An Analysis of Input Substitution Elasticity in Natural Resource-Based Industry in Indonesia. The Application of CES Function
Abstract
The proportion of resource-based industry groups in the industrial structure in Indonesia is 42.01%, yet its productivity is low because of its labor-intensive nature and limited capital, despite the direct contribution of the use of capital and labor to the creation of output. To optimize production, an input can be substituted by another input. However, it depends on the elasticity of substitution of the two inputs. The main objective of this research is to analyze the level of substitutability of inputs used in the natural resource-based industry group in Indonesia. Using the function of Constant Elasticity of Substitution (CES), the results of the study show that the substitutability level of capital and labor is inelastic, meaning that input substitution is relatively difficult. The results of this study imply that to increase its productivity, this industry group needs to strengthen the support from (government) policies to improve its workforce quality.
References
[1] Adhitnya, F. W, Hartono, D. and Awirya A. A. 2013. Determinan Produktivitas Lahan Pertanian Subsektor Tanaman Pangan Di Indonesia. Jurnal Ekonomi Pembangunan, 14(1). Available at: https://www.researchgate.net/publication/314098655_Determinan_Produktivitas_Lahan_Pertanian_Subsektor_Tanaman_Pangan_Di_Indonesia (In Indonesian).
[2] Arrow, K. J., et al. 1961. Capital-Labor Substitution and Economic Efficiency. The Review of Economics and Statistics, 43(3): 225-250. Available at: http://www.jstor.org/stable/1927286
[3] Badan Pusat Statistik. Statistik Industri Besar dan Sedang Indonesia, 1990-2014. Available at: https://www.bps.go.id (In Indonesian).
[4] Balistreri, E.J., McDaniel, C. A. and Wong, E.V. 2003. An estimation of US industry-level capital–labor substitution elasticities: support for Cobb–Douglas. The North American Journal of Economics and Finance, 14(3): 343 - 356.
[5] Beattie, B. R., and Taylor, C. R. 1994. Ekonomi Produksi. Penerjemah: Gunawan Sumodiningrat. Yogyakarta: Gajahmada University Press. (In Indonesia).
[6] Boqiang, L. and Weisheng, L. 2017. Estimation of energy substitution effect in China's machinery industry–based on the corrected formula for elasticity of substitution. Energy, 129: 246 - 254. Available at: https://www.sciencedirect.com/science/article/abs/pii/S0360544217306692?via%3Dihub
[7] Gujarati, D. N., and Porter, D. C. 2012. Basic Econometrics. Fifth edition. New York: McGraw-Hill Education.
[8] Henningsen, A., and Henningsen, G. 2011. Econometric Estimation of the Constant Elasticity of Substitution Function in R: Package micEconCES. FOI Working Paper 2011/9, Institute of Food and Resource Economics, University of Copenhagen. Available at: http://EconPapers.repec.org/RePEc:foi:wpaper:2011_9
[9] International Labor Organization. 2013. World of Work Report 2013: Repairing the Economic and Social Fabric. Available at: http://www.ilo.org
[10] Jones, C. I. 1998. Introduction to Economic Growth. First Edition. W.W. Norton & Company, Inc.
[11] Kmenta, J. 1967. On Estimation of the CES Production Function. International Economic Review 8(2): 180 – 189 Available at: https://pdfs.semanticscholar.org/e2a0/5cd3784a7e5a393c14199c8d948d8494735f.pdf
[12] Kmenta, J. 1986. Elements of Econometrics. Second edition. New York: Macmillan Publishing Company, a Division of Macmillan Inc.
[13] Mayashita, W., and Firdaus, M. 2013. Faktor-Faktor Yang Memengaruhi Total Factor Productivity Industri Pertanian Indonesia Periode 1981-2010. Jurnal Manajemen & Agribisnis, 10(2): 90 – 97. Available at: http://journal.ipb.ac.id/index.php/jmagr/article/view/8480 (In Indonesian).
[14] Ministry of National Development Planning /Bappenas. 2010. Perubahan Produktivitas Industri Manufaktur Indonesia dan Faktor-faktor yang Mempengaruhinya, selama tahun 2000-2007. Available at: http://www.bappenas.go.id
[15] Nicholson, W., and Snyder, C. M. 2010. Intermediate Microeconomics and Its Application. Eleventh Edition. USA: South-Western Cengage Learning.
[16] Romer, D. 2012. Advanced Macroeconomics. Fourth Edition. New York: McGraw-Hill.
[17] Suharno, Anwar, N., and Saraswati, E. 2018. Do fishers need to diversify their source of income? A special reference in vulnerable fishers of Cilacap Waters, Indonesia. Aquaculture, Aquarium, Conservation & Legislation, 11:5 1605 - 1615.
[18] UNIDO. 2013. Industrial Development Report 2013. Sustaining Employment Growth: The Role of Manufacturing and Structural Change, Overview United Nations Industrial Development Organization.
[19] Wacker, J. G., Yang, C.-L. and Sheu, C. 2006. Productivity of Production Labor, Non-production Labor, and Capital: An International Study. International Journal of Production Economics 103(2): 863 - 872. Available at: https://www.sciencedirect.com/science/article/pii/S092552730600106X
[20] Wirasasmita, Y. 1994. Fungsi Produksi: Perkembangan dan Aplikasi. Jurnal Ekonomi Fakultas Ekonomi Universitas Padjadjaran, 6 (in Indonesian)
[21] Zhang, J. 2015. International Factor Mobility, Elasticity of Substitution in Production and The skilled-unskilled wage gap. International Review of Economic and Finance, 35: 122 - 129. Available at: https://www.sciencedirect.com/science/article/pii/S1059056014001191?via%3Dihub
[2] Arrow, K. J., et al. 1961. Capital-Labor Substitution and Economic Efficiency. The Review of Economics and Statistics, 43(3): 225-250. Available at: http://www.jstor.org/stable/1927286
[3] Badan Pusat Statistik. Statistik Industri Besar dan Sedang Indonesia, 1990-2014. Available at: https://www.bps.go.id (In Indonesian).
[4] Balistreri, E.J., McDaniel, C. A. and Wong, E.V. 2003. An estimation of US industry-level capital–labor substitution elasticities: support for Cobb–Douglas. The North American Journal of Economics and Finance, 14(3): 343 - 356.
[5] Beattie, B. R., and Taylor, C. R. 1994. Ekonomi Produksi. Penerjemah: Gunawan Sumodiningrat. Yogyakarta: Gajahmada University Press. (In Indonesia).
[6] Boqiang, L. and Weisheng, L. 2017. Estimation of energy substitution effect in China's machinery industry–based on the corrected formula for elasticity of substitution. Energy, 129: 246 - 254. Available at: https://www.sciencedirect.com/science/article/abs/pii/S0360544217306692?via%3Dihub
[7] Gujarati, D. N., and Porter, D. C. 2012. Basic Econometrics. Fifth edition. New York: McGraw-Hill Education.
[8] Henningsen, A., and Henningsen, G. 2011. Econometric Estimation of the Constant Elasticity of Substitution Function in R: Package micEconCES. FOI Working Paper 2011/9, Institute of Food and Resource Economics, University of Copenhagen. Available at: http://EconPapers.repec.org/RePEc:foi:wpaper:2011_9
[9] International Labor Organization. 2013. World of Work Report 2013: Repairing the Economic and Social Fabric. Available at: http://www.ilo.org
[10] Jones, C. I. 1998. Introduction to Economic Growth. First Edition. W.W. Norton & Company, Inc.
[11] Kmenta, J. 1967. On Estimation of the CES Production Function. International Economic Review 8(2): 180 – 189 Available at: https://pdfs.semanticscholar.org/e2a0/5cd3784a7e5a393c14199c8d948d8494735f.pdf
[12] Kmenta, J. 1986. Elements of Econometrics. Second edition. New York: Macmillan Publishing Company, a Division of Macmillan Inc.
[13] Mayashita, W., and Firdaus, M. 2013. Faktor-Faktor Yang Memengaruhi Total Factor Productivity Industri Pertanian Indonesia Periode 1981-2010. Jurnal Manajemen & Agribisnis, 10(2): 90 – 97. Available at: http://journal.ipb.ac.id/index.php/jmagr/article/view/8480 (In Indonesian).
[14] Ministry of National Development Planning /Bappenas. 2010. Perubahan Produktivitas Industri Manufaktur Indonesia dan Faktor-faktor yang Mempengaruhinya, selama tahun 2000-2007. Available at: http://www.bappenas.go.id
[15] Nicholson, W., and Snyder, C. M. 2010. Intermediate Microeconomics and Its Application. Eleventh Edition. USA: South-Western Cengage Learning.
[16] Romer, D. 2012. Advanced Macroeconomics. Fourth Edition. New York: McGraw-Hill.
[17] Suharno, Anwar, N., and Saraswati, E. 2018. Do fishers need to diversify their source of income? A special reference in vulnerable fishers of Cilacap Waters, Indonesia. Aquaculture, Aquarium, Conservation & Legislation, 11:5 1605 - 1615.
[18] UNIDO. 2013. Industrial Development Report 2013. Sustaining Employment Growth: The Role of Manufacturing and Structural Change, Overview United Nations Industrial Development Organization.
[19] Wacker, J. G., Yang, C.-L. and Sheu, C. 2006. Productivity of Production Labor, Non-production Labor, and Capital: An International Study. International Journal of Production Economics 103(2): 863 - 872. Available at: https://www.sciencedirect.com/science/article/pii/S092552730600106X
[20] Wirasasmita, Y. 1994. Fungsi Produksi: Perkembangan dan Aplikasi. Jurnal Ekonomi Fakultas Ekonomi Universitas Padjadjaran, 6 (in Indonesian)
[21] Zhang, J. 2015. International Factor Mobility, Elasticity of Substitution in Production and The skilled-unskilled wage gap. International Review of Economic and Finance, 35: 122 - 129. Available at: https://www.sciencedirect.com/science/article/pii/S1059056014001191?via%3Dihub
Published
2019-08-30
How to Cite
BADRIAH, Lilis Siti; RAHAJUNI, Dijan; SUHARNO, SUHARNO.
An Analysis of Input Substitution Elasticity in Natural Resource-Based Industry in Indonesia. The Application of CES Function.
Journal of Environmental Management and Tourism, [S.l.], v. 10, n. 3, p. 680-686, aug. 2019.
ISSN 2068-7729.
Available at: <https://journals.aserspublishing.eu/jemt/article/view/3845>. Date accessed: 22 dec. 2024.
doi: https://doi.org/10.14505//jemt.v10.3(35).22.
Section
Article
Copyright© 2024 The Author(s). Published by ASERS Publishing 2024. This is an open access article distributed under the terms of CC-BY 4.0 license.