Abstract
This paper provides empirical evidence of changes in the productivities of manufacturing firms in Indonesia over time, in the form of total factor productivity (TFP), from 1990 to 2010 with and without considering carbon dioxide (CO2) emissions. Employing cleaned and balanced panel datasets for four periods, 1990–1995, 1998–2000, 2003–2006, and 2008–2010, the analysis enables an evaluation of the impact of implemented policies or economic circumstances during each period. The Malmquist productivity index is employed to estimate TFP without CO2 emissions over time, whereas the Malmquist-Luenberger productivity index is applied to estimate TFP with CO2 emissions over time. Furthermore, the influence of energy factors on environmental productivity is also investigated. The results show that on average, TFP with CO2 emissions over time has grown faster than TFP without CO2 emissions, particularly for periods 1, 2, and 4. Technical progress is the basis of productivity growth after removing energy subsidies, and the change in environmental productivity is associated with the adjusted energy prices. Constructive policy designs can be derived from this paper that will enhance manufacturing sector performance after changes in the prices of oil commodities.
Highlights
The abundance of fossil energy resources as well as a large population has been the foundation of development in Indonesia
Of the measurements without CO2 emissions, the average productivity index score is 1.0014, implying that the annual total factor productivity (TFP) without CO2 emissions over time for the manufacturing sector increases by 0.14 % over the entire period
4 Conclusions This paper provides a baseline analysis of TFP growth over time with and without considering CO2 emissions from 1990 to 2000
Summary
As a growing and developing country in Asia with a relatively large but young demographic structure, Indonesia will confront domestic policy challenges but will begin to draw international attention after China and India in seeking a future development pathway that is less fossil energy resource dependent and that creates more job opportunities. These challenges should be addressed by various sectors as declared by Indonesia’s master plan of 2011, the manufacturing sector is one of the most important. Total final energy consumption (TFEC) in the manufacturing sector represents 27.4 % of the TFEC of Indonesia in 2011, and this share has been growing steadily over the last two decades [2]
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