Growth accounting, supply response and factor returns in general equilibrium: The case of Indonesia

Abstract This paper draws on the envelope properties of the GDP function to identify the sources of growth and factors influencing the evolution of the agricultural, industrial and service sectors of the Indonesian economy. The non-parametric analysis suggests that level effects on growth dominate rate effects, with capital alone accounting for five-sevenths of the growth in GDP. Scale effects of trade on rate effects are also identified. The parametric results show a number of Rybczynski and Stolper-Samuelson type effects on supply and factor rental rates, and suggest strong linkages among the three sectors of the economy. Further insights into the nature of these linkages are provided by treating the service sector as predominantly a home good, and then contrasting the ‘partial’ and ‘general equilibrium’ elasticities. ( JEL : 047, 053, C32).