Friend or Foe? Revealing R&D spillovers from FDI in Indonesia

Mohammad Zeqi Yasin, Miguel Angel Esquivias, Wee Yeap Lau, Martha Ranggi Primanthi

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)

Abstract

The benefits of research and development (R&D) investment extend beyond the undertaking firms and may impact the wider economy through spillovers. This study examines the effect of Multinational Companies (MNCs)’ R&D intra-industrial spillovers on total factor productivity (TFP) using firm-level data from Indonesia between 2017 and 2019. To address the cross-sectional dependence, we employed a fixed-effects estimator with Driscoll and Kraay's (1998) standard errors. We also incorporate a cost-based approach with a weighting matrix that integrates human resources into R&D activities to capture the R&D intra-industrial spillover from foreign companies. The findings indicate that intra-industrial R&D spillovers from MNCs negatively impact TFP, suggesting product-market rivalry in the domestic market. Foreign and domestic firms operating in a subsector that relies on similar technologies compete to enhance productivity, resulting in business theft. Increasing firms’ capability in human resource absorption, access to foreign inputs, firm size, and market concentration can improve TFP in manufacturing firms. This finding has policy implications for the proportions of R&D spending. The results also support the need to foster open innovation by creating an environment that encourages collaboration, skill development, and local innovation.

Original languageEnglish
Article number100209
JournalJournal of Open Innovation: Technology, Market, and Complexity
Volume10
Issue number1
DOIs
Publication statusPublished - Mar 2024

Keywords

  • Industry and innovation
  • Manufacturing innovation
  • Multinational enterprises
  • R&D investment
  • R&D spillovers
  • Total factor productivity

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