Efficiency and productivity analyses of Indonesian manufacturing industries

Abstract

This study estimates the technical efficiencies and total factor productivity (TFP) growths in food, textile, chemical and metal products industries from 1993 to 2000 in Indonesia by using the stochastic frontier model. Furthermore, the determinants of inefficiency are also analyzed and TFP growth is decomposed into technological progress, a scale component, and efficiency growth. The results reveal that the food, textile, chemical and metal products sectors are on average 50.79%, 47.89%, 68.65% and 68.91% technically efficient, respectively. It is noted that ownership contributed to technical inefficiencies in the food sector; location and size contributed to technical inefficiencies in the textile sector, whereas size, ownership and age contributed to inefficiencies in the chemical and metal products sectors. We note that productivity in food, textile, and metal products sectors decreased at the rate of 2.73%, 0.26%, and 1.65%, respectively, but increased at a rate of 0.5% in the chemical sector. The decomposition of TFP growth indicates that the growths are driven positively by technical efficiency changes and negatively by technological progress in all four sectors.