Analysis of productivity performance of real estate and construction firms in Indonesia

Sustained total factor productivity (TFP) growth of firms is essential to achieve sustained supply growth, which is necessary to solve the housing shortage and affordability problems. Existing productivity literature focuses on large firms whilst smaller firms make a significant contribution to the total supply. This paper investigates the productivity of 363 Indonesian real estate construction firms of medium and large sizes. We estimate Färe-Primont TFP measures under the meta-frontier framework, accounting for differences in the overall technologies under which each group of firms operates. Results deliver several important findings. First, large firms have higher productivity levels than medium firms, but average productivity levels are very low. Second, the productivity growth of large and medium firms is negative, which contributes to the growth of the housing shortage in Indonesia from 2012 to 2016. Third, in case of easier transfer or spill-over of production technologies between two firm groups, firms could enhance further their efficiency and productivity. Fourth, those factors related to branch numbers, legal structure and experience of doing business have positive correlations with the productivity performance of firms in both large and medium groups. Additionally, medium firms could gain higher productivity by diversifying their income. Importantly, our study shows evidence to support that government subsidies have a positive influence on the productivity level of medium firms.