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The Economic Premise series summarizes good practices and key policy findings on topics related to economic policy. They are produced by the Poverty Reduction and Economic Management (PREM) Network Vice-Presidency of the World Bank.
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Can Open Service Sector FDI Policy Enhance Manufacturing Productivity? Evidence from Indonesia(World Bank, Washington, DC, 2013-02) Duggan, Victor ; Rahardja, Sjamsu ; Varela, GonzaloDrawing on the findings of recent research, this note examines the extent to which changes to policy restrictions on foreign direct investment (FDI) in the Indonesian service sector affected the performance of downstream manufacturers during 1997-2009. The analysis uncovers two important findings: first, that relaxing restrictions toward FDI in service sectors was associated with improvements in the perceived performance of those sectors, and second, more importantly, that this relaxation accounted for 8 percent of the total observed increase in manufacturers' total factor productivity (TFP) during this period. The results show that these TFP gains accrue disproportionately to those firms that are relatively more productive and that gains are related to the relaxation of restrictions in the transport as well as the electricity, gas, and water sectors. TFP gains are associated, in particular, with the relaxation of foreign equity limits, screening and prior approval requirements, but less so with discriminatory regulations that prevent multinationals from hiring key personnel from abroad.
Agriculture Public Spending and Growth : The Example of Indonesia(World Bank, Washington, DC, 2010-04) Armas, Enrique Blanco ; Osorio, Camilo Gomez ; Moreno-Dodson, BlancaThis note analyzes the trends and evolution of public spending in the agriculture sector in Indonesia, as well as its impact on the growth of agriculture during the period 1976-2006. Public spending on agriculture and irrigation had a positive impact on agriculture growth during that period, whereas public spending on fertilizer subsidies had the opposite effect. As Indonesia continues its efforts to revitalize the agriculture sector, public spending should be directed at improving the provision of public services rather than at subsidizing private inputs.