Evidence from Africa, Asia and Latin America
Chapter 5: Technological intensity and export incidence in Indonesia
5. Technological intensity and export incidence in Indonesia 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...
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