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

Hery Purnomo Tunggal () and Tati Suhartati Joesron ()
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Hery Purnomo Tunggal: Master of Applied Economics, Padjadjaran University
Tati Suhartati Joesron: Master of Applied Economics, Padjadjaran University

No 201903, Working Papers in Economics and Development Studies (WoPEDS) from Department of 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.

Keywords: small and micro industries; efficiency; stochastic frontier analysis (search for similar items in EconPapers)
JEL-codes: L0 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2019-11, Revised 2019-11
New Economics Papers: this item is included in nep-cse, nep-eff, nep-ent, nep-mfd, nep-sbm and nep-sea
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