TREND OF THE TOTAL FACTOR PRODUCTIVITY GROWTH OF THE INDONESIAN ECONOMIC SECTORS

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1 TREND OF THE TOTAL FACTOR PRODUCTIVITY GROWTH OF THE INDONESIAN ECONOMIC SECTORS MAMAN SETIAWAN 1 CENTER FOR ECONOMICS AND DEVELOPMENT STUDIES UNIVERSITAS PADJADJARAN GUNTUR SUGIYARTO ASIAN DEVELOPMENT BANK HSI HITOTSUBASHI UNIVERSITY JAPAN 31 JULY 01 AUGUST Corresponding author: maman.setiawan@unpad.ac.id

2 MOTIVATION Productivity growth contributes to the performance of the economic growth overtime. Total factor productivity growth is a measure of the productivity growth based on multi inputs. Currently, most of the previous research of the total factor productivity (TFP) or multi-factor productivity (MFP focused on the manufacturing sector in Indonesian economy. Osada (1994), Abimanyu and Xie (1994), Timmer (1999), Aswicahyono et.al. (1996), Firdausy (2005) and Setiawan et al. (2017) investigated on the subsectors of the Indonesian manufacturing sectors. Investigating the TFP growth for all economic sectors has contribution to the literature and poliy making.

3 MOTIVATION This research Investigates the recent trends of the total factor productivity (TFP) growth or multi-factor productivity (MFP) growth in the Indonesian economic sectors. This research also calculates the contributions of the inputs and TFP growth on the output growth.

4 LITERATURE REVIEW Firdausy (2005) found that Indonesian manufacturing sector has low productivity. Aswicahyono et.al. (1996) found that the TFP growth was 2.1 per cent in the manufacturing sector for the period Abimanyu and Xie (1994) found 1 per cent TFP growth in the Indonesian maufacturing sector for the period Osada (1994) etimates the TFP growth of the Indonesian manufacturing sectors and found two estimates for the same period, 2.1 per cent and 3.6 per cent. More over, Timmer (1999) estimated that TFP performance across industries and found a high variation across industries. The TFP growth rates ranged from very high (12 %) in the wood industry to low (-5%) for chemicals during the period

5 LITERATURE REVIEW O mahony and Timmer (2009) investigates the output, input and productivity growth using EU KLEMS growth and productivity. They investigated the productivity growth for European Countries, Japan and US for the period from 1970 onward. Coremberg (2012) used the modified KLEMS to estimate the productivity growth in Argentina using the period Mas et al. (2008) estimated productivity growth using the KLEMS database in Spain and Italy using the period from 1980 to There is no such research in the Indonesian economy. Therefore, the research estimating productivity growth using KLEMS database is relevant in the Indonesian economy.

6 METHOD Estimating the total productivity growth using Growth and Productivity Accounts using ASIA KLEMS Methodology: Y j =f j (K j, L j,x j,t) ln Y v X ln X v k jk ln K v L ln L ln t j lnt j lny v X ln X v k jk ln K v L ln L Growth of MFP is defined as the real growth of output minus a weighted growth of inputs where denotes the change between year t-1 and t, and with a bar denoting period averages and is the two period average share of the input in the nominal value of output. The value share of each input in the output is defined as follows: X L P X X P L L v ; v ; Y Y P Y P Y v K P K Y P K Y

7 DATA This research uses the KLEMS database sourced from Indonesia Manufacturing Survey using the codes from International Standard for Industrial Classification (ISIC) or Klasifikasi Baku Lapangan Usaha Indonesia. This research uses the period from 1996 to 2011 for which the data are complete for the estimation. This research uses 33 economic sectors of 35 economic sectors. The data of two sectors i.e. (i) Sale, maintenance and repair of motor vehicles and motorcycles; retail sale of fuel and (ii) Private households with employed persons cannot be provided by the Indonesian Bureau of Central Statictics

8 DATA List of 33 Economic Sectors Description of Economic Sector Code Agriculture, hunting, forestry and fishing AtB Mining and quarrying C Food, beverages and tobacco 15t16 Textiles and textile 17t18 Leather, leather and footwear 19 Wood and of wood and cork 20 Pulp, paper, paper, printing and publishing 21t22 Coke, refined petroleum and nuclear fuel 23 Chemicals and chemical 24 Rubber and plastics 25 Other non-metallic mineral 26 Basic metals and fabricated metal 27t28 Machinery, nec 29 Electrical and optical equipment 30t33 Transport equipment 34t35

9 DATA List of 33 Economic Sectors Description of Economic Sector Code Manufacturing nec; recycling 36t37 Electricity, gas and water supply E Construction F Wholesale trade and commission trade, except of motor vehicles and motorcycles 51 Retail trade, except of motor vehicles and motorcycles; repair of household goods 52 Hotels and restaurants H Inland transport 60 Water transport 61 Air transport 62 Supporting and auxiliary transport activities; activities of travel agencies 63 Post and telecommunications 64 Financial intermediation J Real estate activities 70 Renting of m&eq and other business activities 71t74 Public admin and defence; compulsory social security L Education M Health and social work N Other community, social and personal services O

10 DATA Inputs used in this research include intermediate input, number of employee and capital compensation with the constant price using year 1995 for the variables applied in monetary units. Intermediate input is the index of the intermediate input volume. Number of employee is the representation of labor used in the sector measured in thousand unit. Capital compensation is the measure of capital services measured in million Rupiah. Average share of the intermediate input is calculated based on the two period average share of the nominal intermediate input in the nominal value of output. Average share of the capital input is calculated based on the two period average share of the nominal fixed capital formation in the nominal value of output. Average share of the labor input is calculated based on the two period average share of the nominal labor compensation in the nominal value of output.

11 RESULTS DESCRIPTIVE STATISTICS Variable Mean Standard Gross output by industry at constant prices Deviation Minimum Maximum (millions Rp) 5.56* * * *10 10 Intermediate inputs at constant purchasers' prices (millions Rp) 2.73* * * *10 9 Number of employees (Thousands) Capital compensation (Million Rupiah) 1.49* * * *10 9 Labor compensation (Million Rupiah) 1.33* * * *10 9 Price indices of Gross output, 1995= Price indices of intermediate input, 1995=

12 RESULTS DESCRIPTIVE STATISTICS Variable Mean Standard Minimum Maximum Deviation Volume index of gross output, 1995= Volume index of intermediate input, 1995= Price indices of the gross fixed capital formation, 1995= Gross fixed capital formation (Million 8.07*10 8 Rp) 8.24* * *10 9

13 RESULTS description of economic sector Period (1) (2) (3) (4) Average of all economic sectors Agriculture, hunting, forestry and fishing Mining and quarrying Food, beverages and tobacco Textiles and textile Leather, leather and footwear Wood and of wood and cork Pulp, paper, paper, printing and publishing Coke, refined petroleum and nuclear fuel Chemicals and chemical Rubber and plastics Other non-metallic mineral Basic metals and fabricated metal Notes: (1) period (2) period (3) period (4) period TFP growth of Indonesian economic sectors

14 RESULTS TFP growth of Indonesian economic sectors description of economic sector Period (1) (2) (3) (4) Machinery, nec Electrical and optical equipment Transport equipment Manufacturing nec; recycling Electricity, gas and water supply Construction Wholesale trade and commission trade, except of motor vehicles and motorcycles Retail trade, except of motor vehicles and motorcycles; repair of household goods Hotels and restaurants Inland transport Water transport Notes: (1) period (2) period (3) period (4) period

15 RESULTS description of economic sector Period (1) (2) (3) (4) Air transport Supporting and auxiliary transport activities; activities of travel agencies Post and telecommunications Financial intermediation Real estate activities Renting of m&eq and other business activities Public admin and defence; compulsory social security Education Health and social work Other community, social and personal services Notes: (1) period (2) period (3) period (4) period TFP growth of Indonesian economic sectors

16 RESULTS 10 economic sectors with highest TFP growth Economic Sectors TFP Growth Mining and quarrying Construction Education Coke, refined petroleum and nuclear fuel Health and social work Food, beverages and tobacco Machinery, nec Transport equipment Agriculture, hunting, forestry and fishing Air transport 0.119

17 RESULTS 10 economic sectors with lowest TFP growth Economic Sectors TFP Growth Pulp, paper, paper, printing and publishing Rubber and plastics Supporting and auxiliary transport activities; activities of travel agencies Public admin and defence; compulsory social security Hotels and restaurants Financial intermediation Post and telecommunications Electricity, gas and water supply Water transport Leather, leather and footwear

18 RESULTS Inputs and TFP growth contribution on the economic growth Period Tahun Inputs and TFP growth contribution Intermediate input Labor Capital TFP growth

19 RESULTS Inputs contribution on the economic growth based on the Economic sectors Description of economic sector Inputs contribution Intermediate input Labor Capital Agriculture, hunting, forestry and fishing Mining and quarrying Food, beverages and tobacco Textiles and textile Leather, leather and footwear Wood and of wood and cork Pulp, paper, paper, printing and publishing Coke, refined petroleum and nuclear fuel Chemicals and chemical Rubber and plastics Other non-metallic mineral Basic metals and fabricated metal Machinery, nec

20 RESULTS Inputs contribution on the economic growth based on the Economic sectors Description of economic sector Inputs contribution Intermediate input Labor Capital Electrical and optical equipment Transport equipment Manufacturing nec; recycling Electricity, gas and water supply Construction Wholesale trade and commission trade, except of motor vehicles and motorcycles Retail trade, except of motor vehicles and motorcycles; repair of household goods Hotels and restaurants

21 RESULTS Inputs contribution on the economic growth based on the Economic sectors Description of economic sector Inputs contribution Intermediate input Labor Capital Inland transport Water transport Air transport Supporting and auxiliary transport activities; activities of travel agencies Post and telecommunications Financial intermediation Real estate activities Renting of m&eq and other business activities Public admin and defence; compulsory social security Education Health and social work Other community, social and personal services

22 CONCLUSION The total factor productivity in Indonesian economy was 6.5% during the period The trend of the TFP growth tended to decline during the period from 1996 to This research also found that few economic sectors have negative total factor productivity growth. The average contribution of TFP growth on the output growth was the highest during the period Capital was the input with highest contribution to the output growth during the period followed by intermediate input and labor, on average. There were variations of the contribution of the inputs on the output growth among the economic sectors.

23 DISCUSSION