The petroleum industry and the economic development of Indonesia: Technical progress and long-run output growth

by Heru Iswahyudi

Institution: Murdoch University
Year: 2016
Posted: 02/05/2017
Record ID: 2063741
Full text PDF: http://researchrepository.murdoch.edu.au/29445/


The purpose of this thesis is to estimate the total factor productivity (TFP) growth of the Indonesian petroleum industry utilising the growth accounting framework pioneered by Solow (1956, 1957) and Swan (1956). To broaden the scope of this study, the productivity growth of the non-petroleum industries, together with estimates for the aggregate economy, will also be conducted. Utilising data from Indonesia‟s Central Board of Statistics and the Executive Agency for Upstream Oil and Gas Activity, this study explores the period between 1991 and 2010. The study found that during the period of 1991-2003, the growth rate of petroleum TFP was negative. This negative trend was reversed during the period of 2004-2010 where petroleum TFP showed significant positive growth. The reforms of the early 2000s appeared to have resulted in this acceleration of TFP growth. On the other hand, the growth of TFP in the non-petroleum industries and the aggregate economy showed a declining trend after the Asian financial crisis of 1997/1998. This decline in TFP growth was likely to be linked to three possible circumstances that could make productivity improvements in the economy very challenging: low institutional quality, declining investment in infrastructure and creeping economic protectionism. The examination of Indonesia‟s various production structures begins with a historical perspective not only because the counterfactual cannot be tested, but it would also set a background for productivity analysis carried out in the following chapters. In doing so, a much broader and deeper analysis of the evolution of technological progress (as captured by TFP growth) in Indonesia is provided. As Nelson (1996, p. 6) once wrote “…economists doing formal growth theory have, for the most part, paid far too little attention to the qualitative historical record”. Advisors/Committee Members: Taylor, Ranald.