Industrialization and Profit-Rate Analysis in Indonesia

Abstract

This work looks at the contribution of profit-rate analysis to explain the industrialization process in economics. Using Indonesia for empirical study, we observe a link between the profit rate and international industrialization strategy. Elements of profit rate are discussed, including profit share, labor coefficient, and capital productivity. Elements of the industrialization process are also examined; specifically, gross import substitution, domestic supply growth, and ratio of import substitution. New period categorizations are made, demonstrating changes in the long run. We argue that profit-rate fluctuation has served to explain the success or failure of the industrialization process. This paper identifies two dimensions to this process. First, it argues that industrialization is achieved if the domestic market is established as indicated by a higher profit rate in the period when import substitution is high. Second, the establishment of a home market can occur by adopting the import substitution strategy, including output, investment, and labor. The adoption of import substitution can tackle the sectoral analysis of industrialization because it assumes the formation of a production pattern in domestic economy. JEL Classification: E220, E230, E240, E310, O110, O140