Do IFC Investments Reduce Poverty by Creating Jobs? : A Case Study of a Manufacturing Investment in Indonesia
This impact evaluation uses econometric techniques to assess the social and economic impact of an IFC investment in Ecogreen Oleochemicals in Indonesia. This investment doubled the capacity of an Ecogreen plant in the Kabil district on the island o...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
International Finance Corporation, Washington, D.C.
2017
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| Online Access: | http://documents.worldbank.org/curated/en/608751506407855190/Do-IFC-investments-reduce-poverty-by-creating-jobs-a-case-study-of-a-manufacturing-investment-in-Indonesia http://hdl.handle.net/10986/28532 |
| Summary: | This impact evaluation uses econometric
techniques to assess the social and economic impact of an
IFC investment in Ecogreen Oleochemicals in Indonesia. This
investment doubled the capacity of an Ecogreen plant in the
Kabil district on the island of Batam. The authors use the
synthetic control methodology and household level survey
data from 1994-2009 to assess whether measureable impacts
are observed after the investment. The authors find that
monthly expenditures per capita in the Kabil district grew
by 165,000 more rupiah (210 US dollars per year) than in the
control district, representing a 22 percent increase over
the 2009 level of expenditures of 785,000 rupiah (1,000 US
dollars per year) in the control district. When this 210 US
dollars is extrapolated to the 19,000 people that live in
the treated district, the total annual impact in 2009 is 4
million US dollars. Aggregating each year since 2005, the
impact over 4 years was $6.8 million. However, there has
been no significant increase in Kabil in employment, and in
fact a decrease in formality. Based on qualitative
interviews in Batam, this expected. The investment resulted
in the employment of many high-paid workers, as Ecogreen
hired mostly skilled labor with college degrees in the
natural sciences. These workers generally migrated from
outside of Batam to join Ecogreen, thus boosting the local
economy through additional demand for products and services
from local enterprises. As expenditures per capita is a
measure of the welfare of the local economy, this increase
is expected. However, employment did not increase faster
than the control group, possibly demonstrating that existing
local businesses grew, and this growth was not spread to
additional businesses and additional employment.
Additionally, employment rates in Batam have historically
been high (90-95 percent) given that it is a Special
Economic Zone, so increases are not likely to be large and
therefore difficult to observe in the data. Finally,
formality actually decreased, likely because much of the job
growth in the local economy was in the informal sector. This
evaluation demonstrates that investments in skilled labor
can have positive spillover effects to the local economy. It
also represents the first time the IFC has used econometric
methods and survey data to understand induced impact. This
evaluation therefore also provides a methodological example
for how the IFC can evaluate its impact in the future. |
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