Arnold, Jens MatthiasJavorcik, Beata Smarzynska2012-06-252012-06-252005-05https://hdl.handle.net/10986/8935This paper uses micro data from the Indonesian Census of Manufacturing to analyze the causal relationship between foreign ownership and plant productivity. To control for the possible endogeneity of the FDI decision, the difference in differences approach is combined with a matching technique. An advantage of this novel method is the ability to follow the timing of the observed changes in productivity and other aspects of plant performance. The results suggest that foreign ownership leads to significant productivity improvements in the acquired plants. The improvements become visible in the acquisition year and continue in the subsequent periods. After three years, the acquired plants outperform the control group in terms of productivity by 34 percentage points. The data also suggest that the rise in productivity is a result of restructuring, as acquired plants increase their investment outlays, employment, and wages. Foreign ownership also appears to enhance the integration of plants into the global economy through increased exports and imports.en-USCC BY 3.0 IGOACCOUNTINGAFFILIATESASSETSBANK LOANSCAPACITY UTILIZATIONCOMMODITIESCONSTANT RETURNS TO SCALECREDIT CONSTRAINTSDEFLATIONDEFLATORSDEVELOPED COUNTRIESDEVELOPING COUNTRY CONTEXTDIRECT INVESTMENT INFLOWSDOMESTIC ENTERPRISESDOMESTIC FIRMSECONOMIC POLICYECONOMISTSEMERGING MARKETSEMPIRICAL EVIDENCEEMPLOYMENTEXPORTSFINANCIAL CRISISFINANCIAL INSTITUTIONSFIXED ASSETSFOREIGN AFFILIATESFOREIGN CAPITALFOREIGN DIRECT INVESTMENTFOREIGN FIRMSFOREIGN INVESTMENTFOREIGN INVESTORSFOREIGN OWNERSHIPFOREIGN-OWNED FIRMSGDPGLOBAL ECONOMYHOST COUNTRIESHOST COUNTRYIMPORTSINDUSTRIALIZATIONINTANGIBLE ASSETSINTERNATIONAL TRADEINVENTORYLABOR PRODUCTIVITYMANUFACTURING SECTORMANUFACTURING SECTORSMERGERSMETALSOILPATENTSPERFORMANCE ANALYSISPRODUCT DIFFERENTIATIONPRODUCTION FUNCTIONPRODUCTION FUNCTIONSPRODUCTIVITYPRODUCTIVITY GROWTHSECURITIESSUBSIDIARIESSUBSIDIARYTECHNICAL ASSISTANCETECHNOLOGICAL SOPHISTICATIONTECHNOLOGY TRANSFERTOTAL FACTOR PRODUCTIVITYTOTAL FACTOR PRODUCTIVITY GROWTHTRADE BARRIERSVALUATIONVALUE ADDEDWAGESWHOLESALE PRICE INDEXWorld Bank10.1596/1813-9450-3597