Industrial policy and technology diffusion : evidence from paper making machinery in Indonesia

In this paper, we analyse the diffusion and adoption of paper making machinery in the Indonesian pulp and paper industry, from 1923 till 2000. The two main questions in this paper are: (1) What patterns of technology diffusion can be discerned in the Indonesian paper manufacturing sector? (2) What role have industrial policies played in the diffusion of technology and the expansion of the paper industry? To address these questions, we develop a machine index (mach), which measures the technological distance of each paper machine to the world technological frontier through time. The documented trends in an aggregate version of the technology index reveal a pattern of rapid catch up. The paper argues that industrial policy has played an important role in the speed and nature of diffusion of paper making machinery in Indonesia. A more disaggregated analysis indicates that conglomerate owned mills adopted advanced paper machines close to the technological frontier, while independent and publicly owned mills installed more outdated equipment. Embodied technological catch up in paper making has thus been a highly polarised phenomenon, limited to only a few firms, which had the financial resources and the capabilities to install large-scale modern machinery. Keywords Asia, Indonesia, Pulp and paper industry, Technology diffusion, Technology adoption, Industrial policy