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Financial Intermediation Sector In Indonesia’s Production Pyramid

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  • Martin P.H. Panggabean

    (SBM ITB)

Abstract

This paper investigates the importance of financial intermediation sector in the inter-industry context, using input-output tables from 1995, 2000, 2005, and 2010. Known as matrix triangulation problem, the problem was mathematically categorized as NP-Hard where exact solution to real-world data cannot be ascertained. The algorithm used in this paper was proposed by Chanas-Kobylanski. The computation results confirm that the financial intermediation sector is consistently among the most important sector in the production structure of the Indonesian economy by serving non-negligible input to most sectors inthe economy. This paper shows that the sector has mixed record toward small-scale businesses. Financial intermediation sector supports directly and indirectly retail trade, agricultural and food-beverages sectors. The relatively large share of input from financial sector implies the high interest rate charged by banks to the retail trade sector, which in turn reflects high risk associated with Retail Trade (and SMEs in general). Thus tightening and improving efficiency between financial intermediation and retail trade sector will not only increase SMEs participation in the economy but also improve the economic activities in the agricultural and food-beverages sectors which combined contributes to around 19 percent of Indonesia’s GDP.

Suggested Citation

  • Martin P.H. Panggabean, 2017. "Financial Intermediation Sector In Indonesia’s Production Pyramid," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 19(4), pages 385-402, April.
    • Handle: RePEc:idn:journl:v:19:y:2017:i:4a:p:385-402
    DOI: https://doi.org/10.21098/bemp.v19i4.693
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    References listed on IDEAS

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    4. Annabelle Mourougane, 2012. "Promoting SME development in Indonesia," OECD Economics Department Working Papers 995, OECD Publishing.
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    More about this item

    Keywords

    Financial sector; Input-output table; Indonesia; Triangulation; NP-Hard; Chenery-Watanabe; Chanas-Kobylanski; Meta-heuristic;
    All these keywords.

    JEL classification:

    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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