Knowledge Spillovers from Foreign Direct Investment and the Role of Local R&D Activities: Evidence from Indonesia

A large number of studies have used firm-level data to examine whether foreign direct investment (FDI) generates knowledge spillovers to domestically owned firms in less developed countries. However, the results are mixed. In this study, Indonesian plant-level panel data are used to test whether the often-ignored local R&D activities of foreign-owned firms in the host country enhance knowledge spillovers from FDI. The analysis found positive spillovers from R&D-performing foreign-owned firms, while spillovers from non-R&D-performing foreign-owned firms were absent.