What determines the co-operatives‘ productivity in Indonesia? A-two stage analysis

Abstract

This study empirically measures and analyzes determinants of productivity changes of the co-operatives across all 34 provinces in Indonesia over the 2015-2020 period using a-two stage approach. In the first stage, the study measures the productivity of the co-operatives using Data Envelopment Analysis (DEA). Meanwhile, in the second stage, the study utilizes a panel regression model to measure and analyze the determinants of productivity of the co-operatives in Indonesia. The study recorded that the co-operatives in Indonesia have experienced a 9.7% increase in their Total Factor Productivity (TFP), contributed mainly by the technical efficiency progress. Furthermore, the study found that the business volume has contributed to the improvement of the co-operatives' TFP. Meanwhile, the co-operatives' members, liquidity, and indebtedness are found to deteriorate the TFP growth. Profitability, however, is found to have an insignificant effect on TFP growth due to the non-profit orientation of the co-operatives. These findings suggest the need for co-operatives to diversify their business activities, supported by the adoption of relevant advanced technologies, particularly the use of online marketing. In addition, the co-operatives should improve their financial performances to maximize the use of capital by restricting liquidity and indebtedness. Finally, the government support to enhance financial and managerial aspects is essential to realize the co-operatives as the pillar of Indonesia’s economy, as mandated by the 1945 Indonesian constitution.