The Role of Industrial Total Factor Productivity (TFP) in the Indonesian Economy
Total Factor Productivity (TFP) is an important indicator that reflects production efficiency in an economic sector, including industry. In the context of Indonesia’s economy, the role of industrial TFP is crucial as it impacts various aspects, ranging from contribution to Gross Domestic Product (GDP), labour proportion, investment, to exports.
By understanding the contribution of industrial TFP to the economy, we can better appreciate the importance of efficiency and innovation in the industrial sector for sustainable economic growth.
In the first quarter of 2024, the industrial sector’s TFP-related contribution to national GDP was recorded at 0.95%. While this figure may seem small, it reflects the important role of this sector in the overall economy.
GDP generated by industrial TFP shows how efficiency and productivity in the sector contribute to national economic growth. A high industrial TFP means that the sector is able to produce more output with the same amount of input, which in turn supports economic growth through value-added creation.
The proportion of labour in the industrial sector TFP in the manufacturing sector reached 2.82%. This figure shows that this sector absorbs a small portion of the total labour in the manufacturing sector. Although the proportion is relatively small, the contribution of labour in the TFP industry sector remains significant, as this sector is often directly related to technology and innovation.
Skilled labour in this sector plays a role in improving production efficiency and supporting the growth of the industrial sector as a whole.
Investment in TFP industries in the first quarter of 2024 was recorded at 1.14% of total Foreign Direct Investment (FDI) and Domestic Direct Investment (DDI) investment. Although this proportion of investment is relatively small, investment in this sector is important because it can lead to increased production capacity and efficiency.
Targeted investment in the TFP sector has the potential to improve technology and production processes, thereby increasing productivity and industrial competitiveness in domestic and international markets.
The export contribution of TFP products to Indonesia’s total exports reached 4.28% in the first quarter of 2024. This indicates that products produced from the TFP sector are competitive in the international market and contribute significantly to the country’s revenue from exports.
Competitive exports of TFP products help reduce the trade deficit and increase the country’s foreign exchange reserves. In addition, this contribution reflects the ability of the TFP industry sector to meet international standards and innovate in the products offered.
Source: Bappenas
