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Industrialization after a Deep Economic Crisis: Indonesia

  • Haryo Aswicahyono
  • Dionisius Narjoko
  • Hal Hill


Indonesia experienced a deep economic contraction as a result of the 1997-98 Asian crisis. This paper examines trends and patterns in the country’s industrial sector in the wake of the crisis, and against the backdrop of the changed policy and institutional environment. Prior to the crisis Indonesia was one East Asia’s fastest industrializers, whereas its industrial growth is now one of the slowest. Moreover, prior to the crisis, manufacturing was a ‘leading sector’ in the economy, whereas it is now growing at about the average. We examine how and why the record within manufacturing is diverse. Also unit labour costs rose sharply immediately following the crisis. In consequence, industrialization has also become less employment elastic, and employment in the formal sector has hardly increased. Foreign ownership has risen substantially, while concentration levels remain largely unchanged. Industrial exports have performed indifferently, notwithstanding the large boost to competitiveness following the sharp depreciation of the Rupiah in 1997-98. The process of small firms ‘graduating’ to larger units has slowed, and most of the output growth is now coming from existing firms rather than new entrants. We link these outcomes both to general, economy-wide factors as well as a range of particular policy interventions that have had sector-specific effects.

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Paper provided by The Australian National University, Arndt-Corden Department of Economics in its series Departmental Working Papers with number 2008-18.

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Length: 43 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:pas:papers:2008-18
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  1. Robert E. Lipsey, 2001. "Foreign Direct Investors in Three Financial Crises," NBER Working Papers 8084, National Bureau of Economic Research, Inc.
  2. Fukunari KIMURA, 2006. "International Production and Distribution Networks in East Asia: Eighteen Facts, Mechanics, and Policy Implications," Asian Economic Policy Review, Japan Center for Economic Research, vol. 1(2), pages 326-344.
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  4. Hadi Soesastro & M. Chatib Basri, 2005. "The Political Economy of Trade Policy in Indonesia," Trade Working Papers 22033, East Asian Bureau of Economic Research.
  5. L. Peter Rosner, 2000. "Indonesia's Non-Oil Export Performance During the Economic Crisis: Distinguishing Price Trends from Quantity Trends," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 36(2), pages 61-95.
  6. Dionisius Narjoko & Hal Hill, 2006. "Winners and Losers during a Deep Economic Crisis: Firm-level Evidence from Indonesian Manufacturing," Departmental Working Papers 2006-13, The Australian National University, Arndt-Corden Department of Economics.
  7. Kelly Bird & Sandy Cuthbertson & Hal Hill, 2007. "Making Trade Policy in a New Democracy after a Deep Crisis: Indonesia," Departmental Working Papers 2007-01, The Australian National University, Arndt-Corden Department of Economics.
  8. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, June.
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  11. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
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  13. Wei Ding & Domac, Ilker & Ferri, Giovanni, 1998. "Is there a credit crunch in East Asia?," Policy Research Working Paper Series 1959, The World Bank.
  14. Albert Berry & Edgard Rodriguez & Henry Sandee, 2001. "Small And Medium Enterprise Dynamics In Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 37(3), pages 363-384.
  15. Jay Rosengard & Richard Patten & Don Johnston & Widjojo Koesoemo, 2007. "The Promise And The Peril Of Microfinance Institutions In Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 43(1), pages 87-112.
  16. Chris Manning & Kurnya Roesad, 2006. "Survey of recent developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 42(2), pages 143-170.
  17. Haryo Aswicahyono, 2000. "How Not to Industrialise? Indonesia's Automotive Industry," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 36(1), pages 209-241.
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