FDI spillovers and technical efficiency 393 anonymous reviewers and editor are also highly
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Appendix where k it represents the fixed assets of establishment i Back-casting the missing values of capital
represents the gross-output of estab- Following Vial (2006) and Ikhsan (2007), the missing
at time t, y
0 and 1 denote parameters values of establishment capital are back-casting using
is the establishment-specific the following regression for the observed period
it
effect, and " it is the remainder disturbance. The 1988–1995:
reason for choosing a 1-year lag of gross-output as an independent variable is to control for a potential
endogeneity problems that could arise if using the
FDI spillovers and technical efficiency 395 gross-output at time t. In other words, as the
indicated by Baltagi (2008), an RE is to be preferred predicted fixed assets from Equation A1 will be
for a panel set with a larger number of establishments used as the capital variable in the SPFs, the use of
if compared to the time period, because the gross-output at time t as an independent variable may
prediction in a RE model is unconditional of the cause an endogeneity bias in estimations.
number of establishments. The RE-GLS estimation is
carried out under STATA10 computer software, and Generalized Least Squared (GLS) estimation. There the estimates are then used to calculate the missing are two basic reasons for choosing RE model instead
The Equation A1 is estimated using RE
of FE model. First, a RE model avoids an enormous value of capital. By doing so, all missing values of loss in degree of freedom, as would have happened
capital are filled and the consistent panel set is under the FE model (Greene, 2008). Second, as
constructed.
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Foreign Direct Investment Spillovers and Technical Efficiency in the Indonesian Pharmaceutical Sector: Firm