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Total factor productivity change in Indonesia’s provincial economies for 1990–2015: Malmquist productivity index approach

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Abstract

This study employs the Malmquist productivity index based on data envelopment analysis to measure and decompose total factor productivity (TFP) change into efficiency and technological change by province. Using annual observations of gross regional domestic product and factor inputs (labor, physical, and human capital) for 26 contiguous provinces, we find that over a quarter of them experienced negative TFP growth over 1990–2015 due to technological regress, which was barely offset by efficiency improvements. Three on-Java provinces—Jakarta, West Java, and East Java—contributed to national technological progress with full utilization and optimal allocation of resources at least once over the study period, except during 1995–2005, when Indonesia experienced a financial crisis and subsequent slow recoveries. Jakarta and West Java contributed in all other periods. Considering the high spatial density of urban economic activities in these three provinces, we conclude that urban agglomeration is influential for further regional technological growth in Indonesia.

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Notes

  1. In a national-level TFP growth analysis, Yang et al. (2018) and Olomola and Osinubi (2018) applied the regression-based approaches for the manufacturing sector for 2001–2009 and the aggregate sector for 1980–2014.

  2. The bootstrap DEA method, developed by Simar and Wilson (1999), reflects the unobserved decision-making units (DMUs) to address measurement errors; however, the bootstrap frontier generally lies above the conventional frontier and the score rarely becomes efficient. Our study’s objective is to identify the provinces achieving technological progress under efficient resource utilization and allocation. Thus, we apply the conventional DEA method.

  3. Our cumulative index values measure successive changes from base year 1990 to year t, ECi0 [1990, t], TCi0 [1990, t], and MIi0 [1990, t] (t = 1990, …, 2015). When t = 1990, the cumulative indices are one. For example, the traditional form of MIi0 [\(t\), t +1] is not appropriate for observing chronological changes, as it does not satisfy the circular test: MIi0 [\(t\), t + 1] × MIi0 [\(t\) + 1, \(t\) + 2] ≠ MIi0 [\(t\), \(t\) + 2].

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Acknowledgements

This work is supported by Grant-in-Aid for Scientific Research C (26380308) from the Japan Society of the Promotion of Science. The author is grateful for Professor Mototsugu Fukushige’s comments on an earlier version of this paper. The author also thanks the three anonymous referees for their constructive comments.

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  1. College of Business, Rikkyo University, 3-34-1 Nishi-Ikebukuro, Toshima-ku, Tokyo, Japan

    Mitsuhiko Kataoka

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Kataoka, M. Total factor productivity change in Indonesia’s provincial economies for 1990–2015: Malmquist productivity index approach. Lett Spat Resour Sci 13, 233–243 (2020). https://doi.org/10.1007/s12076-020-00256-z

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