Exploring the Role of Foreign Ownership, Absorptive Capacity, Imported Inputs on Efficiency, and Spillovers on Local Firm Across Industrial Technology Levels
Haura Azzahra Tarbiyah Islamiya, Zainul Hasan, Dyah Wulan Sari

Universitas Airlangga

Abstract

This study explores the role of absorptive capacity, foreign ownership, and imported inputs in shaping the technical efficiency (TE) of Indonesian manufacturing firms across different technology levels (high, medium, and low). Using firm-level data from 2017 to 2019, the research employs Stochastic Frontier Analysis (SFA) to examine the impact of these factors on TE. The findings reveal that foreign ownership has no significant effect on TE in high-tech industries, while foreign-owned firms exhibit greater efficiency than domestic firms in medium and low-tech sectors. Additionally, foreign firms help reduce inefficiencies among domestic counterparts in these sectors but increase inefficiency in high-tech industries. Absorptive capacity negatively influences technical inefficiency across all technology levels, yet the study finds no support for the ^learning by exporting^ hypothesis. Imported inputs are associated with lower inefficiency in firms at all technology levels. Interestingly, higher absorptive capacity in foreign-owned firms reduces efficiency in medium and low-tech industries but has no effect in high-tech industries. Based on these results, the study suggests that the Indonesian government should focus on protecting and enhancing the quality of domestic inputs, while tailoring policies for foreign capital based on the technological level of industries to maximize local economic benefits.

Keywords: sustainable industrialization, industry technology level, absorptive capacity, imported input, spillovers

Topic: Entrepreneurship and small medium entreprises