Analysis of the Results

ISBN : 978-602-17761-0-0 195 © 2013 Published by Center for Pulp and Paper through REPTech2012 on our empirics models employees, import, irm age, wage, export status, industry location and foreign investment are also obtained from BPS survey.

4. Analysis of the Results

In this study, technical effciency estimator is measured through DEA input oriented approach, which will produce eficiency at CRS and VRS assumption. For the sample of pulp and paper industry for each of the years are obtained by comparing each irm with the best practice in the particular year. The results show the average eficiency from range years 2005 - 2009 are 71 if assumed CRS and 79 if assumed VRS . It means that averagely irms use input 29 and 21 over from 0 best practice irm. The level could be associated with the fact that average utilization level of pulp industry 77 and paper industry 86. Ministry of industry[1]. Eficiency can be improved by eliminating ineficiency in using input factors eficient to VRS and increasing operation scale eficient to CRS. The eficiency level can be showed annnually and based on sub-sectors as presented in Figure 1. Figure 1 a shows technical eficiency trend luctuated in observed year, and last decreased in 2009. Figure 1 b shows pulp industry ISIC 21011 reached the highest eficiency. This can associated to the fact that pulp industries have large operation scale and face limited pulpwood supply. The results of calculation TFP Malmquist and its decomposition are presented in Table 1. Table 1. Annual Total Factor Productivity and its Component from year 2005 to 2009 Year effch techch pech sech tfpch 2005 - 2006 1.139 0.889 1.077 1.057 1.013 2006 - 2007 0.852 1.124 0.921 0.925 0.957 2007 - 2008 1.197 0.762 1.084 1.103 0.911 2008 - 2009 0.758 1.512 0.832 0.911 1.146 Mean 0.987 1.072 0.979 0.999 1.007 Table 1 displays productivity changes of Indonesian pulp and paper industry over the period 2005– 2009, as represented by the Malmquist input-based productivity. A greater-than-one Malmquist index denotes improvement in the relevant performance. There were two periods 2005 – 2006 and 2008 - 2009 showing productivity gains. Productivity gains in 2005 – 2006 came from the eficiency change, while in 2008 - 2009 came from the technical change. On average over 2005 – 2009, TFP growth is driven by technical change rather than technical eficiency. An improvement in technical eficiency requires improvement in quality and saving of inputs include capital, labor, material and energy. For the irms whose production is right on the frontier i.e. eficiency scores equal to 1, the strategy for increasing their productivity is to improve the technology innovation. Scale eficiency change tended to constant over period 2005–2009. To identify the factors that may contribute to eficiency and productivity, Equation 7 and 8 are estimated. We has considered the classical assumptions in the model include multicolinearity, autocorrelation, and heteroscedasticity. By results of hausman test and redundant ixed effect test, we ind the ixed effect with cross section weighted as the best model. The results of the estimation are presented in Tabel 2. The estimation results show that variable EMP, AGE, and PIMP signiicantly determine eficiency TE-CRS and TE-VRS. While variable AGE, WPL, CON and TP signiicantly affect productivity. The high R-squared value for all models indicate high percentage of dependent variable variation can explained by independent variable in the model. The probability F-statistic values indicate that independent variabels all together signiicantly affect dependent variabel. Variable EMP employee has a negative impact on eficiency but does not signiicantly affect irm productivity. This indicate that higher amount of employees, eficiency will decrease and productivity will keep constant. This result is line with Diaz [20] and Aggrey [21]. Pulp and paper industry is capital-intensive in nature so that increasing amount of employees is not effective to improve eficiency Figure. 1. a Annual Eficiency Level ; 1 b Eficiency Level Based on Sub-Sectors 5 digits ISIC 196 © 2013 Published by Center for Pulp and Paper through REPTech2012 and productivity. Diminishing marginal productivity of labor may be occurred due to the industry is categorized into medium and large industry based on amount of employees. In our sample, the proportion number of large irms 57 and medium irm 43. But according to Jajri [22], high skill workers technicians, supervisors, and analysts can be complement to high technology. Variable AGE irm age has a negative impact on eficiency and productivity, it means that if the irms get older, eficiency and productivity will decrease. From eficiency point of view, the result is line with Margono [7] in chemical industry. While for productivity, the result is line Alviya [] in wood manufacturing industry, Kadarsyah [9] in foot-ware industry and Margono [7] in chemical industry. This result undirectly shows indications of deteriorating production machines. Ministry of industry [2] found a gap of technology capability between old mill and new one. In general, new mills employ new machine equipment, while old mills varied in their machine performance. Variable CON market concentration does not signiicantly affect irm eficiency but signiicantly affect productivity negatively. The market structure of pulp and paper industry is strong oligopoly. Putra [12]. These concentration level need controlled by the government in order to maintain competitiveness climate that can contribute to increase the productivity. Variable PIMP percentage of material import has a negative impact on eficiency. This inding is line with Ray [23] and Farrel [14], increasing input is inversely proportion to eficiency input based. Moreover if US dollar value increased, it will make higher cost to irms. Other variables DLOC dummy for industrial location, DEXP dummy for export status, and DFINV foreign investment status does not signiicantly affect irm eficiency and productivity. In our sample, the majority of mills are located in outside of industrial park approximately 88. The irms prefer their mill near from raw material resources pulpwoods. Integrated pulp-paper mills are located in Sumatera and Kalimantan. While the non-integrated paper mills are spread in Java Banten, West and East Java. Proportion of exporting-irms are smaller approximately 28 than nonexporting-irms. This fact may cause exporting-irms do not signiicantly show the higher performance than nonexporting-irms. According to previous empirics literatures, export could increase irm eficiency and productivity due to high quality standard and tight competition in global market. The coeficient on DFINV has the expected positive sign but is not statistically signiicant. From observation, share of foreign-irm only 13. Majority of empiric researchs indicated that foreign ownership had effect to irm eficiency and productivity due to easiness of technology transfer . Lastly, variable TP technical progress and WPL wage per labor have a positive impact on productivity. Technical progress is closely related to capital intensity. It means adapting new technology and innovation activity in the capital intensive irms will improve productivity. This result is line with technical progress concept in Nicholson [24] and empirical result Jajri [22]. The government can help the industry through programs of machines restructurization or eliminating of import tax of capital goods. Increasing research dan development RD fund to research centers, universities that coorporate with the industry are also needed. While variable WPL can determine productivity that line with Yasar [25]. WPL indirectly represents worker skill . The efforts to improve worker skill for instance education, Table 2. Results of Eficiency and Productivity Determinant Regression TE-CRS Coeficient Probability TE-VRS Coeficient Probability PROD Coeficient Probability C 2.7407 0.0000 C 2.2882 0.0000 C 5.7243 0.0000 EMP -0.1497 0.0145 EMP -0.1901 0.0001 EMP -0.0619 0.4248 AGE -0.7646 0.0000 AGE -0.5074 0.0000 AGE -1.2441 0.0000 CON -0.0195 0.4018 CON 0.0127 0.3196 WPL 0.3245 0.0000 PIMP -0.0027 0.0097 PIMP -0.0022 0.0133 CON -0.0719 0.0000 DLOC -0.0573 0.5068 DLOC -0.0077 0.7629 TP 0.0815 0.0000 DEXP 0.0501 0.4618 DEXP 0.0670 0.2776 DLOC -0.4400 0.5550 DFINV 0.0303 0.4717 DFINV 0.0145 0.5705 DEXP -0.0154 0.7886 DFINV 0.0731 0.6110 R-Squared 0.8303 R-Squared 0.8308 R-Squared 0.9914 Prob F-stat 0.0000 Prob F-stat 0.0000 Prob F-stat 0.0000 signiicant at 1 level ISBN : 978-602-17761-0-0 197 © 2013 Published by Center for Pulp and Paper through REPTech2012 training, and courses can contribute to productivity in workplace. Management programs such as increasing wage periodically, incentives, and promotion should pay attention.

5. Conclusions and Policy Implications