Revitalizing Indonesia’s manufacturing: the productivity conundrum

Mohammad Zulfan Tadjoeddin, Ilmiawan Auwalin and Anis Chowdhury

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

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.

Keywords: manufacturing; productivity; firm-size; real wage; GMM (search for similar items in EconPapers)
JEL-codes: E24 J24 J38 O14 O53 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2016
New Economics Papers: this item is included in nep-eff, nep-lma, nep-mac and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:pas:papers:2016-20

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