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Development of SMEs in the Indonesian Economy

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  • Mitsuhiro Hayashi

Abstract

This paper examines the development of manufacturing SMEs (small- and medium-scale enterprises) in Indonesia during 1986-96, using unpublished data of BPS (Statistics Indonesia). The contribution of SMEs to total manufacturing value added has remained relatively small, but their contribution to the Indonesian economy in terms of employment generation is significant. The analysis suggests that, in broad terms, SMEs can coexist with LEs (large-scale enterprises), by producing a unit of output with less capital but more labour than LEs. Labour productivity in SMEs and LEs increased at a similar rate during the period under study. Increase in labour productivity of SMEs in the machinery industry was faster than in other main product sectors. SMEs in the machinery industry also increased their TFP markedly, compared with both SMEs in other sectors and LEs in the same sector. Overall, these results question whether subcontracting can support the development of SMEs and improve their performance.

Suggested Citation

  • Mitsuhiro Hayashi, 2003. "Development of SMEs in the Indonesian Economy," Departmental Working Papers 2003-01, The Australian National University, Arndt-Corden Department of Economics.
    • Handle: RePEc:pas:papers:2003-01
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    References listed on IDEAS

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    1. Sato, Yuri, 2000. "How did the crisis affect small and medium-sized enterprises? -- from a field study of the metal-working industry in Java," The Developing Economies, Institute of Developing Economies, Japan External Trade Organization(JETRO), vol. 38(4), pages 572-595, December.
    2. Haryo Aswicahyono, 2000. "How Not to Industrialise? Indonesia's Automotive Industry," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 36(1), pages 209-241.
    3. Hayashi, Mitsuhiro, 2002. "The role of subcontracting in SME development in Indonesia:: Micro-level evidence from the metalworking and machinery industry," Journal of Asian Economics, Elsevier, vol. 13(1), pages 1-26.
    4. Albert Berry & Edgard Rodriguez & Henry Sandee, 2001. "Small And Medium Enterprise Dynamics In Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 37(3), pages 363-384.
    5. Odaka, Konosuke, 1978. "Some Observations on the Role of Subcontracting Firms in the Development of Machinery Industry," Economic Review, Hitotsubashi University, vol. 29(3), pages 243-250, July.
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    Keywords

    Indonesian manufacturing; small and medium scale enterprises; labour productivity;
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