Technical Efficiency and Downstreaming in Indonesia’s Basic Metal Industry: A Stochastic Frontier Analysis Approach

Endar Kumalasari

doi:10.55681/economina.v5i7.3228

Authors

Endar Kumalasari Universias Airlangga, Surabaya, Indonesia

DOI:

https://doi.org/10.55681/economina.v5i7.3228

Keywords:

Indonesia Basic Metal Industry, Technical Efficiency, Stochastic Analysis Donwstreaming

Abstract

This study measures technical efficiency and identifies the determinants of technical inefficiency in Indonesia’s basic metal industry during 2017 to 2019 by using a translog stochastic frontier model. The analysis employs firm-level data from the annual manufacturing large and medium industry survey (IBS) of Bureau Statistics Indonesia, comprising a balanced panel of a 420 firms with 1,260 observations, and is estimated following the Battese Coelli (1995) with one-step-approach. The results reveal that the basic metal industry is on average 90.58% technically efficient, leaving an aggregate output gap of approximately 11.6%. it is noted that downstreaming depth contributed most strongly to reducing technical inefficiency, followed by import intensity, and export orientation, whereas firm size contributed to higher inefficiency, meanwhile foreign ownership and research and development were found to be insignificant. The estimates of input elasticities indicate that material is the dominant input, and the industry operates under slightly increasing returns to scale. Suggesting that capacity expansion through smelter development remains economically efficient. These findings provide firm-level quantitative evidence that the mineral downstreaming policy is associated not only with higher aggregate value added but also with improved production efficiency.

Downloads

Download data is not yet available.

References

Aigner, D., Lovell, C. A. K., & Schmidt, P. (1977). Formulation and estimation of stochastic frontier production function models. Journal of Econometrics, 6(1), 21–37. https://doi.org/https://doi.org/10.1016/0304-4076(77)90052-5

Amiti, M., & Konings, J. (2005). Trade Liberalization, Intermediate Inputs and Productivity: Evidence from Indonesia. American Economic Review, 97(5). https://doi.org/10.1257/aer.97.5.1611

Badan Pusat Statistik. (2019). Pendapatan Nasional Indonesia 2015-2019. https://www.bps.go.id/id/publication/2025/06/20/63d723755172c429560055db/pendapatan-nasional-indonesia-2020-2024.html

Battese, G. E., & Coelli, T. J. (1992). Frontier Production Functions, Technical Efficiency and Panel Data: With Application to Paddy Farmers in India. Journal of Productivity Analysis, 3(1–2), 153–169.

Collard-Wexler, A., & De Loecker, J. (2016). Production Function Estimation with Measurement Error in Inputs. NBER Working Paper. http://www.nber.org/papers/w22437

Farawansa, S. M., & Ratnawati, E. (2024). Diagnosis Of Nickel Industry Downstreaming Policy In Export Restriction Towards Increasing Economic Added Value In Indonesia. Jurnal Legalitas, 17(1), 1–16. https://doi.org/10.33756/jelta.v16i1.xxxx

Farrell, M. J. (1957). The Measurement of Productive Efficiency. Journal of the Royal Statistical Society, 120(3), 253–290. https://doi.org/10.1002/0471667196.ess7018

Guberman, D., Shreiber, S., & Perry, A. (2024). Export Restrictions on Minerals and Metals: Indonesia’s Export Ban of Nickel . In Office of Economics, U.S. International Trade Commission (Vol. 2, Issue 1). https://www.usitc.gov/publications/332/working_papers/ermm_indonesia_export_ban_of_nickel.pdf

Kumbhakar, S. C., & Lovell, C. A. K. (2000). Stochastic Frontier Analysis. Cambridge University Press. https://doi.org/DOI: 10.1017/CBO9781139174411

Margono, H., & Sharma, S. C. (2006). Efficiency and Productivity Analyses of Indonesian Manufacturing Industries. Journal of Asian Economics, 17(6), 979–995. https://doi.org/10.1016/j.asieco.2006.09.004

Meeusen, W., & van Den Broeck, J. (1977). Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error. International Economic Review, 18(2), 435–444. https://doi.org/10.2307/2525757

Muslikhati, M. (2025). Imports of Raw Materials, Spillover of Foreign Investment and Technical Efficiency of Indonesia’s Manufacturing Industry Exports. E-Journal Ekonomi Bisnis Dan Akuntansi, Vol. 12 No. 2 (2025): e-JEBA Volume 12 Number 2 Year 2025, 150–164.

Östensson, O. (2019). Promoting downstream processing: resource nationalism or industrial policy? Mineral Economics, 32(2), 205–212. https://doi.org/10.1007/s13563-019-00170-x

Prasethea, K. F., Suyanto, S., & Sundari, M. S. (2020). Determinants of Technical Efficiency in Indonesian Manufacturing: The Case of Motor-Vehicle Firms. Jurnal Ekonomi Pembangunan: Kajian Masalah Ekonomi Dan Pembangunan; Vol 21, No 2 (2020): JEP 2020. https://doi.org/10.23917/jep.v21i2.10634

Rivota, D. R., & Wardhana, A. R. (2026). Navigating the Complexities of Indonesia ’ s Journey to Develop a Downstream Nickel Industry. Springer Nature Switzerland. https://doi.org/10.1007/978-3-032-06139-3

Sari, D. W., Khalifah, N. A., & Suyanto, S. (2016). The spillover effects of foreign direct investment on the firms’ productivity performances. Journal of Productivity Analysis, 46(2–3), 199–233. https://doi.org/10.1007/s11123-016-0484-0

Setiawan, M., Emvalomatis, G., & Oude Lansink, A. (2012). The relationship between technical efficiency and industrial concentration: Evidence from the Indonesian food and beverages industry. Journal of Asian Economics, 23(4), 466–475. https://doi.org/https://doi.org/10.1016/j.asieco.2012.01.002

Suseno, T. (2019). Analisis dampak sektor pertambangan mineral logam terhadap produk domestik bruto. Jurnal Teknologi Mineral Dan Batubara, 15(2), 133–144. https://doi.org/10.30556/jtmb.vol15.no2.2019.688

Suyanto, S., Astanto, T. J., Santoso, H. W., & Salim, R. (2022). Technical Inefficiency in Nine Clusters of Indonesian Manufacturing Firms And its Determinants: Stochastic Frontier Analysis. Jurnal Ekonomi Pembangunan: Kajian Masalah Ekonomi Dan Pembangunan, 23(2), 241–253. https://doi.org/10.23917/jep.v23i2.18113

Suyanto, Salim, R., & Bloch, H. (2014). Which firms benefit from foreign direct investment? Empirical evidence from Indonesian manufacturing. Journal of Asian Economics, 33, 16–29. https://doi.org/https://doi.org/10.1016/j.asieco.2014.05.003

Wang, H. J., & Schmidt, P. (2002). One-step and two-step estimation of the effects of exogenous variables on technical efficiency levels. Journal of Productivity Analysis, 18(2), 129–144. https://doi.org/10.1023/A:1016565719882

Wang, M., & Wong, M. C. S. (2012). International R & D Transfer and Technical Efficiency: Evidence from Panel Study Using Stochastic Frontier Analysis. World Development, 40(10), 1982–1998. https://doi.org/oi.org/10.1016/j.worlddev.2012.05.001

Yasin, M. Z. (2021). Measuring the Productivity of the Foods and Beverages Industries in Indonesia : What Factors Matter? Economics and Finance in Indonesia, 67(1), 132–146.