Abstract
TIndonesia’s degree of competitiveness in attracting investment is relatively low compared to other ASEAN countries, e.g., Singapore, Malaysia, Thailand, and Vietnam, despite the country’s potential resources. Specifically, low labour productivity in industrial sector led to lower degree of investment competitiveness in Indonesia. Thus, this study aims to examine the transformation of economic structures and factors determining the regional labor productivity in industrial sector in Indonesia. This study employs multiple regression method with panel data approach on 34 provinces in Indonesia from 2014 to 2019. This study suggests that, in general, the decline of agriculture sector share in the Eastern part of Indonesia was greater than the Western part of Indonesia. Furthermore, the composition of labor absorption in Sulawesi, Maluku, Papua, and Kalimantan decline periodically. This research also suggests that the factors leading to improvement of productivity in the Industrial sector in Western part of Indonesia is real wages. Moreover, provision of electricity is the contributing factor and hampers labor productivity in the Eastern part of Indonesia. This study further concluded that supply of electricity is substitutional to labor which result in the decline of productivity
Highlights
Industrial sector’s contribution on Indonesia’s gross domestic product (GDP) has weakened from 21.02 percent in 2014 to 19.70 percent in 2019
This study further focuses on comparing the agricultural and industrial sector’s development in Indonesia to further understand the labor productivity issue in industrial sector
This study further addresses the issue of labor productivity in industrial sector to formulate better policies regarding industrial sector development in Indonesia
Summary
Industrial sector’s contribution on Indonesia’s gross domestic product (GDP) has weakened from 21.02 percent in 2014 to 19.70 percent in 2019. Such phenomenon occurs due to declining total exports of the non-oil and gas, industry, and mining sector exports. Non-oil and gas exports contributed US$ 146 billion out of US$ 176 million in 2014, which decreased by US$ 141.7 billion out of US$ 153.1 million in 2019. The industrial sector contributed US$ 117.3 million in 2014 and decreased to 115.7 million in 2019. Such decrease indicates problems of productivity, crisis, uncertainty of global demands, and volatile exchange rates. Addressing the issue of industrial sector’s development is important in Indonesia
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