Vol 4, No 4 (2016)

The Role of R&D and Location in a Cluster on Total Factor Productivity Growth of Indonesian Manufacturing

Femi Sukmaretiana


Indonesian manufacturing sector plays a key role in the effort to improve economic growth for making the largest contribution to the total GDP. However, the growth of manufacturing sector is still unstable and the realization of its growth is still below the expected target. On one hand, examining the total factor productivity (TFP) growth can help to explain the overall economic growth. On the other hand, R&D and industrial clustering have been considered as an important factor to improve the efficiency that leads to a higher TFP growth. This study attempts to examine the source that mainly driven the TFP and the determinant of TFP growth: particularly the effect of R&D activity and firms’ location in the industrial cluster, since specific studies that investigate the effect of both factors are still limited. This study uses balanced panel data of Indonesian large and medium manufacturing firms in the chemical, textile, food and metal sectors for the period from 2003 to 2013. This study employs stochastic frontier analysis to calculate the efficiency and TFP growth decomposition. The finding shows that TFP growth on the chemical, metal, food and textile sector are 5.8%, 3.3%, 7.3% and 6.4%, respectively. The technical progress mainly contributes to TFP growth of all four sectors. Additionally, the result also shows that the R&D activity significantly affects the growth of TFP in the food and chemical sectors. Furthermore, the industrial cluster positively affects TFP growth in the food and textile and metal sectors, while it negatively affects the TFP growth in the chemical sector.

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TFP growth, Efficiency, Manufacturing, Indonesia, R&D.

Publication information

Volume 4, Issue 4
Year of Publication: 2016
ISSN: 1857 - 8721
Publisher: EDNOTERA

How to cite

Sukmaretiana, F.: The Role of R&D and Location in a Cluster on Total Factor Productivity Growth of Indonesian Manufacturing. Journal of Applied Economics and Business, Vol 4, No. 4, 5-20. (2016)