The Impact of Service Liberalization on Manufacturing Productivity in Indonesia

Wulan Oktabriyantina; Maddaremmeng Andi Panennungi

doi:10.29259/jep.v19i1.12613

The Impact of Service Liberalization on Manufacturing Productivity in Indonesia

Wulan Oktabriyantina, Maddaremmeng Andi Panennungi

Abstract

This study examined the impact of service liberalization on manufacturing productivity firms in Indonesia through mode three (commercial presence) during 2006–2014. It used firm-level data sourced from the manufacturing census published by the Indonesian Bureau of Statistic (BPS). To address the problem of endogeneity in service reform, this research uses an Instrumental Variables (IV) estimation of the fixed-effect model variety and utilized two types of data (FDI and STRI OECD) to compare the result. The findings show that service liberalization in Indonesia has a positive impact on manufacturing productivity at the firm level. Furthermore, this study estimates each service sector (e.g., electricity, gas, and water; construction; transportation, warehouse, and telecommunication), the results indicated that each service had a significant impact on improving firm performance. This research suggests that reducing restrictions on the service market will improve manufacturing productivity.

Keywords

Manufacturing; Productivity; Service Liberalization

Full Text:

PDF

References

Aghion, P., & Braun, M. (2008). Competition and Productivity Growth in South Africa. Economics of Transition, 16(4), 741–768. https://doi.org/10.1111/j.1468-0351.2008.00336.x

Allcott, H., Collard-Wexler, A., & O`Connell, S. D. (2016). How Do Electricity Shortages Affect Productivity ? Evidence from India. American Economic Review, 106(3), 587–624. DOI: 10.1257/aer.20140389

Amiti, M., & Konings, J. (2007). Trade liberalization, intermedicate inputs, and productivity: evidence from indonesia. American Economic Review, 97(2003), 1611–1638. DOI: 10.1257/aer.97.5.1611

Amiti, M., & Wei, S. J. (2009). Service offshoring and productivity: Evidence from the US. World Economy, 32(2), 203–220. https://doi.org/10.1111/j.1467-9701.2008.01149.x

Arnold, J., Javorcik, B., Lipscomb, M., & Mattoo, A. (2012). Services Reform and Manufacturing Performance: Evidence from India. World Bank Policy Research Working Paper, January. https://doi.org/10.1111/ecoj.12206

Arnold, Jens M., Javorcik, B. S., & Mattoo, A. (2011). Does services liberalization benefit manufacturing firms?. Evidence from the Czech Republic. Journal of International Economics, 85(1), 136–146. https://doi.org/10.1016/j.jinteco.2011.05.002

Arnold, Jens Matthias, Mattoo, A., & Narciso, G. (2008). Services inputs and firm productivity in Sub-Saharan Africa: Evidence from firm-level data. Journal of African Economies, 17(4), 578–599.

Arvanitis, S., & Loukis, E. N. (2009). Information and communication technologies, human capital, workplace organization and labour productivity : A comparative study based on firm-level data for Greece and Switzerland. Information Economics and Policy, 21, 43–61. https://doi.org/10.1016/j.infoecopol.2008.09.002

Atrostic, B. K., Bureau, U. S. C., & Motohashi, K. (2004). IT, Productivity and Growth in Enterprises : Evidence from new international micro data. OECD Workshop on ICT and Business Performance, January.

Bas, M. (2014). Does services liberalization affect manufacturing firms ’ export performance ? Evidence from India q. Journal of Comparative Economics, 42(3), 569–589. https://doi.org/10.1016/j.jce.2013.06.005

Baumol, B. W. J., Anne, S. U. E., Blackman, B., & Wolff, E. N. (1985). Unbalanced Growth Revisited : Asymptotic Stagnancy and New Evidence. The American Economic Review, 75(4), 806–817.

Bell, D. (1976). The coming of Post-Industrial Society. The Educational Forum, 40(4), 574–579. https://doi.org/10.1177/089692057400400303

Bernard, A. B., Jensen, J. B., & Schott, P. K. (2006). Trade costs, firms and productivity. Journal of Monetary Economics, 53(5), 917–937. https://doi.org/10.1016/j.jmoneco.2006.05.001

Beverelli, C., Fiorini, M., & Hoekman, B. (2017). Services trade policy and manufacturing productivity : The role of institutions. 104, 166–182. https://doi.org/10.1016/j.jinteco.2016.11.001

Borchert, I., Gootiiz, B., & Mattoo, A. (2014). Policy barriers to international trade in services: Evidence from a new database. World Bank Economic Review, 28(1), 162–188.

Boylaud, O., & Nicoletti, G. (2003). Regulation, market structure and performance in telecommunications. OECD Economic Studies, 2001/1(237), 99–142. https://doi.org/10.1787/18151973

Crozet, M., Milet, E., & Mirza, D. (2016). The impact of domestic regulations on international trade in services: Evidence from firm-level data. Journal of Comparative Economics, 44(3), 585–607. https://doi.org/10.1016/j.jce.2015.11.004

Demsetz, H. (1973). Industry structure, Market Rivalry, and public Policy. Law and Economics, 16(1), 1–9. https://doi.org/10.1086/466752

Driscoll, J. C., & Kraay, A. C. (1998). Consistent covariance matrix estimation with spatially dependent panel data. Review of Economics and Statistics, 80(4), 549–559. https://doi.org/10.1162/003465398557825

Duggan, V. (2016). Service Sector Reform and Manufacturing Productivity Evidence from Indonesia. World Bank Policy Research Working Paper No. 6349.

Ethier, W. (1982). National and International Returns to Scale. The American Economic Review, 72(3), 389–405.

Fernandes, A. M., & Paunov, C. (2012). Foreign direct investment in services and manufacturing productivity : Evidence for Chile ?. Journal of Development Economics, 97(2), 305–321. https://doi.org/10.1016/j.jdeveco.2011.02.004

Francois, J. F. (1990). Producer Services,Scale, and the Division of Labor. Oxford Economic Papers, 42(4), 715–729.

Francois, J., & Hoekman, B. (2010). Services Trade and Policy. Economic Literature, 48(3), 642–692. DOI:10.2307/20778764

Gershuny, J. (1978). After Industrial Society: The Emerging Self-Service Economy. The MACMILLAN PRESS LTD London and Basingstoke.

Giandrea, M. D., Cahill, K. E., Quinn, J. F. (2008). Self-Employment Transitions among Older American Workers with Career Jobs. Bls Working Papers, April, 38.

Greenhalgh, C., & Gregory, M. (2001). Structural change and the emergence of the new service economy. Oxford Bulletin of Economics and Statistics, 63(SUPPL.), 629–646. https://doi.org/10.1111/1468-0084.63.spe1.2

Hill, H., & Kalirajan, K. P. (1993). Small enterprise and firm-level technical efficiency in the Indonesian garment industry. Applied Economics, 25(9), 1137–1144. https://doi.org/10.1080/00036849300000174

Javorcik, B. S., & Narciso, G. (2008). Differentiated products and evasion of import tariffs. Journal of International Economics, 76(2), 208–222. https://doi.org/10.1016/j.jinteco.2008.07.002

Kasahara, H., & Rodrigue, J. (2008). Does the use of imported intermediates increase productivity ? 87, 106–118. https://doi.org/10.1016/j.jdeveco.2007.12.008

Kox, H., & Rubalcaba, L. (2007). The contribution of business services to European economic growth. In Business Services in European Economic Growth (Issue February, pp. 74–94). https://doi.org/10.1057/9780230228795

Kretschmer, T. (2012). Information and Communication Technologies and Productivity Growth: A Survey of the literature. OECD Digital Economy Papers, 195.

Lanaspa, L., Sanz-Gracia, F., & Vera-Cabello, M. (2016). The (strong) interdependence between intermediate producer services’ attributes and manufacturing location. Economic Modelling, 57, 1–12. https://doi.org/10.1016/j.econmod.2016.04.010

Markusen, J. R. (1989). Trade in producer services and in other specialized intermediate inputs. American Economic Review, 79(1), 85–95.

Nickell, S. (1997). Unemployment and Labor Market Rigidities: Europe versus North America. Journal of Economic Perspectives, 11(3), 55–74.

Pitt, M. M., & Lee, L. F. (1981). The measurement and sources of technical inefficiency in the Indonesian weaving industry. Journal of Development Economics, 9(1), 43–64.

Tzelepis, D., Tsekouras, K., Skuras, D., & Dimara, E. (2006). The effects of ISO 9001 on firms’ productive efficiency. International Journal of Operations and Production Management, 26(10), 1146–1165. https://doi.org/10.1108/01443570610691111

DOI: https://doi.org/10.29259/jep.v19i1.12613

Refbacks

There are currently no refbacks.

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Jurnal Ekonomi Pembangunan
Jalan Raya Palembang-Prabumulih Km. 32
Jurusan Ekonomi Pembangunan, Fakultas Ekonomi Universitas Sriwijaya
Indralaya, Sumatera Selatan, Indonesia
Email: jep.unsri@gmail.com, Tel/Fax : (0711)580231

p-ISSN: 1829-5843, e-ISSN 2685-0788