INTERNAL AND EXTERNAL DETERMINANTS OF INDONESIAN FIRMS’ PRODUCTIVITY: THE IMPORTANCE OF TRADE AND FOREIGN INVESTMENT

S Suyanto, Yenny Sugiarti

Abstract

This study examines the key internal and external factors of Indonesian firms’ productivity. The internal factors cover material, labour, capital, and energy, whereas the external factors are foreign investment, export, and import. Applying the augmented Cobb-Douglas production function on 8,589 manufacturing firms within seven years period, the results show the significant influence of material, labour, capital, and energy, respectively, on the output productivity. Foreign investment, export, and import also have significant impacts on the output partially. The results are robust under four methods of analyses, namely Ordinary Least Squared (OLS), Generalized Least Squared (GLS), Maximum Likelihood (ML), and General Method of Moments(GMM).
Keywords: Internal dan external factors, Firms’ productivity, Indonesian firms, trade, foreign investment.

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