Baseline analysis of productivity changes with and without considering carbon dioxide emissions in the major manufacturing sector of Indonesia

Abstract

This paper provides empirical evidence of changes in the productivities of manufacturing firms in Indonesia over time, in the form of total factor productivity (TFP), from 1990 to 2010 with and without considering carbon dioxide (CO2) emissions. Employing cleaned and balanced panel datasets for four periods, 1990–1995, 1998–2000, 2003–2006, and 2008–2010, the analysis enables an evaluation of the impact of implemented policies or economic circumstances during each period. The Malmquist productivity index is employed to estimate TFP without CO2 emissions over time, whereas the Malmquist-Luenberger productivity index is applied to estimate TFP with CO2 emissions over time. Furthermore, the influence of energy factors on environmental productivity is also investigated. The results show that on average, TFP with CO2 emissions over time has grown faster than TFP without CO2 emissions, particularly for periods 1, 2, and 4. Technical progress is the basis of productivity growth after removing energy subsidies, and the change in environmental productivity is associated with the adjusted energy prices. Constructive policy designs can be derived from this paper that will enhance manufacturing sector performance after changes in the prices of oil commodities.