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Productivity And Firm Dynamics: Creative Destruction In Indonesian Manufacturing, 1994-2000

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  • Jan ter Wengel
  • Edgard Rodriguez

Abstract

This paper examines the entry and exit, and the labour productivity, of Indonesian manufacturing firms with 20 workers or more, using a firm-level panel dataset constructed for the years 1994-2000. Overall change in manufacturing labour productivity reached 27.2%—an average growth of 3.5% per annum—between 1994 and 2000, a period that includes the 1997-98 Asian financial crisis, which hit Indonesia hard. Vibrant firm dynamics characterised this period, in which about 10% of manufacturing enterprises were renewed in any one year. By 2000, one-third of all enterprises in existence in 1994 had closed, but the number of enterprises that closed was lower than the number that entered and survived up to the year 2000. The replacement of exiting firms with newly entering firms contributed significantly to increases in overall labour productivity. Regulatory reform in support of this process should lead to gains in productive employment for Indonesian workers.

Suggested Citation

  • Jan ter Wengel & Edgard Rodriguez, 2006. "Productivity And Firm Dynamics: Creative Destruction In Indonesian Manufacturing, 1994-2000," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 42(3), pages 341-355.
    • Handle: RePEc:taf:bindes:v:42:y:2006:i:3:p:341-355
    DOI: 10.1080/00074910601053219
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    References listed on IDEAS

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    1. Jan Wengel & Edgard Rodriguez, 2006. "SME Export Performance in Indonesia After the Crisis," Small Business Economics, Springer, vol. 26(1), pages 25-37, February.
    2. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1988. "Patterns of Firm Entry and Exit in U.S. Manufacturing Industries," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 495-515, Winter.
    3. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "Plant Turnover and Gross Employment Flows in the U.S. Manufacturing Sector," Journal of Labor Economics, University of Chicago Press, vol. 7(1), pages 48-71, January.
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    Cited by:

    1. Ross H. McLeod, 2006. "Private Sector Lessons for Public Sector Reform in Indonesia," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 13(3), pages 275-288.
    2. Chih‐Hai Yang & Chao‐Jing Yang & Chung‐Yueh Chiu & Hsuan‐Yu Lin, 2018. "Resource Allocation, Structural Change, and the Dynamics of Manufacturing Productivity in Indonesia," The Developing Economies, Institute of Developing Economies, vol. 56(4), pages 297-327, December.

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