Firm's Trade Activities to Promote Technical Efficiency and Total Factor Productivity: The Growth Accounting and The Stochastic Frontier Approach

In this study we attempt to employ two approaches, Growth Accounting (GA) and Stochastic Frontier Analysis (SFA), to estimate the impact of firms' trade activities on technical efficiency and the total factor productivity (TFP) growth of Indonesian manufacturing industry in 2008-2015. We resort to the Translog model that flexibly accommodates the interaction amongst inputs. We reveal significant discrepancy between two approaches by discovering evidence that imported material intensity examined with SFA approach does not affect efficiency, both when it affects alone and when it interacts with export, but it promotes significantly on TFP growth obtained from GA. Conversely, exports significantly increase efficiency, but it is discovered significantly alleviating TFP growth. We also found contradictory results between two approaches in estimating TFP growth: negative TFP growth of SFA and positive TFP growth of GA. We identify that subsectors that have high imported materials tend to experience high TFP of GA, but weak TFP of SFA. However, subsector Products from Coal and Oil Refinery Industry is the most consistent for both GA and SF in leading the TFP growth magnitudes amongst other subsectors.