Industrialization after a Deep Economic Crisis: Indonesia

Haryo Aswicahyono, Dionisius Narjoko and Hal Hill

Departmental Working Papers from The Australian National University, Arndt-Corden Department of Economics

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.

Keywords: Indonesia; industrialization; economic crises (search for similar items in EconPapers)
JEL-codes: L16 O14 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2008
New Economics Papers: this item is included in nep-dev and nep-sea
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Citations: View citations in EconPapers (3)

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