMM (generalised method of moments) estimator addresses both the endogeneity and firm fixed effect. Contrary to previous studies, results suggest that export and outsourcing do not significantly contribute to skill upgrading in Malaysian E&E establishments within the period under study. Plus, vertical trade and foreign share have significant negative impact on relative demand for skilled workers. These findings provide evidence that vertical trade as well as the presence of multinational corporations (MNCs) are associated with skill downgrading in Malaysian E&E sector. Empirical evidence does not uphold the conventional wisdom of the beneficial effects of trade especially ultra-vertical or export processing trade on skill upgrading

Horizontal and Vertical (Buyer-Supplier) Spillovers from Foreign Direct Investment : Determinants of Malaysian Establishments' Total Factor Productivity

This study examines the issue of indirect technology transfer through both horizontal and vertical spillovers from foreign direct investment (FDI). Combining both input-output data for 2000 and a balanced micro-panel data set for the period 2000-2004, we estimate total factor productivity (TFP) of establishments as a function of the different extent of foreign presence and inter industry linkages; amongst other explanatory variables

Capital goods export to developing economies: implication from exporter’s level of technology and destination country’s threat of imitation

This article estimates the trade effect of capital goods exports from 19 OECD into 57 developing and emerging economies trade partners for the period 1990 to 2010. The impact of capital goods exports from the OECD countries is assessed using panel gravity model analysis. We examine the possibility of market-power or market-expansion related to capital goods export into the trading partners hypothesized using the intellectual property right (IPR) index, level of exporters’ technology and imitation threats in the destination country. Our empirical result shows some consistencies on the evidence of market-expansion effect towards capital goods exports which is directly observed from both exporters’ level of technology and destination country’s IPR protection level. Indirectly, a diminishing effect on market expansion is observed when conditioned on one interacting variable. We also predict a consistent market-power effect observed from threat of imitation over time

The spillover effects of foreign direct investment on the firms’ productivity performances

The study aims to examine foreign direct investment spillover effects on the firms’ productivity performances and to examine the most important component of total factor productivity growth in explaining output growth. This study employs a time-varying stochastic frontier approach for firm level panel data of Indonesian manufacturing industry and performs a non-parametric test of the closeness of two distributions. The results demonstrate that foreign firms achieve higher productivity but less efficient than domestic firms. Increasing degrees of foreign ownership is negatively related to firms’ productivity but positively related to firms’ efficiency. There are positive horizontal spillover effects of foreign direct investment on the firms’ productivity and efficiency. The backward spillovers have positive impact on firm’s efficiency, and the forward spillovers have positive impact on firm’s productivity. However, there are negative backward spillover effects on firms’ productivity and negative forward spillover effects on firms’ efficiency. Besides that, within the same market technology spillover from FDI are smaller with higher level of labour quality. In the upstream market, the degree of absorptive capacity of suppliers has a negative impact on firms’ productivity but have a positive impact on reducing inefficiency. In the downstream markets, the greater ability of the buyers to identify, assimilate and exploit knowledge spillovers, the greater the impact on increasing productivity but the lesser the impact on reducing inefficiency. Finally, this study finds that all components of productivity; technological progress, technical efficiency change and scale efficiency change significantly contribute in explaining the TFP growth

Are Foreign Multinationals More Efficient? A Stochastic Production Frontier Analysis of Malaysia’s Automobile Industry

This paper compares the sources of total factor productivity (TFP) growth of foreign (establishments with 51% and above foreign equity ownership) and local establishments in Malaysia’s automotive sector by applying a stochastic production frontier to a panel of 510 plants for the period 2000-2004. The results showed that TFP growth for local automobile plants was minimal at 0.63% and minimally negative at -0.27% for foreign plants. On average, over the study period, technical efficiency changes contributed positively toward TFP growth but scale efficiency changes were negative for both local and foreign establishments. Technical progress was minimally positive for local establishments and minimally negative for foreign establishments. The small size of plants and the lower share of white-collar workers were significant in explaining plant inefficiency in Malaysia’s automobile sector. A higher capital-labour ratio was positively related to plant inefficiency and this may be due to excess capacity in the automobile sector as a result of a small domestic market. Finally, foreign multinationals are significantly more efficient than locally owned plants.

Exports and Exchange Rate Movements: The Role of Credit Market Imperfections

Focusing on a threshold regression analysis, the result provides new evidence that the negative effect of exchange rate depreciation on exports takes place as certain threshold level of credit market imperfection has been attained