We analyze the effect of rising protectionism towards foreign direct investment (FDI) on domestic employment, exploiting revisions in Indonesia’s highly-granular negative investment list, and spatial variation in the exposure of the manufacturing sector to these investment restrictions. Rising FDI restrictions caused employment gains at the local level, explaining about one-tenth of the aggregate employment increases observed between 2006 and 2016 in Indonesia.
These employment gains went along with a reorganization of the local production structure, and new firm entries in the manufacturing sector that are concentrated among micro and small enterprises. While our results are consistent with an increase in the labor-to-capital ratio and reduced productivity among regulated firms (which allowed smaller and less productive firms to enter the market), we also document that at least half of the employment gains are driven by spillover-effects along the local value chain and into the service sector.
We use cookies to provide you with an optimal website experience. This includes cookies that are necessary for the operation of the site as well as cookies that are only used for anonymous statistical purposes, for comfort settings or to display personalized content. You can decide for yourself which categories you want to allow. Please note that based on your settings, you may not be able to use all of the site's functions.
Cookie settings
These necessary cookies are required to activate the core functionality of the website. An opt-out from these technologies is not available.
In order to further improve our offer and our website, we collect anonymous data for statistics and analyses. With the help of these cookies we can, for example, determine the number of visitors and the effect of certain pages on our website and optimize our content.