The Impact of the 1997/98 Economic Crisis on Firm Entry in Indonesian Manufacturing

How did the 1997/98 economic crisis affect the extent of firm entry in Indonesian manufacturing? What can we tell from examining the impact? This paper attempts to provide some answers to these questions, using rich plant-level data of medium and large manufacturing plants over the period 1993-2000. The descriptive analysis shows that while entry rates into the industry significantly declined druing the peak of the crisis, they did not seem to have recovered during the early recovery period. Building on this observation, the analysis continues to examine whether there are differences in the determinants of firm entry between the pre-crisis and crisis period. The econometric results indeed show substantial differences. They suggest that higher cost disadvantages faced by entrants and a more competitive economic environment might be responsible for the observation. The results also indicate that the crisis seems to have provided opportunities for some entrants. Nevertheless, these opportunities are unlikely to have been translated into a recovery in the entry rates, simply because they are likely to have been absorbed only by small number of entrants.