Economic Zones: Pathways to Develop National Technological Capability

Abstraksi

Industrialization has been referred to as the key for emerging economies in escaping the middle income trap. Current emerging economies are aspiring to mimic the strategies of East Asia, especially those of China and South Korea, by putting FDI as the central line to ensure industrial development success. In the battle to secure the big fishes’ investment, Indonesia and Thailand developed economic zones to facilitate and incentivize FDI to flourish. The problem is that the fundamentals of building an industrialised nation is not understood. The experiences in Latin America shows that the threat of FDI dependency does not alter to technological spill-over. A case whereby FDI resulted into an inclusive industrialisation is mostly found in economies with a strong government intervention with long-term plan on directing the National Technological Capability (NTC), such as China and South Korea. Without the promotion of innovation and learning, in other words, the state’s technological effort, FDI’s spill over effect might not be achieved. Unfortunately, Special Economic Zones in Indonesia are providing standardized investment incentives that does not reflect a comprehensive plan showing the specific direction of the NTC developmental efforts. This paper argues that the advancement of NTC is determined by the state’s ability in orchestrating investment incentives tailored to the national technological effort. Using a comparative case study method, this paper analyses the interaction of capabilities-incentives-institution in developing the NTC within the case of Indonesia, Thailand, and South Korea. This paper aims to foster Indonesia’s industrialisation to emphasize on technological learning and innovation.