Policy attitude towards tradeintegration and foreign direct investment (FDI) is often acontroversial yet popular subject. This note presentsevidences from recent policy researches that arguing thatengaging in an open trade and investment regime have broughtproductivity gains which is key factor for sustainingincrease in income per-capita. Evidence from Indonesia alsosuggests that foreign owned plants have become increasinglyimportant, generating a significant share of exports andoverall output, as well as more productive and more exportintensive than domestic plants, and to spend more on RD andtraining. FDI also have positive impact on firms in the samesector, through competition and demonstration effects, andin upstream sectors, as suppliers to foreign-owned plantsimprove the quality of their own products to meet theirclients more exacting needs. Evidence also suggests apositive impact from import competition in improvingallocative efficiency across manufacturing plants which is akey element in driving productivity in manufacturing sector.
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