How the Macroeconomic Environment and Investment Climate Have Affected the Manufacturing Sector
The performance of Indonesia's manufacturing sector has lagged over the past decade. This is seen in the decline in growth after the Asian financial crisis, by the sector's decline relative to other sectors within the economy, and relativ...
| Main Authors: | , , |
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| Format: | Policy Note |
| Language: | English en_US |
| Published: |
World Bank, Jakarta
2017
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/602901468044333851/How-the-macroeconomic-environment-and-investment-climate-have-affected-the-manufacturing-sector http://hdl.handle.net/10986/26717 |
| Summary: | The performance of Indonesia's
manufacturing sector has lagged over the past decade. This
is seen in the decline in growth after the Asian financial
crisis, by the sector's decline relative to other
sectors within the economy, and relative to countries in the
region. This note documents the effects of the challenging
macro and external environment on the profits of
manufacturing firms, and on the uncertainty they face, and
argues that these adverse conditions partially explain the
stagnation of the sector in the past decade. The changes in
incentives appear to have particularly affected
labor-intensive sectors, with important consequences for job
creation. Policies to promote growth in the manufacturing
sector should aim at alleviating pressures on manufacturing
costs by: (i) reducing rigidities in the market for labor;
(ii) promoting competition in the market for services; and
(iii) providing incentives for productivity enhancing
technology adoption, while reducing profit uncertainty by;
(iv) maintaining a low and predictable rate of inflation;
and (v) keeping exchange rate volatility within reasonable limits. |
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