Productivity gains,technology spillovers and trade: Indonesian manufacturing, 1980-96

The importance of R&D spillovers for productivity growth has been well documented in the literature. While studies in the developed country context have focused extensively on sectoral linkages, research on North-South spillovers has largely been confined to the aggregate level. This paper assesses the contribution of international R&D spillovers to manufacturing performance in Indonesia at the sectoral level. Drawing on OECD and Indonesian data sources, we consider two distinct phases: a phase characterised by intense policy regulation (1980-87), followed by a phase of liberalisation and reform (1988-96). Our results indicate that international technology spillovers made a significant contribution to the performance of Indonesian manufacturing, especially after liberalisation. The contribution of technology spillovers to productivity change is influenced by sectoral characteristics and industrial market structure.