Technical efficiency and its determinants in the Indonesian micro and small enterprises

Abstract

Purpose

The purpose of this paper is to investigate the technical efficiency (TE) of micro and small enterprises (MSEs) and its determinants in the Indonesian manufacturing sector covering comprehensive subsectors.

Design/methodology/approach

This research uses the data from the micro and small industry survey sourced from the Indonesian Bureau of Central Statistics for the period 2010–2015. The TE is estimated using data envelopment analysis (DEA) with bootstrapping approach. The TE is also estimated at the firm-level survey data, classified at the five-digit level of the International Standard Industrial Classification system. In addition, a truncated regression model is applied to estimate the effects of the determinants on the TE.

Findings

This research finds that there is a low average TE of the MSEs for the subsectors investigated. It is also found that the TE is associated with firm size, location, export orientations on domestic and world markets, firm age, level of technology, and owner education.

Originality/value

The literature investigating the TE of the MSEs and its determinants is still rare in Indonesia. Most of the previous research limited the studies for specific subsectors and/or specific small regions. Therefore, this research has a contribution in measuring the TE of the MSEs for comprehensive subsectors as well as its relation with the determinants in the Indonesian manufacturing sector. Also, the DEA with bootstrapping approach is applied to estimate the TE of the firms based on each relevant subsector, which is rare in the previous research of the Indonesian MSEs.

Citation

Setiawan, M., Effendi, N., Heliati, R. and Waskito, A.S.A. (2019), "Technical efficiency and its determinants in the Indonesian micro and small enterprises", Journal of Economic Studies, Vol. 46 No. 6, pp. 1157-1173. https://doi.org/10.1108/JES-08-2018-0298