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How Much Does Turnover Matter? Evidence from Indonesian Manufacturing Total Factor Productivity Growth, 1975-95

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  • Virginie Vial

Abstract

Indonesian manufacturing exhibits a dual structure, with a sector composed of a few dominant large and long-lived companies, along with a sector composed of numerous small and medium enterprises and displaying dynamic turnover. Using manufacturing plant-level panel data (1975-95), we decompose total factor productivity (TFP) growth into intra-plant TFP growth, market share reallocation among incumbents and plant turnover effect. Both market share reallocation from low to high productivity growth plants, and the process of turnover among small- and medium-scale plants offer a high and positive contribution to aggregate TFP growth. This is, however, cancelled out both by the reallocation of market shares from high to low productivity level plants, and incumbents' intra-plant productivity losses. This suggests that the turnover process in the small- and medium-scale sector is essential to aggregate TFP growth, but that the process of catching up within manufacturing is not yet advanced enough to provide the full benefits.

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  • Virginie Vial, 2008. "How Much Does Turnover Matter? Evidence from Indonesian Manufacturing Total Factor Productivity Growth, 1975-95," Oxford Development Studies, Taylor & Francis Journals, vol. 36(3), pages 295-322.
    • Handle: RePEc:taf:oxdevs:v:36:y:2008:i:3:p:295-322
    DOI: 10.1080/13600810802264431
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    1. Richard Disney & Jonathan Haskel & Ylva Heden, 2003. "Restructuring and productivity growth in uk manufacturing," Economic Journal, Royal Economic Society, vol. 113(489), pages 666-694, July.
    2. Masso, Jaan & Eamets, Raul & Philips, Kaia, 2004. "Creative Destruction and Transition: The Effects of Firm Entry and Exit on Productivity Growth in Estonia," IZA Discussion Papers 1243, Institute of Labor Economics (IZA).
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    Cited by:

    1. Ergun Dogan & Koi Nyen Wong, 2010. "Plant Size, Turnover and Productivity in Malaysian Manufacturing," Monash Economics Working Papers 11-10, Monash University, Department of Economics.
    2. Julien Hanoteau & Virginie Vial, 2020. "Institutional quality, conforming and evasive entrepreneurship," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 10(1), pages 97-121, March.
    3. Kyoji Fukao, 2013. "Productivity and capital accumulation," Chapters, in: Hal Hill & Maria Socorro Gochoco-Bautista (ed.), Asia Rising, chapter 4, pages 104-136, Edward Elgar Publishing.

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