Abstract
This study estimates the technical efficiencies and total factor productivity (TFP) growth in food, textile, chemical and metal products industries during 1993 to 2000 in Indonesia by using the stochastic frontier model. Furthermore, the determinants of inefficiency are also analyzed and the TFP growth is decomposed into technological progress, scale component, and efficiency growth. The results reveal that the food, textile, chemical and metal products sectors are on average 50.79%, 47.89%, 68.65% and 68.91% technically efficient respectively. It is noted that ownership contributed to technical inefficiency in the food sector; location and size contributed to technical inefficiency in the textile sector, whereas size, ownership and age contributed to inefficiencies in the chemical and metal products sectors. The estimates of TFP growth indicate that productivity in Indonesian manufacturing industries decreased at the rate of 2.73%, 0.26%, 1.65% and 0.5% in food, textile, and metal products respectively, whereas in the chemical sector, it increased at a rate of 0.5% during the period of the study. The decomposition of TFP growth indicates that the growths are driven positively by technical efficiency changes and negatively by technological progress in all four sectors.