K. Sari & M. Arifin / Journal of S&T Policy and R&D Management, Vol. 12, Issue 1 (2014), Page 45-54 ISSN 1907-9753 (print), ISSN 2407-8271 (online) Accreditation Number: 421/AU2/P2MI-LIPI/02/2012 http://wartakiml.pappiptek.lipi.go.id/index.php/kiml/issue/view/5 RESEARCH The Linkage among Technology-Intensive Manufacture Industries in East Java by Input-Output Analysis Approach Karlina Sari and Mohamad Arifin Abstract The economic crisis in 1998 had caused the decrease in economic growth up to 13% and particularly for industrial sector 11.4%. This shock encouraged local governments, including East Java to actively promote industry by utilizing the available natural resources; processing them into products that have value added. The study intends to see the linkage among technology-intensive industrial sectors before the economic crisis (1994) and after the economic crisis (2006). The analysis method used in the study is input-output (I-0) analysis, using the dispersion power index and the degree of sensitivity index from the multiplier matrix. The classification of manufacturing industry is based on its technology intensity, i.e. high-tech, medium-high-tech, medium-low-tech, and low-tech. The result of the study shows that the seed industry sector in 1994 is the industries with high backward and forward linkages, i.e. the group of basic metal and metal goods industry, and non-pharmaceutical chemical industry. In 2006, however, both industries had only high backward linkage. Furthermore, the industrial group with no potential is the industry with low backward and forward linkages in 1994, i.e. food, beverages, and tobacco industry. Nevertheless in 2006 this low-tech intensity industry became a potential, together with timber and rattan industry, and pharmaceuticals and traditional medicine industry. In 2006, the group with less potentials was the low-tech industry like textile, textile product, leather and footwear industry; and the medium-low-tech industry like oil refining industry; as well as the high-tech industry like, railway, transportation tools and its restoration industry. The shift occurred due to the factors of raw material use (local/import) and capability to produce value added products. Keywords: manufacturing industry, technology intensity, input-output analysis, East Java Center for Science and Technology Development Studies, Indonesian Institute of Sciences Received : 21/04/2014 Revised : 29/06/2014 Accepted : 07/07/2014 I. Introduction 1998 is noted as the gloomiest period in the Indonesian economy when the economic growth drastically fell into -13%, negatively affected some economic sectors, among others manufacture industry. Many processing companies were out of business since they could no longer bear the cost of capital, on average based on imported raw materials. In 1996, there were 22,997 active processing companies. As a result of the crisis, the number decreased to 22,386 units in 1997 and gradually declined into 21,243 units in 1998. As the economy began to recover, gradually Indonesian manufacturing industry revived. The number of manufacturing companies in 1999 and 2000 rose to be 22,070 units and 22,174 units respectively (Central Bureau of Statistics/BPS, 2000). Recent statistics showed that the number of manufacturing enterprises had reached 23,370 units in 2011, meaning an increase of 5.4% in the last decade (BPS, 2013). After the crisis, the government began to actively promote the industry to utilize the available natural resources to be processed into products that have value added, including East Java provincial government. East Java belongs to the provinces with the highest Gross Domestic Product (GDP). In 2010, East Java’s GDP reached IDR 324,281 billion or 15.4% of total national GDP. The GDP growth of East Java during the last 3 years (2010-2012) has increased, from 6.68% (in 2010) to 7.27% (in 2012). As of the year 2011, East Java had a population of 37.68 million at a growth rate of 0.56 percent, living * Correspondence: Building A PDII-LIPI 4 th Floor, Jl. Jend. Gatot Subroto No. 10, Jakarta Selatan 12710 E-mail: karlina.love@gmail.com © Karlina Sari and Mohamad Arifin; 2014. LIPI All rights reserved