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Transforming Indonesia's Informal Sector: The Role of Industrialization in Manufacturing Industry
Corresponding Author(s) : Muhammad Faiz Krisnadi
Proceedings Universitas Muhammadiyah Yogyakarta Undergraduate Conference,
Vol. 3 No. 1 (2023): Crafting Innovation for Global Benefit
Abstract
This study analyzes the need for Indonesia's massive industrialization in the manufacturing industry to address the persistent issue of informal employment. Indonesia's economy depends heavily on the informal sector, leading to a high unemployment rate and limited social protection. This study aims to explore the manufacturing industry's potential to create more formal employment opportunities and reduce informal employment. The objectives include analyzing the current state of the manufacturing industry, identifying the challenges and opportunities for growth, and proposing policy recommendations to promote industrialization. A qualitative research approach was used, with data collected through literature reviews, government reports, and library research. The study found that the manufacturing industry in Indonesia has excellent growth potential, given the country's large population, natural resources, and strategic location. However, several challenges include inadequate infrastructure, limited skilled labor, and bureaucratic hurdles. The proposed policy recommendations include improving infrastructure, providing vocational education and training, and streamlining regulations to attract foreign investment. The significance of this study lies in its focus on the potential of the manufacturing industry to create formal employment opportunities and reduce informal employment, which can contribute to poverty reduction and economic development in Indonesia. The study's novelty lies in its comprehensive analysis of the challenges and opportunities for industrialization in Indonesia and the proposed policy recommendations to address them.
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- Adioetomo, S. M. (2019). Why is Indonesia not reducing poverty faster? Bulletin of Indonesian Economic Studies, 55(2), 157-170.
- Aggarwal, R. (2017). Economic growth, inequality and poverty reduction in Indonesia. Journal of Asian Economics, 48, 53-64.
- Alam, A. (2018). Labor market in Indonesia: Policies, practices, and challenges. Journal of Economics, Management and Trade, 21(2), 1-14.
- Alisjahbana, A. S., & Rizal, A. (2017). Indonesia's industrialization strategy and its implementation. Bulletin of Indonesian Economic Studies, 53(2), 177-202.
- Anwar, S., & Sun, S. (2020). Government policies and informal employment in Indonesia. Journal of the Asia Pacific Economy, 25(1), 122-142.
- ASEAN Policy Brief. (2020). Economic Impact of COVID-19 Outbreak on ASEAN. ASEAN Integration Monitoring Directorate.
- Asep, S., & Ruhimat, M. (2021). Industrialization and Economic Development in Indonesia: A Structural Equation Model Approach. Journal of Open Innovation: Technology, Market, and Complexity, 7(1), 1-17.
- Blunch, N. H., & Khanam, R. (2018). Informality and poverty in Indonesia. The Journal of Development Studies, 54(12), 2071-2087.
- BPS-Statistics Indonesia. (2020). Indonesian Labor Force Survey.
- Budirahayu, Y., & Adiningsih, S. (2019). Economic transformation, structural change and employment: A case study of Indonesia. Journal of Southeast Asian Economies, 36(2), 190-209.
- Creswell, J. W., & Poth, C. N. (2018). Qualitative inquiry and research design: Choosing among five approaches. Sage publications.
- Das, J., & Zaidi, S. A. R. (2018). Industrial policy and inclusive development in Indonesia. Asia & the Pacific Policy Studies, 5(3), 524-538.
- Effendi, M. (2019). The Impact of Industry 4.0 on Indonesia’s Manufacturing Sector: An Analysis from the Labour Market Perspective. Journal of Physics: Conference Series, 1255(1), 012042.
- Evans, P. (2017). The Rise of the Global South: The Decline of Western Hegemony and the Transformation of the International Order. John Wiley & Sons.
- Guan, X., Li, L., & Li, Z. (2018). How does informal employment affect poverty in China? Journal of Cleaner Production, 181, 148-158.
- Haryanto, J., & Nurkholis. (2021). The Role of Manufacturing in Creating Employment Opportunities in Indonesia. Journal of Economics, Business and Management Research, 1(1), 1-6.
- Hasan, R., & Jha, S. (2017). Informality and development in Indonesia. Bulletin of Indonesian Economic Studies, 53(2), 139-155.
- Hidayat, A. S. (2017). The Prospects and Challenges of Indonesia’s Industry 4.0. Procedia Manufacturing, 12, 49-56.
- Hill, H. (2018). Economic development in Indonesia. Routledge.
- Hill, H., & Menon, J. (2019). Understanding the productivity and efficiency gaps between informal and formal firms in Indonesia. Bulletin of Indonesian Economic Studies, 55(3), 271-290.
- Hill, H. (2019). Boosting productivity through structural transformation in Indonesia. Bulletin of Indonesian Economic Studies, 55(1), 1-24.
- Jayanthakumaran, K., & Choong, C. K. (2019). The impact of automation on employment in ASEAN-5 countries. International Journal of Social Economics, 46(2), 193-205.
- Kementerian Perindustrian. (2020). Rencana Aksi Nasional Pengembangan Industri 4.0.
- KPMG. (2018). Indonesia Manufacturing Industry Overview.
- Kuncoro, A. (2017). State-business relations and industrial policy in Indonesia: A historical perspective. Asian Journal of Political Science, 25(1), 109-130.
- Kuncoro, A. (2019). The political economy of Indonesia's economic development. Journal of Southeast Asian Economies, 36(3), 348-367.
- Kurniawan, R. (2019). Industrialization and economic development in Indonesia. Journal of Economics and Political Economy, 6(1), 1-18.
- Lee, N., & Turley, D. (2017). A call for more qualitative research in entrepreneurship: An overview of nine types of grounded theory. The Routledge Companion to Qualitative Research in Entrepreneurship, 67-83.
- Liao, C. H., & Yao, W. C. (2019). The dynamics of economic growth, energy consumption, and CO2 emissions: Evidence from Indonesia. Sustainability, 11(8), 2296.
- Manning, C. (2019). Indonesia's informal sector and the employment challenge. Bulletin of Indonesian Economic Studies, 55(3), 291-314.
- McCulloch, N., & Winters, L. A. (2019). How has manufacturing in Indonesia responded to globalization? Asian Economic Journal, 33(1), 1-25.
- Munir, R. (2021). Manufacturing Industry and Its Role in Indonesia's Economic Development. International Journal of Economics, Commerce and Management, 9(3), 91-106.
- Nugraheni, R. I., & Prabowo, H. (2021). Informal Sector: A Major Challenge to Indonesia's Economic Development. Journal of Applied Accounting and Taxation, 3(2), 120-130.
- Nurdiana, N., & Tjahjanulin, I. (2019). Industry 4.0 Readiness Assessment in Indonesia: A Multiple-Criteria Decision Making Approach. International Journal of Industrial Engineering and Management, 10(2), 55-62.
- Nurkholis. (2018). The Potency of Industrial Sector Development in Supporting Indonesia's Economic Growth. The Social Sciences, 13(1), 56-61.
- Oetomo, D. (2020). The State of Manufacturing in Indonesia in 2020. GBG Indonesia.
- Pratama, D. R., & Rakhman, S. M. (2020). The Impact of Industrialization on Environmental Degradation in Developing Countries: A Panel Data Analysis. Journal of Environmental Management and Tourism, 11(5), 1215-1224.
- Pratomo, W. A., & Susanto, H. (2019). Mapping the informal sector in Indonesia: Evidence from the National Labor Force Survey. Journal of Economics, Management and Trade, 25(2), 1-9.
- Purbasari, I., & Poesoro, A. (2019). Industrialization and job creation in Indonesia: Challenges and opportunities. Journal of Southeast Asian Economies, 36(2), 245-263.
- Purnomo, H., & Basrowi, B. (2018). The contribution of small and medium enterprises (SMEs) to Indonesia's economy. The Journal of Social Sciences Research, 4(4), 865-870.
- Putra, P. G. P., Ardyanto, M. F., & Firdausy, C. M. (2020). Industry 4.0 in Indonesia: Opportunities and challenges. Journal of Physics: Conference Series, 1566(1), 1-10.
- Rahman, T., & Hasan, M. M. (2020). Industrialization and Economic Development in Bangladesh. Journal of Business and Technology (Dhaka), 15(1), 77-94.
- Salim, R. A., & Wodon, Q. (2012). Impact of growth and redistribution on poverty and inequality in Indonesia. World Bank Publications.
- Santosa, P. I., & Meijerink, G. (2019). Pathways of industrialization in Indonesia: A historical perspective. Bulletin of Indonesian Economic Studies, 55(1), 1-26.
- Santoso, A. B. (2018). The Indonesian Manufacturing Industry in the Age of Global Value Chains: An Assessment of the Country's Policies and Capabilities. In The Political Economy of Southeast Asian Capitalism (pp. 189-214). Palgrave Macmillan, Cham.
- Siregar, R. Y., & Tirtosudarmo, R. (2017). Informal sector and the development of the manufacturing industry in Indonesia. Journal of Southeast Asian Economies, 34(3), 393-412.
- Siregar, R. Y., & Rakhmawati, A. (2019). Structural transformation and income inequality in Indonesia. Bulletin of Indonesian Economic Studies, 55(2), 135-156.
- Singh, A., & Whittington, D. (2019). The Nexus of Industrialization and Development: A Review of the Evidence. The European Journal of Development Research, 31(3), 343-363.
- Soesastro, H., & Suryahadi, A. (2017). Poverty reduction and economic growth in Indonesia. Bulletin of Indonesian Economic Studies, 53(2), 119-132.
- Soesastro, H. (2019). Indonesia's industrialization and export orientation: Current performance and policy issues. Bulletin of Indonesian Economic Studies, 55(1), 27-52.
- Stiglitz, J. E. (2016). The Great Divide: Unequal Societies and What We Can Do About Them. WW Norton & Company.
- Suhartono, S., Sari, R. P., & Kadarisman, A. (2020). The impact of COVID-19 pandemic on Indonesian economy. Journal of Public Affairs, e2288.
- Sumardjono, M. S., Widyastuti, A. L., & Yuliardi, R. (2020). The Development of Indonesia’s Manufacturing Industry and Its Impact on Economic Growth. Journal of Physics: Conference Series, 1521(3), 032077.
- Sumarto, S., & Wijaya, M. (2017). Vulnerability of informal workers: Evidence from Indonesia. Bulletin of Indonesian Economic Studies, 53(2), 251-276.
- Sumner, A., & Ortiz-Juarez, E. (2018). Estimates of global poverty in 2012 with projections for 2015. Asian Development Review, 35(2), 1-26.
- Sumner, A., & Hapsari, R. (2018). Escaping poverty and becoming poor: Who gains, who loses, and why? Journal of Development Studies, 54(2), 219-235.
- Sumner, A. (2019). The “new poverty agenda” and other thoughts on Indonesia’s poverty reduction strategies. Bulletin of Indonesian Economic Studies, 55(2), 113-134.
- Suryadarma, D., & Suryahadi, A. (2016). Economic development and inequality in Indonesia. Oxford University Press.
- United Nations Development Programme. (2020). Human Development Reports: Indonesia.
- World Bank. (2017). Indonesia's rising divide: Poverty, inequality, and climate change. Washington, DC: World Bank Group.
- World Bank. (2018). Indonesia: Enhancing the quality of jobs for the poor. Washington, DC: World Bank Group.
- World Bank. (2019). The World Bank in Indonesia: Overview.
- World Bank. (2019). Indonesia economic prospects: Reforms for competitiveness. World Bank Publications.
- World Bank. (2020). Indonesia economic prospects: Manufacturing for a better future. Washington, DC: World Bank Group.
- World Bank. (2020). Indonesia economic prospects: Manufacturing for a better future. Washington, DC: World Bank Group.
- World Bank. (2020). Indonesia Economic Prospects: Manufacturing Sector and Job Creation.
- World Bank. (2020). Indonesia Economic Prospects: Manufacturing to Push up Growth. Retrieved from https://www.worldbank.org/en/country/indonesia/publication/indonesia-economic-prospects-manufacturing-to-push-up-growth.
- World Bank. (2021). Indonesia Overview.
- World Economic Forum. (2020). The Global Competitiveness Report 2020: Indonesia.
- World Economic Forum. (2021). The Global Risks Report 2021.
- Zainal, M., & Zaidir. (2017). The Determinants of Employment Status in Indonesia: Analysis of Indonesia Family Life Survey. Journal of Economics and Sustainable Development, 8(14), 90-99.
References
Adioetomo, S. M. (2019). Why is Indonesia not reducing poverty faster? Bulletin of Indonesian Economic Studies, 55(2), 157-170.
Aggarwal, R. (2017). Economic growth, inequality and poverty reduction in Indonesia. Journal of Asian Economics, 48, 53-64.
Alam, A. (2018). Labor market in Indonesia: Policies, practices, and challenges. Journal of Economics, Management and Trade, 21(2), 1-14.
Alisjahbana, A. S., & Rizal, A. (2017). Indonesia's industrialization strategy and its implementation. Bulletin of Indonesian Economic Studies, 53(2), 177-202.
Anwar, S., & Sun, S. (2020). Government policies and informal employment in Indonesia. Journal of the Asia Pacific Economy, 25(1), 122-142.
ASEAN Policy Brief. (2020). Economic Impact of COVID-19 Outbreak on ASEAN. ASEAN Integration Monitoring Directorate.
Asep, S., & Ruhimat, M. (2021). Industrialization and Economic Development in Indonesia: A Structural Equation Model Approach. Journal of Open Innovation: Technology, Market, and Complexity, 7(1), 1-17.
Blunch, N. H., & Khanam, R. (2018). Informality and poverty in Indonesia. The Journal of Development Studies, 54(12), 2071-2087.
BPS-Statistics Indonesia. (2020). Indonesian Labor Force Survey.
Budirahayu, Y., & Adiningsih, S. (2019). Economic transformation, structural change and employment: A case study of Indonesia. Journal of Southeast Asian Economies, 36(2), 190-209.
Creswell, J. W., & Poth, C. N. (2018). Qualitative inquiry and research design: Choosing among five approaches. Sage publications.
Das, J., & Zaidi, S. A. R. (2018). Industrial policy and inclusive development in Indonesia. Asia & the Pacific Policy Studies, 5(3), 524-538.
Effendi, M. (2019). The Impact of Industry 4.0 on Indonesia’s Manufacturing Sector: An Analysis from the Labour Market Perspective. Journal of Physics: Conference Series, 1255(1), 012042.
Evans, P. (2017). The Rise of the Global South: The Decline of Western Hegemony and the Transformation of the International Order. John Wiley & Sons.
Guan, X., Li, L., & Li, Z. (2018). How does informal employment affect poverty in China? Journal of Cleaner Production, 181, 148-158.
Haryanto, J., & Nurkholis. (2021). The Role of Manufacturing in Creating Employment Opportunities in Indonesia. Journal of Economics, Business and Management Research, 1(1), 1-6.
Hasan, R., & Jha, S. (2017). Informality and development in Indonesia. Bulletin of Indonesian Economic Studies, 53(2), 139-155.
Hidayat, A. S. (2017). The Prospects and Challenges of Indonesia’s Industry 4.0. Procedia Manufacturing, 12, 49-56.
Hill, H. (2018). Economic development in Indonesia. Routledge.
Hill, H., & Menon, J. (2019). Understanding the productivity and efficiency gaps between informal and formal firms in Indonesia. Bulletin of Indonesian Economic Studies, 55(3), 271-290.
Hill, H. (2019). Boosting productivity through structural transformation in Indonesia. Bulletin of Indonesian Economic Studies, 55(1), 1-24.
Jayanthakumaran, K., & Choong, C. K. (2019). The impact of automation on employment in ASEAN-5 countries. International Journal of Social Economics, 46(2), 193-205.
Kementerian Perindustrian. (2020). Rencana Aksi Nasional Pengembangan Industri 4.0.
KPMG. (2018). Indonesia Manufacturing Industry Overview.
Kuncoro, A. (2017). State-business relations and industrial policy in Indonesia: A historical perspective. Asian Journal of Political Science, 25(1), 109-130.
Kuncoro, A. (2019). The political economy of Indonesia's economic development. Journal of Southeast Asian Economies, 36(3), 348-367.
Kurniawan, R. (2019). Industrialization and economic development in Indonesia. Journal of Economics and Political Economy, 6(1), 1-18.
Lee, N., & Turley, D. (2017). A call for more qualitative research in entrepreneurship: An overview of nine types of grounded theory. The Routledge Companion to Qualitative Research in Entrepreneurship, 67-83.
Liao, C. H., & Yao, W. C. (2019). The dynamics of economic growth, energy consumption, and CO2 emissions: Evidence from Indonesia. Sustainability, 11(8), 2296.
Manning, C. (2019). Indonesia's informal sector and the employment challenge. Bulletin of Indonesian Economic Studies, 55(3), 291-314.
McCulloch, N., & Winters, L. A. (2019). How has manufacturing in Indonesia responded to globalization? Asian Economic Journal, 33(1), 1-25.
Munir, R. (2021). Manufacturing Industry and Its Role in Indonesia's Economic Development. International Journal of Economics, Commerce and Management, 9(3), 91-106.
Nugraheni, R. I., & Prabowo, H. (2021). Informal Sector: A Major Challenge to Indonesia's Economic Development. Journal of Applied Accounting and Taxation, 3(2), 120-130.
Nurdiana, N., & Tjahjanulin, I. (2019). Industry 4.0 Readiness Assessment in Indonesia: A Multiple-Criteria Decision Making Approach. International Journal of Industrial Engineering and Management, 10(2), 55-62.
Nurkholis. (2018). The Potency of Industrial Sector Development in Supporting Indonesia's Economic Growth. The Social Sciences, 13(1), 56-61.
Oetomo, D. (2020). The State of Manufacturing in Indonesia in 2020. GBG Indonesia.
Pratama, D. R., & Rakhman, S. M. (2020). The Impact of Industrialization on Environmental Degradation in Developing Countries: A Panel Data Analysis. Journal of Environmental Management and Tourism, 11(5), 1215-1224.
Pratomo, W. A., & Susanto, H. (2019). Mapping the informal sector in Indonesia: Evidence from the National Labor Force Survey. Journal of Economics, Management and Trade, 25(2), 1-9.
Purbasari, I., & Poesoro, A. (2019). Industrialization and job creation in Indonesia: Challenges and opportunities. Journal of Southeast Asian Economies, 36(2), 245-263.
Purnomo, H., & Basrowi, B. (2018). The contribution of small and medium enterprises (SMEs) to Indonesia's economy. The Journal of Social Sciences Research, 4(4), 865-870.
Putra, P. G. P., Ardyanto, M. F., & Firdausy, C. M. (2020). Industry 4.0 in Indonesia: Opportunities and challenges. Journal of Physics: Conference Series, 1566(1), 1-10.
Rahman, T., & Hasan, M. M. (2020). Industrialization and Economic Development in Bangladesh. Journal of Business and Technology (Dhaka), 15(1), 77-94.
Salim, R. A., & Wodon, Q. (2012). Impact of growth and redistribution on poverty and inequality in Indonesia. World Bank Publications.
Santosa, P. I., & Meijerink, G. (2019). Pathways of industrialization in Indonesia: A historical perspective. Bulletin of Indonesian Economic Studies, 55(1), 1-26.
Santoso, A. B. (2018). The Indonesian Manufacturing Industry in the Age of Global Value Chains: An Assessment of the Country's Policies and Capabilities. In The Political Economy of Southeast Asian Capitalism (pp. 189-214). Palgrave Macmillan, Cham.
Siregar, R. Y., & Tirtosudarmo, R. (2017). Informal sector and the development of the manufacturing industry in Indonesia. Journal of Southeast Asian Economies, 34(3), 393-412.
Siregar, R. Y., & Rakhmawati, A. (2019). Structural transformation and income inequality in Indonesia. Bulletin of Indonesian Economic Studies, 55(2), 135-156.
Singh, A., & Whittington, D. (2019). The Nexus of Industrialization and Development: A Review of the Evidence. The European Journal of Development Research, 31(3), 343-363.
Soesastro, H., & Suryahadi, A. (2017). Poverty reduction and economic growth in Indonesia. Bulletin of Indonesian Economic Studies, 53(2), 119-132.
Soesastro, H. (2019). Indonesia's industrialization and export orientation: Current performance and policy issues. Bulletin of Indonesian Economic Studies, 55(1), 27-52.
Stiglitz, J. E. (2016). The Great Divide: Unequal Societies and What We Can Do About Them. WW Norton & Company.
Suhartono, S., Sari, R. P., & Kadarisman, A. (2020). The impact of COVID-19 pandemic on Indonesian economy. Journal of Public Affairs, e2288.
Sumardjono, M. S., Widyastuti, A. L., & Yuliardi, R. (2020). The Development of Indonesia’s Manufacturing Industry and Its Impact on Economic Growth. Journal of Physics: Conference Series, 1521(3), 032077.
Sumarto, S., & Wijaya, M. (2017). Vulnerability of informal workers: Evidence from Indonesia. Bulletin of Indonesian Economic Studies, 53(2), 251-276.
Sumner, A., & Ortiz-Juarez, E. (2018). Estimates of global poverty in 2012 with projections for 2015. Asian Development Review, 35(2), 1-26.
Sumner, A., & Hapsari, R. (2018). Escaping poverty and becoming poor: Who gains, who loses, and why? Journal of Development Studies, 54(2), 219-235.
Sumner, A. (2019). The “new poverty agenda” and other thoughts on Indonesia’s poverty reduction strategies. Bulletin of Indonesian Economic Studies, 55(2), 113-134.
Suryadarma, D., & Suryahadi, A. (2016). Economic development and inequality in Indonesia. Oxford University Press.
United Nations Development Programme. (2020). Human Development Reports: Indonesia.
World Bank. (2017). Indonesia's rising divide: Poverty, inequality, and climate change. Washington, DC: World Bank Group.
World Bank. (2018). Indonesia: Enhancing the quality of jobs for the poor. Washington, DC: World Bank Group.
World Bank. (2019). The World Bank in Indonesia: Overview.
World Bank. (2019). Indonesia economic prospects: Reforms for competitiveness. World Bank Publications.
World Bank. (2020). Indonesia economic prospects: Manufacturing for a better future. Washington, DC: World Bank Group.
World Bank. (2020). Indonesia economic prospects: Manufacturing for a better future. Washington, DC: World Bank Group.
World Bank. (2020). Indonesia Economic Prospects: Manufacturing Sector and Job Creation.
World Bank. (2020). Indonesia Economic Prospects: Manufacturing to Push up Growth. Retrieved from https://www.worldbank.org/en/country/indonesia/publication/indonesia-economic-prospects-manufacturing-to-push-up-growth.
World Bank. (2021). Indonesia Overview.
World Economic Forum. (2020). The Global Competitiveness Report 2020: Indonesia.
World Economic Forum. (2021). The Global Risks Report 2021.
Zainal, M., & Zaidir. (2017). The Determinants of Employment Status in Indonesia: Analysis of Indonesia Family Life Survey. Journal of Economics and Sustainable Development, 8(14), 90-99.