Inviting Foreign Direct Investment (FDI) is a means used by developing countries to nurture local firms in developing an international competitive edge. Recently, many developing countries have implemented liberalization policies for FDI in the hope that it would lead to more benefits for host economies and help local firms upgrade their technological capabilities through production linkages, especially backward linkages (BL). Due to the dual nature of liberalization such benefits depend on many factors. On the one hand, liberalization offers local firms more BL opportunities and access to the international market, on the other hand, it brings local firms into more severe competition with global suppliers. Without capabilities to cope with the latter, the liberalization will not benefit the host economy. This paper will show that liberalization policies for FDI in Indonesia, especially in the Batam bonded zone, have not led to abovementioned benefits. The main issues identified for the government are the improvement of partnership readiness of local firms and the lowering of linkage costs between FDI and local firms.
All Science Journal Classification (ASJC) codes
- Human Factors and Ergonomics
- Business and International Management
- Sociology and Political Science