Late Industrialization and Structural Change: Indonesia, 1975–2000

This paper examines economic growth and structural change in Indonesia during the period 1975–2000 using an input–output-based structural change decomposition method. The analysis focuses on the sources and pattern of growth during three phases of economic development: the inward-oriented phase from 1975 to 1985; the outward-oriented phase from 1985 to 1995; and the recent phase of crisis and recovery from 1995 to 2000. Growth during the first phase, although impressive, was moderate in comparison with the export-led manufacturing-driven growth during the second phase. During both these phases, the Indonesian economy witnessed significant structural changes, especially within manufacturing. However, the dynamics underlying growth and structural change showed important differences. Although growth under the first two policy regimes was assisted by favourable economic circumstances, selective industrial policies may also have played a significant role. The results suggest that the long neglect of the technological foundations and human capital base of the economy could be holding back recovery and sustained growth in the present phase.