Technology adoption from foreign direct investment and exporting: Evidence from Indonesian manufacturing

This dissertation contains three essays on technology adoption from foreign direct investment and exporting. The empirical analysis is based on a panel dataset of Indonesian manufacturing establishments from 1988 to 1996.;The first essay examines how the technology that accompanies foreign direct investment (FDI) diffuses in the host economy. I ask if local vendors that sell to multinational entrants benefit from supply chain linkages. I measure the effect of downstream FDI on local firm productivity and find strong evidence that vertical supply chains are a channel for technology transfer. In contrast, prior studies that measure the horizontal spillover of technology from foreign entrants to domestic competitors find mixed evidence of technology transfer.;The second essay examines innovation from public knowledge stocks by measuring the adoption of technology brought with FDI. I add to the literature by asking not only if local firms learn from FDI, but also which firms are the prime beneficiaries. I measure how the performance of local firms responds to the entry of multinational competitors and find evidence that local firms do acquire technology from FDI. In particular, firms with greater absorptive capacity, as measured by prior investment in research and development, and firms with highly educated employees benefit more from than other firms. In contrast, firms that have a narrow "technology gap," meaning that they are close to the international best-practice frontier, benefit less than firms with weak prior technical competency, which have more room to "catch up.";The third essay asks if firms acquire technology through exporting by estimating productivity changes. I adopt two strategies to control for the endogeneity of a firm's decision to export. First, I exploit the liberalization of Indonesia's trade regime in the early 1990's as an exogenous source of variation in exporting behavior. Second, I employ several estimation approaches to remove the bias from unobserved idiosyncratic productivity shocks which may simultaneously determine both exporting behavior and performance. I find strong evidence that firms benefit from a one-time jump in productivity upon entering export markets.