Development and Structural Change in Manufacturing Sector and Their Effect on Pollution: The Case of Indonesia

During the last twenty years before the Crisis, Indonesia’s gross domestic product (GDP) grew at relatively high rates which averaged at 6.59 percent annually within the period of 1976-1996. This high growth had been supported mainly by the rapid growth of manufacturing sector that grew, on average, at 13.53 percent annually within the same period. This kind of development had direct consequence on the structural changes of the economy. The role of manufacturing sector had become more important while other traditional sectors particularly agriculture had become less important within that period and possibly true for the next period. Its contribution to GDP had increased from 8.9 percent in 1975 to 24.3 percent in 1995.The main purpose of this paper is to analyze the relation between the development of manufacturing sector, its compositional changes, its demand for energy and their consequence on the emission of greenhouse gases. Various policies which affect the development of the sector will also be discussed. These policies are particularly related to trade policies, exchange rates and other policies affecting the development of foreign direct investment. All these policies are believed to have impacts on the expansion of output, industrial composition and technical changes in the manufacturing sector during the period of analysis. (Budiono, 2000).