The Indonesian petroleum industry : a study of its impact on the Indonesian economy

Arief, Sritua

Abstract

The main concern of this thesis is the investigation of the impact of the petroleum industry, the largest export sector, on the Indonesian economy over the period 1967- 1976. The findings of the study broaden the knowledge on the relationship between primary export sector and economic growth in less developed countries.

The input-output study, using 1971 data, shows a weak linkage of the petroleum mining with the domestic sectors of the Indonesian economy thus confirming Singer's first thesis that, though geographically, the foreign controlled primary export sector is located in less developed countries, the major portions of the household income multiplier effects (direct, indirect and induced) of this sector take place outside the domestic economy. This study also shows that the output multiplier generated by the petroleum mining sector proved to be the lowest compared to that of the other sectors of the economy.

The petroleum refining sector which forms another segment of the Indonesian petroleum industry offered higher effects on the domestic economy both in terms of household income and aggregate output in comparison with the petroleum mining. This reflected a greater component of, payments accrued to domestic factors of production and higher employment opportunities generated directly and indirectly by the petroleum refining.

The estimates of the impact of gross value added in the petroleum sector on gross value added in various other sectors of the economy, reveal that the petroleum sector had a far higher impact on modern sectors of the economy than on traditional sectors and had thus aggravated sectoral income disparities. These findings confirm Singer's second thesis that although the interaction between the enclave primary export sector and the rest of the economy is not absent, this interaction is of such a kind as to lead to polarization or sharpened dualism within the economies of less developed countries.

The solution of the proposed 9-equation macro econometric model shows that the impact multiplier of the petroleum sector's exports on Gross National Product was far lower than that of the non-petroleum sectors' exports. This was due to a higher leakages caused by the petroleum sector's exports through import and net factor payments abroad.

The correlation test shows that a growing and high level of the petroleum sector's export earnings had not been able to produce a positive significant correlation between the rate of growth of total exports and the rate of growth of Gross National Product Net of Exports which Maizels had implicitly postulated as a measure of the significant contribution of exports to economic growth in less developed countries. Two economic policies were identified to be partly responsible for the absence of this correlation namely foreign exchange and import policies.

The Findings of the study call for policy considerations on expanding the petroleum refining capacity in the sense of reversing the export from the petroleum industry to be more in the form of refined products rather than crude oil. A more realistic external value of the rupiah in order to expand the competitive industry is also called for.

Citation

Arief, S. (1979). The Indonesian petroleum industry : a study of its impact on the Indonesian economy. (Thesis). University of Hull. Retrieved from https://hull-repository.worktribe.com/output/4219176

• Thesis Type: Thesis
• Deposit Date: May 9, 2017
• Publicly Available Date: Feb 23, 2023
• Keywords: Economics
• Public URL: https://hull-repository.worktribe.com/output/4219176
• Additional Information: Department of Economics, The University of Hull
• Award Date: May 1, 1979