•  
  •  
 

Abstract

Firm heterogeneity is the building block of modern trade theories. One of its important implications is that comparative advantage is driven by firm productivity, rather than sector differences across countries. Despite the prevalence of this framework, there has not been any systematic documentation on firm heterogeneity in Indonesia’s man ufacturing and services firms. Using the World Bank Enterprise Survey (WBES) data for Indonesia in 2015 and 2023, we confirm that there is firm heterogeneity in the form of size and productivity dispersion in both of the economy’s manufacturing and services sectors. We also find no strong association between size and average product of labor, yet we caution that the finding may be formed by the sample construction in the database. We also show the existence of globalization premia as well as the dynamics of the premia in the manufacturing and services firms.

References

[1] Acemoglu, D, Akcigit, U, Alp, H, Bloom, N, & Kerr, W 2018, ’Innovation, reallocation, and growth’, American Economic Review, vol. 108, no. 11, pp. 3450-3491. doi: 10.1257/aer.20130470.

[2] Aghion, P, & Howitt, P 1992, ’A model of growth through creative destruction’, Econometrica, vol. 60, no. 2, pp. 323-351. doi: https://doi.org/10.2307/2951599.

[3] Akcigit, U, & Kerr, WR 2018, ’Growth through heterogeneous innovations’, Journal of Political Economy, vol. 126, no. 4, pp. 1374-1443. doi: https://doi.org/10.1086/697901.

[4] Amiti, M, & Konings, J 2007, ’Trade liberalization, intermediate inputs, and productivity: Evidence from Indonesia’, American Economic Review, vol. 97, no. 5, pp. 1611-1638. doi:10.1257/aer.97.5.1611.

[5] Bernard, AB, Eaton, J, Jensen, JB, & Kortum, S 2003, ’Plants and productivity in international trade’, American Economic Review, vol. 93, no. 4, pp. 1268-1290. doi: 10.1257/000282803769206296.

[6] Bernard, AB, Redding, SJ, & Schott, PK 2007, ’Comparative advantage and heterogeneous firms’, The Re view of Economic Studies, vol. 74, no. 1, pp. 31-66. doi: https://doi.org/10.1111/j.1467-937X.2007.00413.x.

[7] Bernard, AB, Jensen, JB, Redding, SJ, & Schott, PK 2012, ’The empirics of firm heterogeneity and international trade’, Annual Review of Economics, vol. 4, no. 1, pp. 283-313. doi: https://doi.org/10.1146/annurev-economics-080511 110928.

[8] Chaney, T 2008, ’Distorted gravity: The intensive and extensive margins of international trade’, American Economic Review, vol. 98, no. 4, pp. 1707-1721. doi: 10.1257/aer.98.4.1707.

[9] Eaton, J, & Kortum, S 2002, ’Technology, geography, and trade’, Econometrica, vol. 70, no. 5, pp. 1741-1779. doi: https://doi.org/10.1111/1468-0262.00352.

[10] Eaton, J, Kortum, S, & Kramarz, F 2011, ’An anatomy of international trade: Evidence from French firms’, Econometrica, vol. 79, no. 5, pp. 1453-1498. doi: https://doi.org/10.3982/ECTA8318.

[11] Galle, S, Rodríguez-Clare, A, & Yi, M 2023, ’Slicing the pie: Quantifying the aggregate and distributional effects of trade’, The Review of Economic Studies, vol. 90, no. 1, pp. 331-375. doi: https://doi.org/10.1093/restud/rdac020.

[12] Heckscher, E 1919, ‘The effect of foreign trade on the distribution of income’, Ekonomisk Tidskrift, vol. 21, no. 2, pp. 497-512.

[13] Hsieh, CT, & Klenow, PJ 2009, ’Misallocation and manufacturing TFP in China and India’, The Quarterly Journal of Economics, vol. 124, no. 4, pp. 1403-1448. doi: https://doi.org/10.1162/qjec.2009.124.4.1403.

[14] Hsieh, CT, & Olken, BA 2014, ’The missing “missing mid dle”’, Journal of Economic Perspectives, vol. 28, no. 3, pp. 89-108. doi: 10.1257/jep.28.3.89.

[15] Ikhsan, M 2007, ’Total factor productivity growth in Indonesian manufacturing: A stochastic frontier approach’, Global Economic Review, vol. 36, no. 4, pp. 321-342. doi: https://doi.org/10.1080/12265080701694488.

[16] Javorcik, B, Fitriani, F, Iacovone, L, Varela, G, & Duggan, V 2012, ’Productivity performance in Indonesia’s manufacturing sector’, Policy Note, 5, World Bank Group. doi: https://doi.org/10.1596/26715.

[17] Kaplan, G, Moll, B, & Violante, GL 2018, ’Monetary policy according to HANK’, American Economic Review, vol. 108, no. 3, pp. 697-743. doi: 10.1257/aer.20160042.

[18] Kucheryavyy, K, Lyn, G, & Rodríguez-Clare, A 2023, ’Grounded by gravity: A well-behaved trade model with industry-level economies of scale’, American Economic Journal: Macroeconomics, vol. 15, no. 2, pp. 372-412. doi: 10.1257/mac.20190156.

[19] Krueger, AO 2013, ’The missing middle’, In: Hope, NC, Kochar, A, Noll, R, & Srinivasan, TN (eds.), Economic reform in India: Challenges, prospects, and lessons (pp. 299-318), Cambridge University Press.

[20] Krugman, P 1980, ’Scale economies, product dif ferentiation, and the pattern of trade’, American Economic Review, vol. 70, no. 5, pp. 950-959. https://www.jstor.org/stable/1805774.

[21] Melitz, MJ 2003, ’The impact of trade on intra industry reallocations and aggregate industry productiv ity’, Econometrica, vol. 71, no. 6, pp. 1695-1725. doi: https://doi.org/10.1111/1468-0262.00467.

[22] Narjoko, D, & Hill, H 2007, ’Winners and losers during a deep economic crisis: Firm-level evidence from Indonesian manufacturing’, Asian Economic Journal, vol. 21, no. 4, pp. 343-368. doi: https://doi.org/10.1111/j.1467 8381.2007.00261.x.

[23] Ohlin, B 1933, Interregional and international trade, Harvard University Press.

[24] Redding, SJ, & Rossi-Hansberg, E 2017, ’Quantitative spatial economics’, Annual Review of Economics, vol. 9, no. 1, pp. 21-58. doi: https://doi.org/10.1146/annurev-economics 063016-103713.

[25] Ricardo, D 1817, On the principles of political economy and taxation, John Murray. [26] Yasin, MZ 2022, ’Technical efficiency and total fac tor productivity growth of Indonesian manufacturing industry: Does openness matter?’, Studies in Mi croeconomics, vol. 10, no. 2, pp. 195-224. doi: https://doi.org/10.1177/23210222211024438.

Download

Share

COinS
 
 

To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.