Potential Spillover from Foreign Companies: Evidence from the Indonesian Convection Industry

The textile industry in Indonesia is fascinating to study due to its essential role in the Indonesian economy and as a strategic sector for employment. While imported items continue to dominate raw material supply in this sector, Foreign Direct Investment (FDI) inflows will bring about externality effects on a firm’s efficiency. This current study examines the spillover effect of Foreign Direct Investment on firms’ technical efficiency in Indonesia’s convection industry (ISIC 14111). The study used Data Envelopment Analysis (DEA) models to calculate technical efficiency scores for each firm in the convection sector from 2010 to 2013. Changes in productivity levels are projected to occur due to technical efficiency changes. The findings indicate that Foreign Direct Investment can positively affect changes in technical efficiency through capital-labor ratio, foreign ownership, and imported material