Foreign Direct Investment Spillovers and Domestic Supplier Upgrading in Indonesia

Abstract

This integrative review examines the following Indonesia-focused question: Through which supplier linkages, market conditions, and capability investments does foreign direct investment generate upgrading among domestic Indonesian firms? The analysis treats foreign direct investment as a conditional economic mechanism rather than a stand-alone headline indicator and evaluates how it interacts with supplier upgrading. For foreign direct investment, peer-reviewed research is read together with current official statistical and policy material, with Indonesia-specific evidence given priority and international studies used to clarify mechanisms. Across the reviewed material, the effect of foreign direct investment varies with exposure, timing, market structure, institutional arrangements, and the capacity of decision makers to adjust. The article therefore develops a mechanism-based interpretation that distinguishes first-round transmission, behavioral response, and boundary conditions for supplier upgrading. No primary survey, interview, firm observation, or regression estimate is manufactured for this foreign direct investment conceptual review; empirical claims remain attributed to their original sources. The resulting foreign direct investment framework supports differentiated measurement and identifies an Indonesia-specific research agenda for testing the proposed channels with more granular data.