Technical Efficiency and Return to Scale in the Indonesia Economy During the New Order and the Reformation Governments

This paper analyses technical efficiency and return to scale in the Indonesia economy during the year of 1967 to 2013. These range of years covering two eras of Indonesian government; the New Order era that lasted between the year of 1966 to 1998 and the Reformation era during the year 1998 to 2014. The analysis was also based on the Indonesia economy's business cycle those categorised as Oil Booming Phase (1967-1981), Recession Phase (1982-1986), Deregulation Phase (1987-1996), Multidimension Crisis Phase (1997-2001) and Economic Recovery Phase (2002-1013). Using data on Gross Domestic Product based on constant price of the year 2000, capital stock with the same based year and employment (1967-2013), Cobb-Douglas production functions were exercised to calculate technical efficiency and return to scale employing regression analysis tehniques. The results show that technical effiency during the New Order Goverment were better than those during Reformation Goverment.

Economists have long recognised that technology is a factor of production, and even the most important factor, given its role in labor uality and the design of capital good. Technological advances play a crucial role in improving productivity and thus the standar of living of a system economic system (Adam, 2006) . Measuring the effect of technology on productivity is a dif cult pursuit. t is generally approached through metrics such as Gross Domestic Product, GDP per capita and Total Factor Productivity (TFP). The former two attempt to capture the overall output of a given economy from a macro-environmental perspective. The latter is attempting to measure technologically driven advancement through noting increase in overall output without increases in input. This is done through utilising production function e uations Jurnal Ekonomi Pembangunan, 17 (2), December 2016, 1 -1 and identifying when the output is greater than the supposed input, implying an advance in external technological environment (Boundless, 2016).
Technology can be regarded as primary resource in economic development. The level of technology is also an important determinant of economic growth. The rapid rate of growth can be achieved through high level of technology. t was observed that innovation or technological progress is the only determinant of economic progress. However if the level of technology becomes constant the process of growth will stops. Thus, it is the technological progress which keeps the economy moving. nventions and innovations have been largerly responsible for rapid economic growth in developed countries (Debasish, 2016) . n economics, the Cobb-Douglas production function is widely used to represent the relationship of an output to input (Bao Hong, 2008) . t was proposed by Knut icksell  and tested againts statistical evident by Charles Cobb and Paul Douglas in 1928. From Cobb-Douglas production function, technical ef ciency also known as total factor productivity, retun to scale, and ouput-capital elasticity as well as output-labor elasticity can easily be calculated by employing regression analysis (Salvatore, 1996). ndonesian economy during the era of ew Order under Suharto presidency  and during the era of Reformation (1999Reformation ( -2014 run by Habibie Presidency (1998-1999), ahid Presidency (1999-2001), Megawati Presidency (2001-2004) and Yudhoyono Presidency (2004-2014 has shown clearly the economy s business cycle, up and down over time. Many economic indicators, such as GDP (Gross Domestic Product), Capital Stock and Employment have been published in many publications by ational Statistical Agency (BPS, many years).
The reseach reported in this paper aimed at analy ing the coef cient of technical ef ciency, return to scale and output-capital elasticity as well as output-labor elasticity of the ndonesia economy during the era of ew Order and the era of Reformation. Q = total production (the real value of all goods and services produced in a year K = capital input (the real value of all machinery, e uipment, and building = output-capital elasticity = output-labor elasticity. Zharkov, Patrin, and Lyche (2007), Gebreselasie (2008), Feng and Serletis (2010), Holyk (2016), Page, Jr (1980), Erkoc (2012) and Yudistira 2004).

Methods
Cobb-Douglas production function, Q = L = labor input (the total number of person-hours worked in a year

Jurnal Ekonomi Pembangunan, ISSN 1411-6081
Previous researchers on technical ef ciency, return to scale and output elasticities have been conducted, among others by Biresh K. Sahoo, at al., (2014), Krivonozhko, Dvorkovich, Utkin, K L , was employed in this exercise to calculate technical ef ciency ( ), return to scale ( ), output-capital elasticity ( ), and output-labor elasticity ( ). This production function was developed and statistically tested by Charles Cobb and Paul Douglas (1928), where : = technical ef ciency in production process, known as total factor productivity Technical ef ciency ( ), or total factor productivity (TFP) is the portion of output not explained by the amount of input used in production (Comin, 2006). This is a method of measuring overall productivity of business, industries or economies. Technical ef ciency is the effectiveness by which a given set inputs is used to produce an output. A rm or an economy is said to be technically ef cient if a rm or an economy is producing the maximum output from the minimum uantity of inputs, such as labor, capital and technology. Technical ef ciency is Jurnal Ekonomi Pembangunan, 17 (2), December 2016, 1 -1 related to productive ef ciency concerning with producing at the lowest point on the short run average cost curve. Thus productive ef ency re uired technical ef ciency (Pettinger, 2012). The values of and are basically determined by available technology. Output elasticity measure the responsiveness of output to a change in levels either capital or labor used in production. Further more, if = 1, the production function has constant return to scale, meaning that doubling the usage of capital (K) and labor (L) will also double output (Q). f < 1, return to scale are decreasing and if > 1, return to scale are increasing (Salvatore, D, 1996). The output elasticity of capital, E K = dQ/ K.K/Q = aQ/K.K/Q = Similarly, the output elasticity of labor, E L = dQ/ L.L/Q = bQ/L.L/Q = and E K E L = = return to scale.
Converting the production function from Q = K L in to a logarithms form that is, ln Q = ln lnK ln L. As this is a linier form, then the coef ciens ( , and can easily be estimated by regression analysis (Gaspersz, 1996). The Cobb-Douglas production function can be estimated either from data for a single rm, industry, region or nation over time using time-series analysis or for a single rm, industry, region or national one point in time using cross-sectional data (Salvatore, 1996). Structural analysis can be used to differentiate technical ef ciency between the two eras of government as well as among the phases of the ndonesian economy.
Data needed for this exercise were national data on Gross Domestic Product, Capital Stock and Employment. Yearly data on GDP, Capital Stock and Employment were collected from the Central Beurau of Statictics. Fortunately data were available from the year of 1967 the early year of the ew Order Government until the year of 2013 which was the last year of the Reformation Government. Basically most data used for this exercise are data collected by the Project on Technological Change and Economic Growth (2009-2011) and up-dated in 2015(Socia Prihawantoro et al. (2009.
Analysis was also classi ed according to the ndonesian economy business cycle, phase were the economy performance up and down economic experiencing with booming and recession. Based on available data, the phases of the ndonesian economy were classi ed into : Oilbooming Phase (1976-1981), Recession Phase (1982-1986), Deregulation Phase (1987 Table 1 provided results of calculation using an easy and user frendly Excell sofware of Microsoft Of ce. Technical ef ciency, or total factor productivity of the ndonesia economy during the year 1967 to year 2013, was 2.78. n the ew Order era the coef cient was 3.08 which was higher than that of the Reformation Government, 2.98. t means that technological progress during the ew Order era was better than that of the Reformation Goverment. Even, the progress of technical production was higher than that at the national level. Table 1 also showed that both during the two eras of ndonesian Government have experienced the decreasing return to scale, as the summation of dan the coef ents of return to scale were Jurnal Ekonomi Pembangunan, 17 (2), December 2016, 1 -1 less than unity. The coef cients of return to scale during the Reformation Government was 0.75 a bit higher than that of the ew Order Government, 0.70. Both were a slihgtly lower compared to that at the national level (0.78).
As also shown at Table 1, the coef cients of output elasticity of capital during the ew Order and the Reformation governments (0.67 and 0.72) was lower than that at the national level (0.80).
t can be marked easily, that the coef cient of output-capital elasticity during the Reformation government (0,75) was higher than that during the ew Order government (0.67). Finally, Tabel 1 indicates that the coef ents of output-labor elasticity during the Reformation government (0.03) as well the ew Order government (0.03) were higher than that at national level (-0.02). The coef cient of outputlabor elasticity during the Reformation era (0.03) was the same as that during the ew Order government (0.03). The method used in this study showed that there were structural differences between the two period of government the ew Government era and the Reformation era. Table 2 provides results of calculation from regression analysis. All the coef cients of technical ef ciency during the ndonesia economy s business cycle were higher than that at national level (2.78). The technical ef ciency coef cient at the Recession Phase (1982)(1983)(1984)(1985)(1986) was 6.88 and at the Multidimension Crisis Phase (1997-2011) was 5.86. These two coef cients were the highest. Except the coef cient of technical ef ciency at the Economic Recovery Phase (2.70) all of these coef cients were higher than that at the national level (2.78).
Table 2 also shows that all phases of the ndonesia economy business cycle were at the stage of decreasing return to scale, where the return to scale coef cients were less than unity. The coef cient of return to scale, namely the summation of ( , at the Economic Recovery Phase was the higher (0.80) than those of the whole phases, including the phases of Multi dimension crisis (0.24), the Oil Boom (0.57), Deregulations (0.57). There was one phase where the value of return to scale coef cient that was negative. t was at the phase of Recessions (-0.35). Although the value of the coef cient of elasticity of capital was negative, the value of the coef cient of output elasticity of labor was non-negative. All values of the coef cient of output elasticity of capital were lower than that at the national level (0.80).The smallest value of the coef cient were at Recessions Phase (-0.35) and Multidimension Crisis Phases (0.21). There was likely a bit odd, as the value of coef cient of output labor elasticity were negative, namely at the phase of Oil Boom (-0.03) and at the whole phase, the national level (-0.02). The other values of the elasticity of output of labor were 0.22 0.15 0.03 and 0.01 respectively for the coef cients of output-labor elasticity at Resession Phase, Jurnal Ekonomi Pembangunan, 17 (2), December 2016, 1 -1 Deregulation Phase, Multidimension Crisis Phase and Economic Recovery Phase. Again, this method of analysis can easily differentiate both technical ef ciency and returns to scale during the economic phases in the ndonesian economy.
From discussion, it can be concluded that technical ef ciency in ndonesian economy was higher during the ew Order Government (3.08) than that in the Reformation Government(2.98). Decreasing return to scale exhibited in both goverment eras the coef cients of return to scale were 0.70 and 0.75 consecutively during the ew Order and the Reformation. Output elasticities were higher in the Reformation than those in the ew Order, as output-capital elasticity was 0.72 in the Reformation compared to 0.67 in the ew Order meanwhile output-labor elasticity was 0.03 in the Reformation and 0.03 in the ew Order. At all phases of the ndonesian economy s business cycle, the coef cients of technical ef ciency were higher than that of the national average. All phases were also experienced the decreasing return to scale. The coef cients of output elasticity of capital were lower than those at national average. On the contrary, the coef cients of output elasticity of labor were generally higher than those at the national level, except the one at the Oil Booming Phase.