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Technical Efficiency and Total Factor Productivity Growth of Indonesian Manufacturing Industry: Does Openness Matter?

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  • Mohammad Zeqi Yasin

Abstract

In this paper, we examine the contribution of openness variables such as import, export, absorptive capacity and foreign-shared capital to Indonesian firms’ technical efficiency and total factor productivity (TFP) growth. We use the most recent firm-level panel data of 23 subsectors in the manufacturing industry over the period from 2008 to 2015. We employ time-varying stochastic production frontier to examine factors affecting technical efficiency and to decompose the components of TFP growth. The results reveal that export and absorptive capacity alone contribute to the efficiency improvement of the firms under study. To speak specifically of foreign firms, they contribute to improving efficiency if they interact with absorptive capacity and imported raw material intensity. We identify that, on an average, the manufacturing industry in Indonesia experienced positive TFP growth. However, among 23 subsectors, there are only few subsectors that benefitted from the openness variables. In 2014, 15 out of 23 subsectors experienced negative TFP growth. This implies that, in 2014, there were some macroeconomic issues regarding the contracted policy, for example, the subsidy removal and the basic electricity tariff. JEL Classifications : C23, D24, F23, O14

Suggested Citation

  • Mohammad Zeqi Yasin, 2022. "Technical Efficiency and Total Factor Productivity Growth of Indonesian Manufacturing Industry: Does Openness Matter?," Studies in Microeconomics, , vol. 10(2), pages 195-224, December.
    • Handle: RePEc:sae:miceco:v:10:y:2022:i:2:p:195-224
    DOI: 10.1177/23210222211024438
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    More about this item

    Keywords

    Manufacture; stochastic frontier; productivity; openness; Indonesia;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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