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Revitalizing Indonesia’s manufacturing: the productivity conundrum

Author

Listed:
  • Mohammad Zulfan Tadjoeddin
  • Ilmiawan Auwalin
  • Anis Chowdhury

Abstract

In light of continuing importance of the manufacturing sector, but declining dynamism, this paper investigates trends in productivity at firm levels. It finds that labour productivity has been either stagnant or falling in labour intensive manufacturing. The paper uses firm level cross-sectional and time series data and employs GMM techniques to estimate determinants of productivity. It finds that real wage is the most important variable that influences firm level productivity, followed by capital intensity. Contrary to the common perception, foreign ownership and export-orientation are not found to have statistically significant influence on firm level productivity. This finding is consistent for firms of all sizes – large, medium, small and micro. This implies that Indonesia can use wages policy, as Singapore did during the late 1970s-mid 1980s, to upgrade its manufacturing to higher value added activities.

Suggested Citation

  • Mohammad Zulfan Tadjoeddin & Ilmiawan Auwalin & Anis Chowdhury, 2016. "Revitalizing Indonesia’s manufacturing: the productivity conundrum," Departmental Working Papers 2016-20, The Australian National University, Arndt-Corden Department of Economics.
  • Handle: RePEc:pas:papers:2016-20
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    File URL: https://acde.crawford.anu.edu.au/sites/default/files/publication/acde_crawford_anu_edu_au/2016-11/2016-20_chowdhury_manufacturing_in_indonesia-productivity_23nov16.pdf
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    References listed on IDEAS

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    Cited by:

    1. Tiara Maharani & Maman Setiawan, 2019. "The Relationship Between Labor Wage and the Labor Productivity of the Indonesian Textile and Garment Industry," Working Papers in Economics and Development Studies (WoPEDS) 201902, Department of Economics, Padjadjaran University, revised Jan 2020.
    2. Anang Budi Gunawan & Carlos Mendez & Shigeru Otsubo, 2021. "Provincial income convergence clubs in Indonesia: Identification and conditioning factors," Growth and Change, Wiley Blackwell, vol. 52(4), pages 2540-2575, December.

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    More about this item

    Keywords

    manufacturing; productivity; firm-size; real wage; GMM;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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