The role of subcontracting in SME development in Indonesia:: Micro-level evidence from the metalworking and machinery industry |
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Institution: | 1. Physical Medicine & Rehabilitation, University of Pittsburgh, Pittsburgh, PA 15213, United States;2. Safar Center for Resuscitation Research, University of Pittsburgh, Pittsburgh, PA 15213, United States;3. División de Neurociencias, Centro de Investigación Biomédica de Michoacán - Instituto Mexicano del Seguro Social Morelia, Mexico;4. Neurobiology, University of Pittsburgh, Pittsburgh, PA 15213, United States;5. Center for Neuroscience, University of Pittsburgh, Pittsburgh, PA 15213, United States;6. Center for the Neural Basis of Cognition, University of Pittsburgh, Pittsburgh, PA 15213, United States;7. Critical Care Medicine, University of Pittsburgh, Pittsburgh, PA 15213, United States;8. Psychology, University of Pittsburgh, Pittsburgh, PA 15213, United States;1. Department of Mathematics and Statistics University of New Hampshire, Durham, New Hampshire, 03824, USA;2. Département de mathématiques et de statistiqueUniversité de Montréal, Montréal, Québec, Canada |
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Abstract: | This study investigates whether subcontracting linkages are an important support mechanism for the development of Indonesian small- and medium-scale enterprises (SMEs). It estimates production functions and calculates indices of total factor productivity (TFP) based on micro-level data from 60 metalworking and machinery firms that supply their products to automobile, motorcycle, agricultural machinery and bicycle manufacturers. The estimation results confirm our main hypothesis that inter-firm cooperation through subcontracting ties increases productivity of Indonesian SMEs. This study implies that the situation where subcontracting ties in Indonesia did not function well in supporting SMEs has been changing recently. Better financial access and business continuity are important in facilitating subcontracting transactions, which can provide SMEs with support necessary for improving productivity. A comparison of TFP indices indicates differences in productivity between firm groups. Larger SMEs, non-pribumi SMEs and SMEs producing automotive/motorcycle parts have, in general, higher TFP than their counterparts. |
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