The FDI Spillover Effect on the Efficiency and Productivity of Manufacturing Firms: Its Implication on Open Innovation

In this study, we investigated the effects of foreign direct investment (FDI) spillovers on firm production and technical efficiency in Indonesia’s manufacturing sector from 2010 to 2015. We scrutinized three different channels horizontal spillover, namely, demonstration, technology adoption, competition channels. also captured heterogeneous effect firms by categorizing them based their technological intensity (low, medium, or high). Using time-varying stochastic frontier analysis, found that each group benefit FDI, either productivity improvement improvement. High-technology mainly FDI due high absorption capability. Meanwhile, medium-high medium-low tech increase through demonstration adoption channel, despite underperforming efficiency. Finally, low-tech firms, which primarily employ unskilled workers, suffer large inefficiency. increased combined with improvements capacity, can help revitalize firms. size, access inputs all support but have no positive impact firms’ The results study suggest government should ensure domestic absorb capability a presence. Open innovation strengthen foreign–domestic linkages contribute growth transfer knowledge, skills, technologies.