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Do crises catalyze creative destruction ? firm-level evidence from Indonesia

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  • Hallward-Driemeier, Mary
  • Rijkers, Bob

Abstract

Using Indonesian manufacturing census data (1991-2001), this paper rejects the hypothesis that the East Asian crisis unequivocally improved the reallocative process. The correlation between productivity and employment growth did not strengthen and the crisis induced the exit of relatively productive firms. The attenuation of the relationship between productivity and survival was stronger in provinces with comparatively lower reductions in minimum wages, but not due to reduced entry, changing loan conditions, or firms connected to the Suharto regime suffering disproportionately. On the bright side, firms that entered during the crisis were relatively more productive, which helped mitigate the reduction in aggregate productivity.

Suggested Citation

  • Hallward-Driemeier, Mary & Rijkers, Bob, 2011. "Do crises catalyze creative destruction ? firm-level evidence from Indonesia," Policy Research Working Paper Series 5869, The World Bank.
    • Handle: RePEc:wbk:wbrwps:5869
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    More about this item

    Keywords

    Labor Policies; Labor Markets; Banks&Banking Reform; Economic Theory&Research; Microfinance;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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