Foreign Ownership and Productivity of Food Industries in Indonesia

Abstract The Indonesian government issued a policy that restricts foreign ownership in several industries including the food industry, with the objective of protecting the domestically owned firm. This research analyzed the productivity differences between foreign-owned and domestically owned plants in the Indonesian food industry and whether the percentage of foreign ownership is related to productivity. Micro data on the food industry were obtained from the Annual Survey of Large and Medium scale Industries (IBS) in 2015 conducted by Statistics Indonesia. The results showed that there were productivity differences between the foreign-owned and domestically owned plants. The foreign-owned plants had higher productivity than the domestic plants. The productivity of plants with minority foreign ownership (less than 50 percent) was not significantly different from that of domestically owned plants. Meanwhile, the productivity of plants with foreign ownership more than 50 percent was significantly different from that of plants with domestic ownership. Wholly foreignowned plants (100 percent) did not demonstrate the highest productivity difference. When the data were disaggregated at the sub-sector level, the results varied among industries.