A Decomposition of Changes in the Energy Consumption of the Indonesian Manufacturing Sector during 1990-2008

Abstract

Manufacturing sector is important and central to the economy. The growth of manufacturing machinery output, and technological changes in that machinery, are the main drivers of economic growth. In 1997, the Asian financial crisis hitall economic activities in Indonesia seriously. During period 1997-1998 the growths of the manufacturing sector Gross Domestic Product (GDP) and energy consumption were-13.1% and -0.79% respectively. An Index Decomposition Analysis (IDA) has been implemented to study the changes in energy consumption. Three factors contribute to the changes in energy consumption: economic activity or GDP, structure, and energy intensity effects. The Logarithmic Mean Divisia Index I method was selected due to its ease of use and ease of interpretation. The investigation was conducted on three time series periods: before (1990-1997), during (1997-2004), and after the Asian financial crisis (2004-2008). Results of this study show that the economic activity (GDP) effect was the major factor contributing to the change in manufacturing energy consumption. During the crisis in 1998, the energy consumption decreased due to the economic activity collapse. The second largest effect was the structure effect. The significant structure change happened at the beginning of the crisis from 1997 to 1999 where the food, water and tobacco subsector increased rapidly. However, in the same period the transport equipment, machinery and apparatus subsector decreased. At the start of the recovery period in 2004, the transport equipment, machinery and apparatus subsector surpassed the food, water and tobacco subsector and became the largest factor. The smallest factor contributing to the changes in the manufacturing sector energy consumption was the energy intensity effect. It was found that the energy efficiencies of the cement and mineral excavation subsector, the iron, metal, and steel subsector, and the wood product and forestry subsector after the crisis (2004-2008) were lower than before the crisis (1990-1997).