Open Access Journal Article

Sources of Productivity Growth in the Indonesian Manufacturing Industries

by Martha Primanthi a orcid  and  Kaliappa Kalirajan b,* orcid
a
Department of Economics, Faculty of Economics and Business, Airlangga University, Surabaya, Indonesia
b
Arndt Corden Department of Economics, Crawford School of Public Policy, Australian National University, Canberra, Australia
*
Author to whom correspondence should be addressed.
JEA  2023 2(4):8; https://doi.org/10.58567/jea02040002
Received: 19 April 2023 / Accepted: 7 June 2023 / Published Online: 11 June 2023
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Abstract

Generating output growth by adding more inputs into the production process may not be sustainable in the long run for any economy, given the limited resources. On the other hand, if productivity growth dominates the production process, it will generate more output without excessive increase in input use. Hence, this paper examines whether the output growth in Indonesia’s manufacturing sector is excessive inputs driven or productivity driven. Productivity driven growth is measured by Total Factor Productivity (TFP) growth, which is decomposed into its major components of technological progress and technical efficiency within the framework of varying coefficients stochastic frontier analysis (VSFA) using Indonesia’s annual Large and Medium Manufacturing Industries Survey data over the period 2002–2014. The measurement of the components of TFP growth not only provides more insights and better understanding of the dynamic nature of the production processes, but also has important policy implications. The mean TFP growth during the period 2002-2014 was estimated to be 4.3 per cent and was mostly contributed by technological progress experienced by firms. The policy implication is that technical efficiency could still be improved for the selected technology to reap the full benefit of increasing output from the chosen technology.

Keywords: Total factor productivity growth; Varying coefficients stochastic frontier analysis; Technological progress; Technical efficiency Indonesia;
Copyright: © 2023 by Primanthi and Kalirajan. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.
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ACS Style
Primanthi, M.; Kalirajan, K. Sources of Productivity Growth in the Indonesian Manufacturing Industries. Journal of Economic Analysis, 2023, 2, 8. https://doi.org/10.58567/jea02040002
AMA Style
Primanthi M, Kalirajan K. Sources of Productivity Growth in the Indonesian Manufacturing Industries. Journal of Economic Analysis; 2023, 2(4):8. https://doi.org/10.58567/jea02040002
Chicago/Turabian Style
Primanthi, Martha; Kalirajan, Kaliappa 2023. "Sources of Productivity Growth in the Indonesian Manufacturing Industries" Journal of Economic Analysis 2, no.4:8. https://doi.org/10.58567/jea02040002
APA style
Primanthi, M., & Kalirajan, K. (2023). Sources of Productivity Growth in the Indonesian Manufacturing Industries. Journal of Economic Analysis, 2(4), 8. https://doi.org/10.58567/jea02040002

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