Foreign Firms, Technological Capabilities and Economic Performance

Foreign Firms, Technological Capabilities and Economic Performance

Evidence from Africa, Asia and Latin America

Rajah Rasiah

This book employs novel techniques to compare technological capabilities and economic performance in seven countries at varying stages of industrial development: Brazil, Costa Rica, Indonesia, Kenya, Malaysia, South Africa and Uganda. The author uses a methodology drawn from the technology capability framework, but extensively adapts and simplifies it to extract common cross-industry parameters for statistical analysis. He employs the framework to compare the technological, local sourcing and performance dynamics of foreign and local firms in a variety of industries.

Chapter 5: Technological intensity and export incidence in Indonesia

Rajah Rasiah

Subjects: business and management, international business, development studies, development economics, economics and finance, development economics, innovation and technology, innovation policy


Rajah Rasiah 5.1 INTRODUCTION Indonesia is a low-income economy, which until the financial and political crisis that erupted in 1997 was considered as one of the high-performing miracle economies by the World Bank (1993). Its per capita income and its manufacturing value added in real terms grew by more than 5.4 per cent and 9.9 per cent per annum respectively in the period 1989–96 (World Bank, 2002). For a country with a highly scattered landmass, and a population exceeding 210 million people in 1996, these figures were impressive by most measures. However, the severe downturn that accompanied the financial crisis of 1997 and its contagion politically undermined the macroeconomic environment so badly that the growth rates have still not reached pre-crisis levels. Nevertheless, Indonesia offers a good example of a country where foreign ownership conditions prevailed in most parts, although total equity ownership was allowed in Batam in the 1990s (Rasiah, 2003a). Foreign ownership was particularly important in manufacturing from the second half of the 1980s when both external (e.g. the Plaza Accord of 1985) and internal factors (domestic reforms) drove East Asian firms to relocate manufacturing primarily in Southeast Asia (see Pangestu, 1993; Thee and Pangestu, 1998; Hill, 1996). Although foreign ownership regulations were liberalised considerably in the 1990s, transaction costs were still substantially higher until the reforms that took place after the financial crisis. Economic analyses of the role of foreign direct investment in Indonesia tend to show a positive effect on exports, productivity and employment (see...

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