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Industrialization after a Deep Economic Crisis: Indonesia

Author

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  • Haryo Aswicahyono
  • Dionisius Narjoko
  • Hal Hill

    ()

Abstract

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.

Suggested Citation

  • Haryo Aswicahyono & Dionisius Narjoko & Hal Hill, 2008. "Industrialization after a Deep Economic Crisis: Indonesia," Departmental Working Papers 2008-18, The Australian National University, Arndt-Corden Department of Economics.
  • Handle: RePEc:pas:papers:2008-18
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    References listed on IDEAS

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    10. 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.
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    Citations

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    Cited by:

    1. Robert E. Lipsey & Fredrik Sjöholm & Jing Sun, 2010. "Foreign Ownership and Employment Growth in Indonesian Manufacturing," NBER Working Papers 15936, National Bureau of Economic Research, Inc.
    2. Anne Booth, 2011. "China’s Economic Relations with Indonesia: Threats and Opportunities," Journal of Current Southeast Asian Affairs, Institute of Asian Studies, GIGA German Institute of Global and Area Studies, Hamburg, vol. 30(2), pages 141-160.
    3. Muhamad Purnagunawan & Victor Pirmana, 2013. "Labor market development in Indonesia Has it been for all?," Working Papers in Economics and Development Studies (WoPEDS) 201317, Department of Economics, Padjadjaran University, revised Jul 2013.
    4. Mitsuhiko Kataoka, 2015. "Interprovincial differences in the endowment and utilization in labour force by educational attainment in Indonesia's post-crisis economy," ERSA conference papers ersa15p878, European Regional Science Association.
    5. Arief Anshory Yusuf & Andy Sumner, 2017. "Multidimensional poverty in Indonesia: How inclusive has economic growth been?," Departmental Working Papers 2017-09, The Australian National University, Arndt-Corden Department of Economics.
    6. Haryo Aswicahyono & Hal Hill, 2015. "Is Indonesia Trapped in the Middle?," Discussion Paper Series 31, Department of International Economic Policy, University of Freiburg, revised Aug 2015.
    7. Kyoji Fukao, 2013. "Productivity and capital accumulation," Chapters,in: Asia Rising, chapter 4, pages 104-136 Edward Elgar Publishing.
    8. Aswicahyono, Haryo & Narjok, Dionisius, 2011. "Indonesian Industrialization," WIDER Working Paper Series 053, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    Keywords

    Indonesia; industrialization; economic crises;

    JEL classification:

    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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