Foreign Ownership and Productivity in ASEAN Manufacturing: The Moderating Role of Absorptive Capacity


Authors : Alfian Musyafa

Volume/Issue : Volume 7 - 2022, Issue 3 - March

Google Scholar : https://bit.ly/3IIfn9N

Scribd : https://bit.ly/35Jzk2y

DOI : https://doi.org/10.5281/zenodo.6414608

The globalization of markets and rising international trade have led to a dramatic increase in the international expansion of multinationals. In the process of internationalizing, multinational enterprises (MNEs)carry with them firm-specific advantages which allows them to attain higher productivity levels compared to domestic firms. Under its regional grouping, Association of Southeast Asian Nation (ASEAN), Southeast Asia is particularly interesting for the study of productivity differentials between domestic and foreign-owned firms. This is because there is still a lack of empirical evidence in the region and that in several ASEAN countries, there has been a recent trend of de-industrialization where the composition of GDP shift from manufacturing to service. The purpose of this paper is to explore whether foreign-owned ASEAN manufacturing firms experience higher productivity than their domestic counterparts. Additionally, it will also investigate how the relationship between foreign ownership and productivity is moderated by the firm’s absorptive capacity. By applying a random-effect regression on a panel dataset consisting of 688 firms from Indonesia, Malaysia, and Vietnam covering the 2014-2018 period; this study provides partial support for the existence of productivity differentials between foreign-owned and domestic-owned firms in Southeast Asia and found that absorptive capacity negatively moderates this relationship. However, due to a lack of internal validity, the latter finding must be interpreted with caution.

Keywords : ASEAN, foreign ownership, absorptive capacity, productivity.

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