Local research and development (R&D) activities performed by foreign firms were examined to determine whether these activities lead to greater spillovers from foreign direct investment (FDI). Based on plant-level panel data for the Indonesian manufacturing sector during the period 1994-97, it was found that there are knowledge spillovers from R&D-performing foreign firms in the same industry. However, no such spillovers were found from non-R&D-performing firms. Overall, results show that there are indeed knowledge spillovers from foreign to domestic firms but the process of such spillovers from FDI is not as simple as first thought.
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