Determinants of Technical Efficiency in Indonesian Manufacturing: The Case of Motor-Vehicle Firms

Kevin Fernanda Prasethea; Suyanto Suyanto; Made Siti Sundari

doi:10.23917/jep.v21i2.10634

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Kevin Fernanda Prasethea
Faculty of Economics, University of Surabaya
Indonesia

Department of Economics, University of Surabaya

Suyanto Suyanto
http://profil.ubaya.ac.id/suyanto.html

Faculty of Economics, University of Surabaya
Indonesia

Suyanto is a professor of economics at University of Surabaya, Indonesia. He currently holds a position as the head of Institute for Research and Community Engagement at the university. He received his PhD from Curtin University, Perth, Australia, in 2010. His main area of research is development studies and foreign direct investment. His research has been extensively published in international journals, including World Development, Applied Economics, Journal of Development Studies, Developing Economies, the Asia Pacific Journal of Economics and Business, and Journal of Productivity Analysis.

Made Siti Sundari
Faculty of Economics, University of Surabaya
Indonesia

Dr. Sundari is an assistant professor in the department of economics universitas surabaya. Her research interest is in microeconomics. She is currently the head of international business research group in the university. She publishes her papers in some national accredited and international journals.

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Determinants of Technical Efficiency in Indonesian Manufacturing: The Case of Motor-Vehicle Firms

Kevin Fernanda Prasethea⁽¹⁾, Suyanto Suyanto^(2*), Made Siti Sundari⁽³⁾

(1) Faculty of Economics, University of Surabaya
(2) Faculty of Economics, University of Surabaya
(3) Faculty of Economics, University of Surabaya
(*) Corresponding Author

Abstract

This current study analyses the technical efficiency of Indonesian motor vehicle manufacturing firms (ISIC 34100) and its selected important determinants. The technical efficiency scores are calculated using Data Envelopment Analysis (DEA) and the estimation on the determinants employs the panel data method. The output variable is the total value of output for each firm, whereas the input variables are material, workers, capital, and energy. The selected determinants affecting technical efficiency are export, import, capital-labour ratio, and foreign ownership. It is found that the average technical efficiency score under VRS is 0.81 during the period 2007-2013, with the lowest score is 0.53 in 2010 and the highest score is 0.89 in 2012. The findings from the estimation of important determinants show that export, capital-labour ratio, and foreign ownership provide a positive significant effect on the technical efficiency respectively. In contrast, import has a positive insignificant effect on the technical efficiency.