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Technical Efficiency Analysis Of Indonesian Small And Micro Industries: A Stochastic Frontier Approach

Author

Listed:
  • Hery Purnomo Tunggal

    (Master of Applied Economics, Padjadjaran University)

  • Tati Suhartati Joesron

    (Master of Applied Economics, Padjadjaran University)

Abstract

Indonesian small and micro industries (SMIs) grow rapidly, followed by the shifting of the agricultural sector to manufacturing sector. However, its low contribution to national economy indicates there are encountered problems of productivity and efficiency. The goal of this study is analyzing technical efficiency of Indonesian SMIs categorized by size and five subsectors classified by Indonesia Standard Industrial Classification (ISIC). This study examines crosssectional data from survey of Indonesian small and micro industries (VIMK) in 2014 estimated statistically using Stochastic Frontier Analysis (SFA). The results show that SMIs are labor intensive business, yet it faces diseconomies of scale. Hence, the role of capital increase should not be ignored. The key findings are mainly female ownership in the food processing industry positively contribute to efficiency improvement, the greater the sales the more efficient the business will function, younger entrepreneur is more efficient to manage several subsectors and access to financial sources positively contribute to efficiency improvement in clothing industry. Empowerment strategy to improve technical efficiency of SMIs should emphasis on intensively vocational/entrepreneurial training particularly for female and younger entrepreneurs, promotion for network building activity and deregulating microcredit scheme, especially for clothing industry.

Suggested Citation

  • Hery Purnomo Tunggal & Tati Suhartati Joesron, 2019. "Technical Efficiency Analysis Of Indonesian Small And Micro Industries: A Stochastic Frontier Approach," Working Papers in Economics and Development Studies (WoPEDS) 201903, Department of Economics, Padjadjaran University, revised Nov 2019.
    • Handle: RePEc:unp:wpaper:201903
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    small and micro industries; efficiency; stochastic frontier analysis;
    All these keywords.

    JEL classification:

    • L0 - Industrial Organization - - General

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