What has been happening to Indonesia’s Manufacturing Industry?

2 March 2021

Author: Kiki Verico


This paper is the second part of the first paper published by the LPEM UI on January 18 2021 (Verico, 2021a). This
first part discussed Indonesia’s output gap, the global pandemic’s impact, and the scenario to avoid the middle-income trap by 2040. In this second part, the paper figures out the manufacturing sector performance from 1968 until 2019, before the global pandemic hit Indonesia’s economy. Indonesia’s economy needs an adjustment that depends on the pandemic containment to achieve even higher economic growth to compensate for economic contraction during the pandemic. This paper finds that Indonesia’s manufacture can boost economic growth, decrease open unemployment and improve productivity. This paper argues that Indonesia can achieve the second wave of the Chenery-Syrquin phenomenon of economic transformation from service to manufacturing through two scenarios: one, medium to long-run over the enhancement of the backward linkage of global value chains (GVCs), and two, natural short-run with the role of information and communication technology (ICT).

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