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Economic Efficiency of the Indonesian Plywood and Lumber Industries
Dissertation Abstract:
The study aimed to assess the present state, role, and performance of the Indonesian plywood and lumber industries.
The primary source of data were the Annual Survey of Manufacturing Establishments, which was conducted by the Central Bureau of Statistics (BPS), Indonesia; part of the 1981 and 1982 industrial survey data; and the plywood (ISIC 33113) and lumber (ISIC 33111) industries data which covered 85 and 694 firms, respectively.
Descriptive analysis was used to determine the business characteristics, inputs used and output, and productive efficiency and factor intensity of the plywood and lumber industries in and outside Java. To quantify relative economic efficiency, the interrelated measures were used.
Economic efficiency from the private (financial) point of view was estimated using two indicators: total cost up to FOB and ratio of total cost up to FOB to border price (F/B-ratio). To quantify relative economic efficiency from the special point of view, the concept of domestic resource cost evaluated in social opportunity cost was used. Measures employed were net social profit (NSP), domestic resource cost (DRC), comparative advantage (CA), and resource cost ratio (RCR).
Results of the descriptive analysis supported hypothesis I: that geographical location (in or outside Java) of the industries influenced business characteristics such as installed capacity of the plywood industry, wood recovery rate of the lumber industry, number of commodity produced, age of the firms, inputs used and output, and productive efficiency and factor intensity of both plywood and lumber industries.
On the average, the wood recovery rate of Indonesian plywood firms (43.4%) was lower than that of neighboring countries. This might be attributed to such factors as quality of logs, sill and experience of the machine operator, imperfect installment of machine by inexperienced person, and size of the product.
Results of the economic efficiency analysis from both private and social points of view show that, despite the unfavorable world market price, both plywood and lumber industries were efficient, thus giving the country a comparative advantage in plywood and lumber production activities.
As regards location, results rejected hypothesis 2: that plywood and lumber firms in Java were less efficient than those outside Java. The most likely reason for this was that firms in Java were in more capital-intensive production, hence less efficient. In addition, the marketing cost per unit output of firms in Java was higher.
With respect to firm size, results of the economic efficiency analysis did not conform with hypothesis #; that there is no clear relationship between the size of firms and the level of efficiency.
The sensitivity analysis showed that the DRC elasticity was intensive to change in the shadow price of inputs, whether singly or in combination, but sensitive to change in the FOB price.
The policy implication of the results of analysis calls for fuller exploitation of the country's comparative advantage in plywood and lumber production. Policy should be directed toward vigorous research on the cause of low wood recovery rate, improved efficiency of the marketing system of inputs and output, and determination of the minimum economic size within which the firms still have comparative advantage.