Working Paper: NBER ID: w10039
Authors: Andrew B. Bernard; Fredrik Sjöholm
Abstract: In recent years, international capital flows of all types have increased dramatically and most governments have been actively encouraging inflows of direct investment. However, concerns remain that reliance on foreign multinationals may be a risky development strategy as foreign firms are likely to be less rooted in the local economy and may be quicker to close down production. This paper asks whether foreign owners are more likely to close plants than domestic owners. In Indonesia, plants with any foreign ownership are far less likely to close than wholly-owned domestic plants. However, the lower probability of shutdown is a result of the larger size of foreign plants rather than their nationality of ownership. Controlling for plant size and productivity, we find that foreign plants are significantly more likely to close than comparable domestic establishments.
Keywords: foreign ownership; plant survival; Indonesia; foreign direct investment
JEL Codes: F23; L25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| foreign ownership (F23) | plant survival (Q24) |
| foreign ownership (F23) | plant closure (J65) |
| plant size and productivity (O47) | plant survival (Q24) |
| plant size and productivity (O47) | plant closure (J65) |
| change from domestic to foreign ownership (F23) | probability of closure (C62) |