Indonesia as a developing country has paid more attention on the development of its manufacturing industry sector. Through the industrialization process in the late 1960s in the beginning of New Order Administration, Indonesia succeeded to recover and stabilize macro economy. The manufacturing industry becomes leading sector that supports development of other sectors. This sector obviously contributes to the economic growth significantly and as an impact of industrialization, Indonesia has experienced structural economic trans formation. This evidence shows that there is a change on the share and composition of gross domestic product (GDP). Based on the data from the Central Bureau of Statistics of Indonesia, the contribution of manufacturing industry sector (secondary sector) on GDP increases continuously. The same phenomenon also happened in the services sector (tertiary sector). On the other hand, the share of agricultural sector (primary sector) experienced a decrease in its contributions dramatically. One of the key factors to achieve sustainable growth in economic development generally, and manufacturing industry sector especially, is its ability to increase and improve productivity. Using all the resources of input of production effectively and efficiently is a very important factor to determine the performance of manufacturing industry sector. Therefore, the investigation and identification of productivity of manufacturing industry sector is very important to formulate appropriate policies and strategies in the development of the manufacturing industry in Indonesia. This research attempts to investigate the effect of the input resources of production i.e. labor, capital, raw material, and energy on productivity of Indonesian medium and large manufacturing industries. In addition, this study also tries to identify productivity of medium and large manufacturing industries for each industry sector (based on International Standard Industrial Classification/ISIC). Finally, the results of data analysis allow us to compare the levels of productivity between medium and large manufacturing industries. A panel least square method with common effect model and partial productivity analysis method are employed to analyze productivity of both medium and large manufacturing industries. This research used data from the annual survey of medium and large manufacturing industry conducted by the Central Bureau of Statistics of Indonesia from 2000 to 2005. This research uses constant price at 2000 for capital, raw material, energy, and value added data. Based on the results of the partial productivity analyses, the productivity levels of medium and large manufacturing industries in Indonesia vary among industry sectors (ISIC). Meanwhile, the regression results of modified Cobb-Douglas production function of medium manufacturing industry show that all parameter of independent variables are statically significant. The coefficient of labor and raw material variable s are statically significant at 1% level, and energy and capital variables are statically significant at 5% level. The case of capital variable, the sign is negative. The result of regression shows that labor, raw material, and energy have positive effects on productivity. Meanwhile, capital has a negative impact on productivity. The regression results of modified Cobb-Douglas production function of large manufacturing industry show that almost all parameter of independent variables are significant, except capital variable that does not have significant effect on productivity. Labor and raw material variables are statically significant at 1 % level. A similar finding can be seen in the energy variable which is statically significant at 5 % level. It indicates that labor, raw material, and energy give significant impact on productivity. Meanwhile, capital variable is not significant statistically. It means that capital does not have a significant effect on productivity. The comparison of productivity levels between medium and large manufacturing industries by comparing return-to-scale show that either medium or large manufacturing industries in Indonesia do not experience constant returns-to-scale. The medium manufacturing industries have decreasing returns-to-scale meaning that a doubling of all inputs will produce less than a doubling of outputs. On the contrary, large manufacturing industries enjoy increasing returns-to-scale, which means that a doubling of all inputs will produce more than a doubling of outputs. According to the results of productivity analyses, government as policy maker can consider some appropriate policies and strategies to improve productivity of medium and large manufacturing industries in Indonesia including improvement of labor quality by developing technical skills, managerial skills, and leadership skills. The government should also focus not only on attracting new capital investment s but also on the development of appropriate technologies and high quality of capital. It is also necessary to give more emphasis on the procurement of domestic raw material procurement of high quality and on the efficiency of energy consumption.

Kata Kunci : Manufacturing factor,Productivity industry