Title: Analysis and Determinants of Technical Efficiency of the Automotive Industry in Java
Author: Rizky Akbar Pratama
Affiliations : Master of Economics Program, Faculty of Economics and Business, Universitas Airlangga Surabaya, Indonesia
Publisher: Universitas Airlangga
Abstract
The automotive industry in Java has become an important pillar in the national industrial sector. The purpose of this study is to measure technical efficiency and analyze the factors that influence the technical efficiency of the automotive industry in Java based on provinces and ISIC code categorization, using the Stochastic Frontier Analysis (SFA) method with the determination of the appropriate model. The translog model was selected as the appropriate model when compared with other models. The estimation results show that all automotive industries in DKI Jakarta, West Java, Central Java, and East Java have a technical efficiency score of less than 1, which means they are not yet efficient. The average efficiency of the automotive industry in DKI Jakarta, West Java, Central Java, and East Java Provinces experienced a drastic decline in 2014. The technical efficiency of the automotive industry in Central Java Province is higher than that of DKI Jakarta, West Java, and East Java Provinces. The motor vehicle industry sub-sector has a lower technical efficiency value than the technical efficiency value of the spare parts industry. The inefficiency function of automotive industry companies in four provinces in Java Island is influenced by foreign capital ownership. The involvement of foreign capital owners tends to bring many changes in skills, expertise, and advanced technology to the company, thus affecting technical inefficiency. Meanwhile, the variables of company size, exports, and industrial concentration do not affect technical inefficiency.
Keywords: Automotive Industry, Technical Efficiency, Stochastic Frontier Analysis, Translog, Java Island