Forecasting the potential output and growth of the manufacturing industry: a case study of Indonesia's manufacturing sector

Tirta Wisnu Permana, Gatot Yudoko, Eko Agus Prasetio

Abstract


Indonesia is currently experiencing deindustrialization, characterized by a manufacturing industrial sector growth rate lower than the overall economic growth rate. Therefore, it is necessary to encourage the development of the industrial sector to achieve sustainable development. The scenario for industrial development policy is determined based on an evaluation of the country's economic position in relation to current business cycle conditions. The evaluation is carried out through output gap analysis, which refers to the gap between actual and potential output. The research aim is to analyze output potential estimates and gaps in the Indonesian non-oil and gas processing industry sector. The methodology used in this research includes the HP Filter (Hodrick-Prescott), BP Filter (Band-Pass), and the Production Function Approach. The findings show that Indonesia's non-oil and gas processing industry experienced a slight decline below its potential between 2020 and 2021. Therefore, policymakers must consider this; in the short term, inflationary pressures are caused by a positive output gap, so the government needs to prioritize efforts to control inflation. Meanwhile, medium-term structural reforms must continue to increase potential output, including increasing labor force participation, sustainable investment for capital factors, and improving the quality of human resources and technological expertise for productivity factors. In particular, it is necessary to pay attention to the adoption of new emerging technologies.

Keywords


Indonesia; output gaps; HP filter; BP filter; manufacturing industry

Full Text:

PDF

References


ADB-Bappenas. (2019). Policies to Support the Development of Indonesia’s Manufacturing Sector during 2020–2024.

Adelowokan, O. A. (2021). Fiscal Policy, Private Consumption, and Economic Growth among the Economic Community of West African States. Jurnal Ekonomi & Studi Pembangunan, 22(2), 289–300. https://doi.org/10.18196/jesp.v22i2.10966

Admi, R., Saleh, S., & Fitrianto, G. (2022). The Analysis of Coal Competitiveness and the Factors Affecting Indonesia’s Coal Exports to Main Destination Countries (A Case of 8 Destination Countries). Journal of Developing Economies, 7(1), 15–28. https://doi.org/10.20473/jde.v7i1.33183

Álvarez, L. J., & Gómez-Loscos, A. (2018). A menu on output gap estimation methods. Journal of Policy Modeling, 40(4), 827–850. https://doi.org/10.1016/j.jpolmod.2017.03.008

Anand, R., Cheng, K. C., Rehman, S., & Zhang, L. (2014). Potential Growth in Emerging Asia. IMF Working Papers, 14(2), 1. https://doi.org/10.5089/9781484345726.001

Araujo, C. H. V., Areosa, M. B. M., & Guillén, O. (2004). Estimating Potential Output and The Output Gap for Brazil (Anais Do XXXII Encontro Nacional de Economia [Proceedings of the 32nd Brazilian Economics Meeting]). ANPEC - Associação Nacional dos Centros de PÃ3s-Graduação em Economia [Brazilian Association of Graduate Programs in Economics]. https://econpapers.repec.org/RePEc:anp:en2004:041

Arsawati, N. N. J., Putri, L. P. Y. K., & Yuliantari, I. E. (2023). Can Zoning Regulation Simplify Business Licensing in Indonesia. Kanun Jurnal Ilmu Hukum, 25(3), 398–412.

Astuti, E. S. (2021). The Indonesian Digital Policy: Lessons from PRC’s Experiences. In South‐South Integration and the SDGs: Enhancing Structural Transformation in Key Partner Countries of the Belt and Road Initiative (ECIDC PROJECT PAPER No.10; UNCTAD/BRI PROJECT/RP10, Issue April).

Basri, F. (2019). Indonesia Telah Menjelma sebagai Pekonomian Jasa. Https://Faisalbasri.Com. https://faisalbasri.com/2019/03/15/indonesia-telah-menjelma-sebagai-pekonomian-jasa/

Baxter, M., & King, R. G. (1999). Measuring Business Cycles: Approximate Band-Pass Filters for Economic Time Series. The Review of Economics and Statistics. The Review of Economics and Statistics, 81(4), 575–593. http://www.jstor.org/stable/2646708

Bernanke, B., & Blanchard, O. (2023). What Caused the U.S. Pandemic-Era Inflation ? (No. 86).

Cerna, L. (2014). The Nature of Policy Change and Implementation : A Review of Different Theoretical Approaches. https://api.semanticscholar.org/CorpusID:16297938

Crafts, N., & Woltjer, P. (2021). Growth Accounting in Economic History: Findings, Lessons, and New Directions. Journal of Economic Surveys, 35(3), 670–696. https://doi.org/https://doi.org/10.1111/joes.12348

De Masi, P. (1997). IMF Estimates of Potential Output: Theory and Practice. In IMF Working Papers (Vol. 97, Issue 177). https://doi.org/10.5089/9781451974980.001

Del Negro, M., Lenza, M., Primiceri, G. E., & Tambalotti, A. (2020). What’s Up with the Phillips Curve? Brookings Papers on Economic Activity, 301–357. https://www.jstor.org/stable/26996629

Farwati, R., Metafisika, K., Sari, I., Sitinjak, D. S., Solikha, D. F., & Solfarina, S. (2021). STEM Education Implementation in Indonesia: A Scoping Review. International Journal of STEM Education for Sustainability, 1(1), 11–32. https://doi.org/10.53889/ijses.v1i1.2

Gambin, L., & Hogarth, T. (2017). Employers and apprenticeships in England: costs, risks and policy reforms. Empirical Research in Vocational Education and Training, 9(1), 16. https://doi.org/10.1186/s40461-017-0060-5

Golejewska, A. (2001). Foreign Direct Investment and Employment in a Host Country: the Case of Polish Manufacturing. Yearbook of Polish European Studies, 5, 97–114.

Hall, H. (2021). What’s Happened to Poverty and Inequality in Indonesia over Half a Century ? Asian Development Review, 38(1), 68–97.

Haraguchi, N., Cheng, C. F. C., & Smeets, E. (2017). The Importance of Manufacturing in Economic Development: Has This Changed? World Development, 93(C), 293–315. https://econpapers.repec.org/RePEc:eee:wdevel:v:93:y:2017:i:c:p:293-315

Harahap, H., Sihombing, B. F., & Hamid, A. (2020). Impact of the Omnibus Law/Job Creation Act in Indonesia. International Journal of Scientific Research and Management, 8(`10), 266–281. https://doi.org/10.18535/ijsrm/v8i10.lla01

Hauge, J., & O’sullivan, E. (2019). Inside The Black Box of Manufacturing: Conceptualising and Counting Manufacturing in The Economy.

Hodrick, R., & Prescott, E. (1997). Postwar U.S. Business Cycles: An Empirical Investigation. Journal of Money, Credit and Banking, 29(1), 1–16. https://econpapers.repec.org/RePEc:mcb:jmoncb:v:29:y:1997:i:1:p:1-16

Ikhsan, M. (2005). Skenario Pertumbuhan Ekonomi Jangka Menengah 2005-2009 (No. 9).

Irianto, H., Cahyadin, M., Widyamurti, N., & Harini, H. (2023). The impacts of worker and total sales of SMEs on economic growth in Central Java Province : Evidence from ARDL Bound Test. Jurnal Ekonomi & Studi Pembangunan, 24(October). https://doi.org/10.18196/jesp.v24i2.19162

Kaldor, N. (1967). Strategic factors in economic development. New york State school of industrial and labor relations, Cornell University.

Kiani, A. Q. (2013). Determinants of Female Labor Force Participation. ASEAN Marketing Journal, 1(2). https://doi.org/10.21002/amj.v1i2.1986

Kim, J., & Park, J. (2017). The Role of Total Factor Productivity Growth in Middle Income Countries (No. 527; Issue 527).

Kniivilä, M. (2004). Industrial development and economic growth : Implications for poverty reduction and income inequality. In Industrial Development for the 21st Century: Sustainable Development Perspectives (Issue 1956, pp. 295–332). United Nations, Department of Social and Economic Affairs.

Kwon, O. K. (2020). How is the COVID-19 Pandemic Affecting Global Supply Chains, Logistics, and Transportation? Journal of International Logistics and Trade, 18(3), 107–111. https://doi.org/10.24006/jilt.2020.18.3.107

Lasak, P. (2023). The role of financial technology and entrepreneurial finance practices in funding small and medium-sized enterprises. Journal of Entrepreneurship, Management and Innovation, 19(4). https://doi.org/10.7341

Li, L. (2022). Reskilling and Upskilling the Future-ready Workforce for Industry 4.0 and Beyond. Information Systems Frontiers, 0123456789. https://doi.org/10.1007/s10796-022-10308-y

Li, Y., Sun, Y., & Chen, M. (2021). An Evaluation of the Impact of Monetary Easing Policies in Times of a Pandemic. Frontiers in Public Health, 8(January), 1–13. https://doi.org/10.3389/fpubh.2020.627001

Liliana, Djambak, S., Kahpi, M., Rohima, S., & Sari, A. L. (2020). Analysis Factors that Influence the Money Demand in Indonesia. 5th Sriwijaya Economics, Accounting, and Business Conference (SEABC 2019), 142(Seabc 2019), 184–188. https://doi.org/10.2991/aebmr.k.200520.031

Manyika, J., Jeff Sinclair, Richard Dobbs, Strube, G., Rassey, L., Mischke, J., Remes, J., Roxburgh, C., George, K., O’Halloran, D., & Ramaswamy, S. (2012). Manufacturing the future: The next era of global growth and innovation. McKinsey Global Institute, November, 184.

Mastromarco, C., Simar, L., & Zelenyuk, V. (2021). Predicting recessions with a frontier measure of output gap: an application to Italian economy. Empirical Economics, 60(6), 2701–2740. https://doi.org/10.1007/s00181-021-02029-z

McLeay, M., & Tenreyro, S. (2020). Optimal Inflation and the Identification of the Phillips Curve. NBER Macroeconomics Annual, 34, 199–255. https://doi.org/10.1086/707181

Ministry of Finance Republic of Indonesia. (2020). Innovate Indonesia Unlocking. Asian Development Bank. https://doi.org/http://dx.doi.org/10.22617/SGP200085-2

Ministry of Industry Republic of Indonesia. (2018). Making Indonesia 4.0. Ministry of Industry Republic of Indonesia. https://www.kemenperin.go.id/download/19347

Ministry of Industry Republic of Indonesia. (2019). Analisis Perkembangan Industri Edisi I - 2019.pdf. Pusat Data dan Informasi Kementerian Perindustrian.

Mitra, P., Hosny, A., Abajyan, G., & Fischer, M. (2015). Estimating Potential Growth in the Middle East and Central Asia. IMF Working Papers, 15(62), 1. https://doi.org/10.5089/9781475545364.001

Muchdie, M., & Nurrasyidin, M. (2019). Technological Progress and Human Development: Evidence From Indonesia. Jurnal Ekonomi & Studi Pembangunan, 20(1). https://doi.org/10.18196/jesp.20.1.5018

Nasution, D., & Hendranata, A. (2014). Estimasi Output Gap Indonesia. In Estim.

Nurdiana, E. D., Hariyani, H. F., & Boedirochminarni, A. (2023). The impact of digitalization and economic openness on economic growth in ASEAN countries. Jurnal Ekonomi & Studi Pembangunan, 24(2). https://doi.org/10.18196/jesp.v24i2.18335

Nurmal, I. R. (2023). Dynamics Of Investment Regulation: A Legal Review Of Law No. 25 Of 2007 On Investment In Indonesia In Overcoming The “Investment Ghost.” Jurnal Syntax Transformation, 4(9), 111–121. https://doi.org/10.46799/jst.v4i9.820

Pacheco-López, P. (2014). A new interpretation of Kaldor’s first growth law for open developing economies. Review of Keynesian Economics, 2(3), 384–398. https://doi.org/10.4337/roke.2014.03.07

Phillips, P. C. B., & Shi, Z. (2019). Boosting: Why you Can Use the HP Filter. SSRN Electronic Journal, December. https://doi.org/10.2139/ssrn.3499037

Rezki, J. F., Sabrina, S., Desdiani, N. A., Riefky, T., Cesarina, A., Husna, M., & Maizer, F. A. (2022). Anticipating the Unexpected : Economic Recovery in the Turbulence Period. Indonesia Economic Outlook, Q1, 1–20.

Rinaldi, R., & Saputro, A. N. (2017). Simple Growth Accounting Framework for Deriving Potential Growth in Indonesia. Workshop Potential Output AIPEG.

Rodrik, D. (2013). Unconditional Convergence in Manufacturing. The Quarterly Journal of Economics, 128(1), 165–204. https://doi.org/10.1093/qje/qjs047

Rodrik, D. (2014). The Past, Present, and Future of Economic Growth. Challenge, 57(3), 5–39. http://www.jstor.org/stable/24643517

Rodrik, D. (2016). Premature deindustrialization. Journal of Economic Growth, 21(1), 1–33. https://doi.org/10.1007/s10887-015-9122-3

Rodrik, D., & Kennedy, J. F. (2007). The Real Exchange Rate and Economic Growth : Theory and Evidence.

Rowthorn, R., & Ramaswamy, R. (1997). Deindustrialization: Its causes and implications. In Economic Issues (Vol. 10). https://web.s.ebscohost.com/abstract?direct=true&profile=ehost&scope=site&authtype=crawler&jrnl=1990391X&AN=128769404&h=t7kscmFgvsQ8IalcENDsCVDk7gA3wHfpez3zCuCPiWhxffmsT4fErDf%2BA4v7OMyX8Curr9BPbJSiiQ6XpRGaTw%3D%3D&crl=c&resultNs=AdminWebAuth&resultLocal=

Salazar-Xirinachs, J. M., Nübler, I., & Kozul-Wright, R. (2014). Transforming Economies: Making industrial policy work for growth, jobs and development. https://doi.org/10.1093/oed/2995423497

Schot, J., & Steinmueller, W. E. (2018). Three frames for innovation policy: R&D, systems of innovation and transformative change. Research Policy, 47(9), 1554–1567. https://doi.org/10.1016/j.respol.2018.08.011

Sharpe, A., & Mobasher Fard, S. (2022). The current state of research on the two-way linkages between productivity and well-being (No. 56). https://doi.org/10.54394/tmuv3384

Solow, R. M. (1957). A Contribution to the Theory of Economic Growth. The Quarterly Journal of Economics, 70(1), 65–94. https://doi.org/10.2307/1884513

Sriyana, J. (2022). Fiscal and monetary policies to reduce inflation rate in Indonesia. Jurnal Kebijakan Ekonomi Dan Keuangan, 1(1), 82–91. https://doi.org/10.20885/jkek.vol1.iss1.art8

Su, D., & Yao, Y. (2017). Manufacturing as the key engine of economic growth for middle-income economies. Journal of the Asia Pacific Economy, 22(1), 47–70. https://doi.org/10.1080/13547860.2016.1261481

Sun, T. (2020). Essays on Capacity Underutilization and Demand Driven Business Cycles. The London School of Economics and Political Science.

Syamsuar, G., & Sumitro, S. (2020). Identification of the Phillips Curve Trade-Off Phenomenon in Indonesia, Using the Generalized Method of Moments Approach. Advances in Economics, Business and Management Research, 132(AICMaR 2019), 119–124. https://doi.org/10.2991/aebmr.k.200331.026

Szirmai, A. (2012). Industrialisation as an engine of growth in developing countries, 1950-2005. Structural Change and Economic Dynamics, 23(4), 406–420. https://doi.org/10.1016/j.strueco.2011.01.005

Szirmai, A., & Verspagen, B. (2015). Manufacturing and economic growth in developing countries, 1950-2005. Structural Change and Economic Dynamics, 34, 46–59. https://doi.org/10.1016/j.strueco.2015.06.002

Tjahjono, E. D., Munandar, H., & Waluyo, J. (2010). Revisiting Estimasi Potential Output dan Output Gap Indonesia: Pendekatan Fungsi Produksi Berbasis Model (WP/02/2010).

Tori, D., Caverzasi, E., & Gallegati, M. (2023). Financial production and the subprime mortgage crisis. Journal of Evolutionary Economics, 33(2), 573–603. https://doi.org/10.1007/s00191-023-00812-y

UNIDO. (2013). Industrial Development Report 2013 Sustaining Employment Growth : The Role of Manufacturing and Structural Change.

Verico, K. (2021). Global Pandemic 2020: Indonesia’s Output Gap and Middle-Income Trap Scenario. LPEM-FEBUI Working Paper - 057, January.

Wan, X., Kazmi, S. A., & Wong, C. Y. (2022). Manufacturing, Exports, and Sustainable Growth: Evidence from Developing Countries. In Sustainability (Vol. 14, Issue 3). https://doi.org/10.3390/su14031646

WIPO. (2022). GII 2022 results The GII reveals the most innovative economies in the world, ranking the innovation performance of 132 economies.




DOI: https://doi.org/10.18196/jesp.v24i2.18716

Refbacks

  • There are currently no refbacks.


Copyright (c) 2023 Tirta Wisnu Permana, Gatot Yudoko, Eko Agus Prasetio

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

 

Office:
Redaksi JESP UMY, Gedung E2 Lantai 2, Fakultas Ekonomi dan Bisnis, Universitas Muhammadiyah Yogyakarta
Jalan Brawijaya, Tamantirto, Kasihan, Bantul, Daerah Istimewa Yogyakarta 55183
Telp: (0274) 387656 ext.184
Fax: (0274) 387646
Email: jesp@umy.ac.id


Jurnal Ekonomi & Studi Pembangunan (JESP) is licensed under Creative Commons Attribution-ShareAlike 4.0 International.