IDEAS home Printed from https://ideas.repec.org/a/sae/miceco/v10y2022i2p195-224.html

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/23210222211024438
    Download Restriction: no
    File URL: https://libkey.io/10.1177/23210222211024438?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Dyah Wulan Sari & Noor Aini Khalifah & Suyanto Suyanto, 2016. "The spillover effects of foreign direct investment on the firms’ productivity performances," Journal of Productivity Analysis, Springer, vol. 46(2), pages 199-233, December.
    2. Margono, Heru & Sharma, Subhash C., 2006. "Efficiency and productivity analyses of Indonesian manufacturing industries," Journal of Asian Economics, Elsevier, vol. 17(6), pages 979-995, December.
    3. Feenstra, Robert C & Markusen, James R & Zeile, William, 1992. "Accounting for Growth with New Inputs: Theory and Evidence," American Economic Review, American Economic Association, vol. 82(2), pages 415-421, May.
    4. David Atkin & Amit K. Khandelwal & Adam Osman, 2017. "Exporting and Firm Performance: Evidence from a Randomized Experiment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(2), pages 551-615.
    5. Jan De Loecker, 2013. "Detecting Learning by Exporting," American Economic Journal: Microeconomics, American Economic Association, vol. 5(3), pages 1-21, August.
    6. Henry, Michael & Kneller, Richard & Milner, Chris, 2009. "Trade, technology transfer and national efficiency in developing countries," European Economic Review, Elsevier, vol. 53(2), pages 237-254, February.
    7. Kumbhakar,Subal C. & Wang,Hung-Jen & Horncastle,Alan P., 2015. "A Practitioner's Guide to Stochastic Frontier Analysis Using Stata," Cambridge Books, Cambridge University Press, number 9781107029514, Enero-Abr.
    8. Djankov, Simeon & Hoekman, Bernard M, 2000. "Foreign Investment and Productivity Growth in Czech Enterprises," The World Bank Economic Review, World Bank, vol. 14(1), pages 49-64, January.
    9. Bernadetta Dwi Suatmi & Harry Bloch & Ruhul Salim, 2017. "Trade liberalization and technical efficiency in the Indonesian chemicals industry," Applied Economics, Taylor & Francis Journals, vol. 49(44), pages 4428-4439, September.
    10. Suyanto & Salim, Ruhul A. & Bloch, Harry, 2009. "Does Foreign Direct Investment Lead to Productivity Spillovers? Firm Level Evidence from Indonesia," World Development, Elsevier, vol. 37(12), pages 1861-1876, December.
    11. Haddad, Mona & Harrison, Ann, 1993. "Are there positive spillovers from direct foreign investment? : Evidence from panel data for Morocco," Journal of Development Economics, Elsevier, vol. 42(1), pages 51-74, October.
    12. Grimpe, Christoph & Sofka, Wolfgang, 2009. "Search patterns and absorptive capacity: Low- and high-technology sectors in European countries," Research Policy, Elsevier, vol. 38(3), pages 495-506, April.
    13. Mohamad Ikhsan, 2007. "Total Factor Productivity Growth in Indonesian Manufacturing: A Stochastic Frontier Approach," Global Economic Review, Taylor & Francis Journals, vol. 36(4), pages 321-342.
    14. Markusen, James R, 1989. "Trade in Producer Services and in Other Specialized Intermediate Inputs," American Economic Review, American Economic Association, vol. 79(1), pages 85-95, March.
    15. Joachim Wagner, 2016. "Exports and Productivity: A Survey of the Evidence from Firm Level Data," World Scientific Book Chapters, in: Microeconometrics of International Trade, chapter 1, pages 3-41, World Scientific Publishing Co. Pte. Ltd..
    16. Wenjun Liu & Shoji Nishijima, 2013. "Productivity and openness: firm level evidence in Brazilian manufacturing industries," Economic Change and Restructuring, Springer, vol. 46(4), pages 363-384, November.
    17. Rachel Griffith & Stephen Redding & Helen Simpson, 2004. "Foreign Ownership and Productivity: New Evidence from the Service Sector and the R&D Lab," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 20(3), pages 440-456, Autumn.
    18. Dachs, Bernhard & Peters, Bettina, 2014. "Innovation, employment growth, and foreign ownership of firms," Research Policy, Elsevier, vol. 43(1), pages 214-232.
    19. Perry Sadorsky, 2008. "The oil price exposure of global oil companies," Applied Financial Economics Letters, Taylor & Francis Journals, vol. 4(2), pages 93-96.
    20. Charoenrat, Teerawat & Harvie, Charles, 2014. "The efficiency of SMEs in Thai manufacturing: A stochastic frontier analysis," Economic Modelling, Elsevier, vol. 43(C), pages 372-393.
    21. Beata Javorcik & Fitria Fitriani & Leonardo Iacovone & Gonzalo Varela & Victor Duggan, 2012. "Productivity Performance in Indonesia's Manufacturing Sector," World Bank Publications - Reports 26715, The World Bank Group.
    22. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-332.
    23. Dionisius Narjoko & Hal Hill, 2007. "Winners and Losers during a Deep Economic Crisis: Firm‐level Evidence from Indonesian Manufacturing," Asian Economic Journal, East Asian Economic Association, vol. 21(4), pages 343-368, December.
    24. Feenstra, Robert C & Markusen, James R, 1994. "Accounting for Growth with New Inputs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 429-447, May.
    25. Hoi Le & Richard Pomfret, 2011. "Technology spillovers from foreign direct investment in Vietnam: horizontal or vertical spillovers?," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 16(2), pages 183-201.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Haura Azzahra Tarbiyah Islamiya & Dyah Wulan Sari & Mohammad Zeqi Yasin & Wenny Restikasari & Mohd Shahidan Shaari & Mochamad Devis Susandika, 2022. "Technical Efficiency and Productivity Growth of Crude Palm Oil: Variation across Years, Locations, and Firm Sizes in Indonesia," Economies, MDPI, vol. 10(12), pages 1-13, November.
    2. Shahida Suleman & Mohamed Boukhris & Umar Nawaz Kayani & Hassanudin Mohammad Thas Thaker & Calvin W. H. Cheong & Abduraawf Hadili & Shehnaz Tehseen, 2024. "Are Trade Openness Drivers Relevant to Carbon Dioxide Emission? A Study of Emerging Economies," International Journal of Energy Economics and Policy, Econjournals, vol. 14(2), pages 183-196, March.
    3. Yingying Shi, 2024. "Corruption, technical efficiency and total factor productivity growth: empirical evidence from China," Economic Change and Restructuring, Springer, vol. 57(6), pages 1-24, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dyah Wulan Sari & Noor Aini Khalifah & Suyanto Suyanto, 2016. "The spillover effects of foreign direct investment on the firms’ productivity performances," Journal of Productivity Analysis, Springer, vol. 46(2), pages 199-233, December.
    2. Damijan, Jože P. & Kostevc, Crt, 2007. "Knowledge Transfer, Innovation and Growth," Papers DYNREG06, Economic and Social Research Institute (ESRI).
    3. Mirabelle Muûls & Mauro Pisu, 2009. "Imports and Exports at the Level of the Firm: Evidence from Belgium," The World Economy, Wiley Blackwell, vol. 32(5), pages 692-734, May.
    4. Joze P. Damijan & Mark Knell & Boris Majcen & Matija Rojec, 2003. "Technology Transfer through FDI in Top-10 Transition Countries: How Important are Direct Effects, Horizontal and Vertical Spillovers?," William Davidson Institute Working Papers Series 549, William Davidson Institute at the University of Michigan.
    5. Mohammad Zeqi Yasin, 2020. "Productivity: The Growth Accounting and The Stochastic Frontier Approach," Economics Bulletin, AccessEcon, vol. 40(4), pages 3020-3032.
    6. Sophia P. Dimelis & Sotiris K. Papaioannou, 2011. "Technical Efficiency and the Role of ICT: A Comparison of Developed and Developing Countries," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(0), pages 40-53, July.
    7. Mauro Pisu, 2008. "Job creation, job destruction and firms’ international trade involvement," Working Paper Research 130, National Bank of Belgium.
    8. Ergun Dogan & Koi Nyen Wong & Michael M. C. Yap, 2017. "Vertical and Horizontal Spillovers from Foreign Direct Investment: Evidence from Malaysian Manufacturing," Asian Economic Papers, MIT Press, vol. 16(3), pages 158-183, Fall.
    9. Jože P. Damijan & Andreja Jaklič & Matija Rojec, 2006. "Do External Knowledge Spillovers Induce Firms’ Innovations? Evidence from Slovenia," Palgrave Macmillan Books, in: Ana Teresa Tavares & Aurora Teixeira (ed.), Multinationals, Clusters and Innovation, chapter 3, pages 27-47, Palgrave Macmillan.
    10. Jože P. Damijan & José De Sousa & Olivier Lamotte, 2009. "Does international openness affect the productivity of local firms?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 17(3), pages 559-586, July.
    11. Sarker, Bibhuti & Serieux, John, 2022. "Foreign-invested and domestic firm attributes and spillover effects: Evidence from Brazil," Journal of Multinational Financial Management, Elsevier, vol. 63(C).
    12. Suyanto, & Salim, Ruhul & Bloch, Harry, 2014. "Which firms benefit from foreign direct investment? Empirical evidence from Indonesian manufacturing," Journal of Asian Economics, Elsevier, vol. 33(C), pages 16-29.
    13. Damijan, Joze P. & Knell, Mark & Majcen, Boris & Rojec, Matija, 2003. "The role of FDI, R&D accumulation and trade in transferring technology to transition countries: evidence from firm panel data for eight transition countries," Economic Systems, Elsevier, vol. 27(2), pages 189-204, June.
    14. Wahyu Widodo & Ruhul Salim & Harry Bloch, 2015. "The effects of agglomeration economies on technical efficiency of manufacturing firms: evidence from Indonesia," Applied Economics, Taylor & Francis Journals, vol. 47(31), pages 3258-3275, July.
    15. Adugna Lemi & Ian Wright, 2020. "Exports, foreign ownership, and firm-level efficiency in Ethiopia and Kenya: an application of the stochastic frontier model," Empirical Economics, Springer, vol. 58(2), pages 669-698, February.
    16. Suyanto & Salim, Ruhul A. & Bloch, Harry, 2009. "Does Foreign Direct Investment Lead to Productivity Spillovers? Firm Level Evidence from Indonesia," World Development, Elsevier, vol. 37(12), pages 1861-1876, December.
    17. Matija Rojec & Mark Knell, 2018. "Why Is There A Lack Of Evidence On Knowledge Spillovers From Foreign Direct Investment?," Journal of Economic Surveys, Wiley Blackwell, vol. 32(3), pages 579-612, July.
    18. Geoffrey Barrows & Hélène Ollivier & Ariell Reshef, 2023. "Production Function Estimation with Multi-Destination Firms," CESifo Working Paper Series 10716, CESifo.
    19. Mary Amiti & Jozef Konings, 2007. "Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia," American Economic Review, American Economic Association, vol. 97(5), pages 1611-1638, December.
    20. Joze Damijan & José de Sousa & Olivier Lamotte, 2010. "Trade Liberalization in Southeastern Europe," Chapters, in: Robert E.B. Lucas & Lyn Squire & T. N. Srinivasan (ed.), Global Exchange and Poverty, chapter 4, Edward Elgar Publishing.

    More about this item

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:miceco:v:10:y:2022:i:2:p:195-224. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.