The Sources of Industrial Growth in Indonesia, 1985–95: An Input-Output Analysis

This paper analyzes structural changes and the sources of industrial growth in Indonesia between 1985 and 1995 by using the 1985, 90, and 95 input-output tables. It also investigates the changes in the pattern of industrial growth over the 25-year period from 1971-95. In the past three decades, Indonesia appears to have achieved a successful transition from an inward-looking, government-led industrialization financed by oil exports to an outward-looking, market-oriented industrialization based on non-oil exports, in which the turning period was during the 1980-85 period. During 1985-95, the expansion of household consumption remained the main source of output growth as it accounted for about one-half of total output growth; in contrast, the contribution of government consumption was reduced to a negligible level, signifying the declining role of the government sector in output growth. The expansion of exports was also a key factor in output growth in addition to the rise in export-oriented investments. It is noteworthy that export expansion was made, to a large extent, by non-oil exports, rather than oil exports.