Protection and the Dynamics of Productivity Growth: The Case of Automotive Industries in Indonesia

Indonesia, like many other countries in South East Asia, has actively promoted the automotive industry. The governmental interventions have ranged from tariffs and non-tariff barriers to various local content programs. As a result, imports of ready made cars and motorcycles have been expensive, which led to an inflow of foreign producers. This paper examines the productivity performance in the Indonesian automotive industries. More specifically, we try to answer two questions. Firstly, has the government intervention been successful in lifting the industry from its "infant industry" status? Secondly, what roles have multinational enterprises played in the development of the automotive industry in Indonesia? In examining the issues at hand, we use establishment data for the Indonesian automotive industries between 1990-1995. Our choice of methodology enables us to examine the dynamics of the different industries' productivity performance: which establishments account for most of the productivity growth, and how important entry and exit of establishments are to the overall performance.