Catch Up at the Micro-Level: Evidence from an Industry Case Study Using Manufacturing Census Data

In this paper we provide a first attempt to analyse catch up at the micro level, not possible in conventional macro-studies. The Indonesian pulp and paper industry has been selected as case-study because it experienced spectacular investment and growth, becoming one of the world’s largest exporters and producers of paper in the world. We apply stochastic frontier analysis to compare technical efficiency of Indonesian paper mills with Finnish plants, which can be considered as the world technological leaders in the industry. The analysis is performed on a pooled dataset based on manufacturing census data for the period 1975-1997. In the paper we address the following questions: What is the distribution of Indonesian plant performance vis-à-vis the technological frontier? What is the role of entry, exit and survival on catch up? And, what are the characteristics of catching-up plants. Although we find that on average the Indonesian paper industry has closed the gap with the technology frontier during the 1990s, catch up has been a highly localised process in which only a few large establishments have achieved near best-practice performance, while most other plants have stayed behind.