Form HE(S→O)
GSAPS THE SUMMARY OF DOCTORAL THESIS
An Analysis on the Exports, Production Efficiency, and Financial Access of Small and Medium Manufacturing Firms in Indonesia
4013S304-1 Eisha Maghfiruha Rachbini Chief Advisor: Prof. Urata Shujiro
Keywords:Small Medium Enterprise, Manufacture, Export, Efficiency, Financial Access, Indonesia
Small and medium enterprises (SMEs) perform important roles in economic development. They act as engines of growth, employment absorption, and poverty reduction. In times of crisis, SMEs are also more resilient than large enterprises and become an economic buffer (Hill, 2001).
SMEs have also become prominent economic agents in Indonesia.
According to the Ministry of Cooperatives and SME data, they dominate national firm structure and employment at 99% and 97%, respectively, and contribute around 60% of national output in 2013. Indonesian SMEs also occupy a developmental role as their activities generate sources of income for poorer people in rural areas.
In an era of regional integration, one central pillar of the ASEAN’s Economic Community (AEC) priorities is the promotion of equitable economic development within the region. In line with this, the AEC also focuses on developing SMEs, since the latter is able to participate in regional production networks. Participation in regional trade through direct export and indirect production networks requires SMEs to increase their competitiveness in terms of production and trade. SMEs nevertheless face several challenges to participation in international trade owing to the high sunk cost of entering the market. A self-selecting hypothesis suggests that only productive firms accomplish entrance to the export market (Bernard and Jensen, 1999; Melitz, 2003). Strong financial capacity is also essential to compensate the costs of participation in the global market. Berman and Hericourt (2010) highlight the importance of financial access for firms’
participation in export There is also a connection, moreover, between financial access and productivity, which in turn positively affects firms’
export participation. This study thus focuses on analyzing the exports of SMEs, their production efficiency, and financial access.
This study has three main research objectives. Firstly, this research attempts to observe SMEs’ participation in export and its determinants.
Secondly, this study aims to investigate the production performance of SMEs, relating this to firm size and export participation. Lastly, this study intends to examine the impact of financial access on SMEs’ export behavior.
This research focuses on analyzing small and medium firms in the manufacturing sector to gauge Indonesian SMEs’ export behavior.
This research applies Heckman’s selection model to analyze determinants of small firms’ export participation and intensity. Secondly, in order to measure production performance, this study estimates the technical efficiency of manufacturing firms across different firm sizes, export participation, and manufacturing subsectors by conducting analysis using a stochastic frontier production function (SFPF). This study additionally gauges the determinants of small firms’ technical inefficiency by performing an inefficiency effect model run simultaneously in the SFPF model. Thirdly, in analyzing financial access and export this study applies a probit regression model for panel data to estimate the extensive margin of export and applies a fixed effect panel data regression model to estimate the intensive margin of exports. This research uses survey and census firm-level datasets on the manufacturing sector from Indonesia Central of Board of Statistics (BPS).
The results of this study show that productivity, capital intensity, human capital, financial access, information access, exposure to obstacles, firm age, and firm size are all significant determinants for small firms’
participation in export Once they become exporters, productivity still remains an important factor in explaining export intensity. This study finds evidence that exporting firms are more efficient than non-exporting firms.
In addition, the study reveals that Indonesian small firms encounter low levels of technical efficiency, compared to large firms. Small firms do not sustain an optimal level of production. There are several factors explaining the technical efficiency of small firms in the manufacturing sector, including factors relating to human capital, access to borrowing, firm size, age, and legal status. This study reveals that firms’ export participation is weakly significant in explaining technical efficiency. This may be because of their limited participation in direct export Additionally, small firms’
business linkages are significantly associated with their technical efficiency.
This finding is important as an early indication for small firms’ engagement in subcontracting.
This study conducts a further investigation into the importance of financial access on exporting behaviors in medium manufacturing firms.
Results show that financial access significantly determines firms’ export participation. In term of firm size, medium firms are less likely to become exporters, compared with large firms. This study also shows that heterogeneity in productivity is indicative of firms’ participation in export.
Moreover, the impact of firm size and productivity on exporting behavior is greater when firms have access to external finances.
Significance: This study contributes to academic literature related to studies on SMEs’ trade, productivity, and financial access. There are still limited numbers of studies about Indonesian SMEs that use extensive and comprehensive firm-level surveys and census datasets to analyze trade participation. This study provides evidence from country-specific analyses on SME exports, production efficiency, and financial access. The study moreover offers supporting evidence for policy measures on the importance of export participation, productivity, and financial access for the promotion of small and medium firms’ competitiveness.
Limitation of study: Indonesian SME data are fairly scarce. The only available data relevant for studies on the export behavior of SMEs are manufacture surveys from the Indonesian Board of Statistics (BPS).
However, these data are presented in two different dataset formats, including (i) survey on small manufacturing firms, and (ii) survey on medium and large manufacturing firms. The study of SMEs is thus conducted through analyzing small and medium firms separately.
References
Berman, N., and Hericourt, J. (2010). “Financial Factors and The Margins of Trade: Evidence from Cross-country Firm-Level Data”, Journal of Development Economics, Vol. 93, 206-217.
Bernard, A. B., and Jensen, J. B. (1999). “Exceptional Exporter Performance: Cause, Effect or Both?” Journal of International Economics, Vol.47, 1-25.
Hill, H. (2001), ‘Small and Medium Enterprises in Indonesia: Old Policy Challenges for a New Administration’, Asian Survey, Vol. 41, No.2, 248-270.
Melitz, M. J. (2003). “The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity.” Econometrica, Vol.71, No.6, 1695-1725.
