Cottage and Small Firm "Presence" in Indonesian Manufacturing between 1975-1996

Firm "presence" in the Indonesian manufacturing sector is examined within a cross-section of eight cottage and small industries over eight time periods. It is empirically confirmed that in the Indonesian manufacturing sector, small firm presence is more important in industries where there is high vertical integration and no significant economies of scale in management. The results confirm that even if productivity levels are low, firm presence does not diminish and that clear boundaries exist between small and cottage industries in terms of their entrepreneurial activity. Small firm presence is responsive to cost of capital: as cost of capital increases, firm presence declines. The results also confirm that as the overall economic environment improves, medium and large firms tend to grow and are favored more and this squeezes out small firms. The results also indicate that industry support mattered for firms in ISIC industry groups wood and wood products and non-metallic mineral products. The empirical results for cottage firms were largely similar to small firms except that for cottage firms cost of capital does not matter much and there is no evidence of spillover effects of industry support from small firms to cottage firms. Copyright 2001 by Kluwer Academic Publishers