Determinants of the palm oil industry productivity in Indonesia

Abstract

This paper investigates total factor productivity growth (TFPG) and its determinants in the Indonesian palm oil sector industries. TFPG is estimated using a growth accounting method. This paper applies the fixed effects model to investigate the determinants of the TFPG. The data is sourced from a manufacturing survey of the Indonesian Bureau of Central Statistics (Badan Pusat Statistika/BPS) for the period 2000–2017. This paper finds that the TFPG of the Indonesian palm oil industry is relatively low. Moreover, output growth, output per worker, export activity, and wages per worker have significant effects on the TFPG. The effect of output growth, which is dominated by the large use of inputs, raises concerns in the aspect of environmental sustainability due to uncontrolled land expansion.

Keywords:

• output growth
• growth accounting
• total factor productivity growth
• Indonesian palm oil industry

PUBLIC INTEREST STATEMENT

Determinants of firm productivity can be categorized into 4 aspects: internal firm, trading activities, investment sources, and human resources. Output growth as a measurement variable has a positive and significant effect on the productivity of palm oil industry firms, this is in line with the large production of palm oil from year to year driven by the government’s efforts to increase downstream palm oil products by increasing technical efficiency, technological advances, and increasing efficiency scale. Output per worker and wages per worker are variables that are closely related to improving the quality of humans as workers. Firms can invest in and finance employee training or education. In this way, they will become an asset or the spearhead of the firm in the future with the new knowledge they have acquired. They will become the engine to increase the productivity of the firms.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

The authors received funding-source from Padjadjaran University for this research.

Notes on contributors

Tina Herianty Masitah

The author of this article is currently a student (Ph.D. - Economics and Business) at Padjadjaran University, Bandung, West Java – Indonesia. My research interest focuses on agribusiness study, firm innovation and productivity (growth theories), microeconomic, developments in ASEAN countries and emerging economies. This study is closely related to the broader scope of the authors’ research interest area as it focuses on how the development of technology and knowledge in shaping productivity, both on an individual scale in the form of labor capabilities and firm productivity as agents of state economic growth. This study also highlights the importance of human resources quality as the goal of increasing the productivity of the workforce in general in society as an important part of increasing firm productivity.