Friend or Foe? Revealing R&D spillovers from FDI in Indonesia
Document Type
Article
Publication Date
1-1-2024
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. © 2024 The Authors
Keywords
Industry and innovation, Manufacturing innovation, Multinational enterprises, R&D investment, R&D spillovers, Total factor productivity
Divisions
deptdecision
Funders
Airlangga University
Publication Title
Journal of Open Innovation: Technology, Market, and Complexity
Volume
10
Issue
1
Publisher
Elsevier
Additional Information
Cited by: 0; All Open Access, Gold Open Access