An analysis of productivity and technical change of the Indonesian manufacturing industries

This research provides an empirical analysis of various issues related to productivity and technological change of the food, textile, wood, paper, chemical, non-metallic mineral and metal product large/medium industries; as well as the total large/medium manufacturing industry in Indonesia (1971-1987). Despite increasing role of these industries to Indonesia Economic Structures, no systematic study is available so far on the structure and pattern of growth in these industries.;Two major objectives have been considered the first, is to analyse the production structure of individual product and the total industry level. The pattern of substitution among factors of production is examined. The second, is to measure and analyse partial and multifactor productivity growth, emphasized on sources of productivity growth for industries under study.;The analysis of the production structure is based on a translog cost function. Applying this, four different models with different specification for each industry are estimated: (1) a model with strict homogeneity, (2) a model with neutrality of technical change, (3) a model with strong separability of material from labor and capital, and (4) a model of Cobb-Douglass form. The results of the analysis suggest: the technical change in all manufacturing industries (except textile and chemical) are non-neutral and their nature being labor and capital-saving and, material-using, except the wood industry in which labor-saving and, capital and material-using. Capital is substitutable for material, in the total manufacturing and all product industries; labor is subtitutable for material, in the total manufacturing and all product industries except for non-metallic mineral; labor is also substitutable for capital, in the total manufacturing and all product industries, except textile and metal (in which the complementary relationship exists). Material input growth plays the most significant role in explaining industry of Indonesia; each industry has different multifactor productivity growth.