Indonesian productivity growth: Evidence from the manufacturing sector in Indonesia

This study estimates Technical efficiency (TE) and Total Factor Productivity (TFP) through a stochastic frontier analysis and decomposes growth into technological progress, technical efficiency change, and scale for the Indonesian manufacturing sector. Global economic slowdown characterises the period of study (2007-2013), as well as peak and fall of commodity prices, massive global integration and development of a Master plan for Indonesia (MP3EI). This study looks at patterns of productivity as important sources of growth. Results are aggregated based on technological intensity, firm size, capital/output ratio, labour skills, and location. The findings show that companies perform differently as those factors vary, and while larger companies are more efficient, smaller ones have higher rates of TFP growth, mainly through technological progress and scale. The TFP had moved from initial negative levels to positive ones. Firms with low tech, low capital/ output ratio, and more skilful workers have the highest TFP.