EMILIE AYU HAPSARI. The Role of Pulp and Paper Industry in The Economy
of Riau Province: Input-Output Analysis (Supervised by ARIEF DARYANTO).
National and regional economic development requires economic growth to achieve prosperity. The achievement of economic growth as seen from the growth of Gross Domestic Product (GDP) and Gross Regional Domestic Product (GRDP) should be achievable by all regions in Indonesia, including Riau Province. In order to pursue high economic growth, the government of Riau Province and the public need to know information about what sectors are able to produce the high Gross Regional Domestic Product (GRDP).
Riau Province is the largest contributor to the GDP of Sumatra and has the major players in pulp and paper industry operating in Perawang and Kerinci, where both located in Riau Province. Based on the data from the GDRP of Riau Province in 2010, manufacturing sector has gave the highest contribution, where pulp and paper industry is one of the prominent players. Paper industry has been giving major contribution to regional and national economy through export increase, investment value added, business opportunities creation and human resources employment as well as national income from tax and non-tax revenues. The supporting factors for the above mentioned are the availability of main raw materials for paper industry which are natural resources especially woods supply, climate condition that is conducive for raw materials growth; and lower production costs compared to other producer countries.
Appendix 1. Classification of Economic Sectors in Riau Province Based on Input-Output Table of Riau Province in 2010
I-O Code
7 Other Peanuts 1 Agriculture
8 Vegetables 1 Agriculture
14 Fiber Crops 1 Agriculture
15 Coffee 1 Agriculture
16 Clove 1 Agriculture
17 Cocoa 1 Agriculture
18 Other Crops 1 Agriculture
19 Livestock and Livestock Product 1 Agriculture
20 Fresh Milk 1 Agriculture
21 Poultry and Poultry Product 1 Agriculture 22 Other Livestock Products 1 Agriculture
23 Wood 2 Wood
24 Other Forest Products 3 Other Forest Products 25 Sea Fish and Other Products 1 Agriculture
26 Inland Fish and Other Products 1 Agriculture
27 Shrimp 1 Agriculture
28 Coal 4 Mining and Quarrying
29 Oil 4 Mining and Quarrying
30 Other Mining Products 4 Mining and Quarrying 31 Salting Dried Fish Industry 5 Industry of Food Products,
Beverages and Tobacco Products 32 Processing and Preserving Fish 5 Industry of Food Products,
Beverages and Tobacco Products 33 Processing and Preserving Fruits
and Vegetables Industry 5
Industry of Food Products, Beverages and Tobacco Products 34 Oil and Fat Industry
35 Rice Industry 5 Industry of Food Products, Beverages and Tobacco Products 36 Coffee Industry 5 Industry of Food Products,
Beverages and Tobacco Products 37 Peel Grains Industry 5 Industry of Food Products,
38 Copra Industry 5 Industry of Food Products, Beverages and Tobacco Products 39 Flour Industry 5 Industry of Food Products,
Beverages and Tobacco Products 40 Animal Feed Industry 5 Industry of Food Products,
Beverages and Tobacco Products 41 Bread Industry 5 Industry of Food Products,
Beverages and Tobacco Products 42 Sugar Industry 5 Industry of Food Products,
Beverages and Tobacco Products 43 Chocolate Industry 5 Industry of Food Products,
Beverages and Tobacco Products 44 Noodles, Macaroni, etc. Industry 5 Industry of Food Products,
Beverages and Tobacco Products 45 Tea Processing Industry 5 Industry of Food Products,
Beverages and Tobacco Products 46 Soybean Processing Industry 5 Industry of Food Products,
Beverages and Tobacco Products 47 Other Foods Industry 5 Industry of Food Products,
Beverages and Tobacco Products 48 Alcohol Beverage Industry 5 Industry of Food Products,
Beverages and Tobacco Products 49 Non Alcohol Beverage Industry 5 Industry of Food Products,
Beverages and Tobacco Products 50 Tobacco Processing Industry 5 Industry of Food Products,
Beverages and Tobacco Products 51 Cigarette Industry 5 Industry of Food Products,
Beverages and Tobacco Products 52 Yarn Industry 6 Industry of Textiles and Wearing
Apparel
53 Textile and Material Industry 6 Industry of Textiles and Wearing Apparel
54 Rug, Rope and Other Textiles
Industry 6
Industry of Textiles and Wearing Apparel
55 Cotton Industry 6 Industry of Textiles and Wearing Apparel
56 Garment Industry 6 Industry of Textiles and Wearing Apparel
57 Leather Industry 6 Industry of Textiles and Wearing Apparel
58 Footwear Industry 6 Industry of Textiles and Wearing Apparel
59 Sawn Wood Industry 7 Industry of Wood and Furniture 60 Plywood Industry 7 Industry of Wood and Furniture 61 Building Material From Wood 7 Industry of Wood and Furniture 62 Other Goods From Wood,
Bamboo, and Rattan Industry 7 Industry of Wood and Furniture 63 Household Furniture From
Wood, Bamboo, and Rattan 7 Industry of Wood and Furniture
Continued Appendix 1. 65 Paper and Paperboard Industry 9 Paper Industry 66 Goods From Paper and
Paperboard Industry 10 Paper Products Industry 67 Oil Refinery Industry 11 Mining Industry
68 Chemical Industry 12 Industry of Fertilizer and Chemical Products 69 Fertilizer Industry 12 Industry of Fertilizer and
Chemical Products 70 Paint, Varnish Industry 12 Industry of Fertilizer and
Chemical Products 71 Drug and Herb Industry 12 Industry of Fertilizer and
Chemical Products 72 Soap and Cosmetic Industry 12 Industry of Fertilizer and
Chemical Products 73 Other Chemicals Industry 12 Industry of Fertilizer and
Chemical Products 74 Other Rubbers Industry 13 Industry of Non Metallic
Products
75 Goods From Plastic 13 Industry of Non Metallic Products
76 Ceramic and Good From Clay 13 Industry of Non Metallic Products
88 Generator Industry 15 Other Industries
89 Electrical Machinery Industry 15 Other Industries 90 Automotive Industry 15 Other Industries
91 Ship Building and Services
Industry 15 Other Industries
92 Other Industries 15 Other Industries
93 Electricity and Gas 16 Electricity, Gas, and Water Supply
94 Water Supply 16 Electricity, Gas, and Water Supply
95 Construction 17 Construction
96 Trade 18 Trade, Hotel, and Restaurant
97 Restaurant 18 Trade, Hotel, and Restaurant
98 Hotel 18 Trade, Hotel, and Restaurant
99 Land Transportation 19 Transportation and Communication 100 Sea Transportation 19 Transportation and
Communication 101 Air Transportation 19 Transportation and
Communication 102 Support Services and
Transportation 19
Transportation and Communication 103 Communication Services 19 Transportation and
Communication
104 Bank 20 Finance, Leasing and Corporate
Services
106 Building and Land Rent 20 Finance, Leasing and Corporate Services
107 Corporate Services 20 Finance, Leasing and Corporate Services
108 General Government Services 21 Services 111 Personal and Household Services 21 Services 112 Other Goods and Services That
Are Not Clearly Defined 22 Other
180 Total Intermediate Demand 180 Total Intermediate Demand 190 Total Intermediate Input 190 Total Intermediate Input
200 Import 200 Import
201 Wage and Salary 201 Wage and Salary 202 Business Surplus 202 Business Surplus
203 Depreciation 203 Depreciation
204 Indirect Tax 204 Indirect Tax
205 Subsidy 205 Subsidy
209 Gross Value Added 209 Gross Value Added
210 Total Input 210 Total Input
301 Household Consumption 301 Household Consumption 302 Government Consumption 302 Government Consumption 303 Gross Fixed Capital Formation 303 Gross Fixed Capital Formation
304 Stock Changes 304 Stock Changes
305 Export 305 Export
309 Total Final Demand 309 Total Final Demand
310 Total Demand 310 Total Demand
407LN Foreign Import 407LN Foreign Import 408AP Domestic Import 408AP Domestic Import
409 Total Import 409 Total Import
501 Wholesale Margin 501 Wholesale Margin 503 Transportation Cost 503 Transportation Cost 509 Total Trading Margin and
Transportation Cost 509
Total Trading Margin and Transportation Cost
600 Total Output 600 Total Output
Appendix 2. Input-Output Table of Riau Province in 2010 Classification of 22Sectors
Sector 1 2 3 4 5
1 12,660,637.87 0.00 0.00 0.00 21,952,732.21
2 1,077,039.02 3,907,444.65 39,943.01 50,142.00 11,415,617.04
3 209,847.03 393,508.01 37,552.01 0.00 2,000.00
4 24.00 0.00 0.00 12,527,658.27 90,008.01
5 120,047.01 0.00 0.00 0.00 38,127,275.93
6 302.00 9.00 12.00 0.00 10,415.00
7 130.00 0.00 0.00 46.00 10.00
8 0.00 0.00 0.00 0.00 0.00
9 29,779.00 1,312.00 10,511.00 87.00 1,459.00
10 3,513.00 0.00 1,471.00 85.00 1,287.00
11 455,096.13 6,844.00 28,052.02 17,392.00 278,351.08
12 1,342,468.05 143.00 11.00 5,019.00 51,770.00
13 1,008.00 86.00 3.00 2.00 3,496.00
14 844.00 41.00 79.00 2.00 8,675.99
15 18,518.99 667.00 1,848.00 476.00 175.00
16 7,490.00 86.00 4,560.00 388.00 17,997.00
17 926,910.12 7,087.00 69,895.03 9,735.00 4,675.00
18 3,272,710.44 44,200.00 109,230.04 30,104.00 4,402,066.54 19 462,160.08 16,373.00 64,264.03 7,096.00 365,692.06 20 1,037,986.18 4,161.00 11,301.00 2,664.00 407,726.06
21 301,781.04 4,003.00 9,258.00 3,987.00 195,183.02
22 0.00 0.00 0.00 0.00 0.00
190 21,928,291.97 4,385,964.66 387,990.15 12,654,883.27 77,336,611.95 200 1,824,872.23 517,865.01 25,245.01 6,337,723.18 700,685.08 201 14,841,060.86 4,093,576.08 1,112,235.43 13,281,853.38 12,497,547.40 202 28,589,320.59 12,426,935.23 3,454,432.32 101,913,668.94 20,643,799.31 203 2,149,996.27 891,643.02 135,573.05 4,168,288.12 1,558,149.17 204 644,259.08 591,065.01 97,726.04 3,713,615.11 808,785.09
205 -2,740.00 0.00 0.00 0.00 0.00
Sector 6 7 8 9 10
1 95.99 338.00 6.00 0.00 0.00
2 0.00 964,475.74 75.00 0.00 3,452.01
3 0.00 52,166.05 0.00 0.00 0.00
4 198.99 3,122.00 3.00 1,239,785.99 0.00
5 0.00 10.00 0.00 0.00 30.00
6 0.00 55.00 0.00 0.00 792.00
7 0.00 504,050.35 0.00 0.00 3,953.01
8 0.00 0.00 16,523,113.00 3,810.00 0.00
9 0.00 59.00 0.00 0.00 145,856.25
10 0.00 22.00 0.00 0.00 1,020.00
11 0.00 2,661.00 1.00 0.00 12,328.02
12 0.00 264.00 0.00 0.00 6,270.01
13 70,689.53 6,145.01 0.00 0.00 79.00
14 0.00 10,334.99 0.00 0.00 34,260.00
15 0.00 33.00 0.00 0.00 43.00
16 0.00 729.00 0.00 0.00 3,066.01
17 0.00 130.00 0.00 0.00 74.00
18 0.00 27,804.02 2.00 0.00 58,295.10
19 0.00 4,105.00 0.00 0.00 14,574.03
20 0.00 1,133.00 0.00 0.00 2,546.00
21 0.00 337.00 0.00 0.00 986.00
22 0.00 0.00 0.00 0.00 0.00
190 70,984.51 1,577,974.17 16,523,200.00 1,243,595.99 287,624.44 200 15,368.02 188,089.16 790,790.00 666,256.00 33,254.06 201 20,747.68 204,577.18 5,893,632.00 641,376.00 125,039.22 202 42,400.29 462,193.40 9,193,395.00 1,354,358.00 152,646.26 203 6,496.59 82,048.07 2,788,363.00 277,118.00 12,036.02
204 1,330.92 15,566.01 335,779.00 51,147.00 5,051.01
205 0.00 0.00 0.00 0.00 0.00 210 157,328.00 2,530,448.00 35,525,159.00 4,233,851.00 615,651.00
Sector 11 12 13 14 15
1 0.00 41,082.92 3,900,154.31 0.00 600.01
2 0.00 0.00 34,039.00 0.00 33,997.34
3 0.00 0.00 0.00 0.00 0.00
4 3,720,140.98 977,468.04 40,672.01 898.00 8,062.08
5 0.00 0.00 0.00 0.00 0.00
6 0.00 0.00 0.00 0.00 16.00
7 0.00 0.00 81.00 0.00 4,306.04
8 0.00 0.00 64,857.01 0.00 0.00
9 0.00 0.00 32.00 45.00 1.00
10 0.00 0.00 73.00 1.00 0.00
11 0.00 0.00 1,355.00 3,992.00 455.00
12 0.00 0.00 24.00 39.00 44.00
13 0.00 0.00 593,781.45 4,325.00 50,528.54
14 0.00 0.00 2,751.00 53,842.94 19,702.17
15 0.00 0.00 1.00 240.00 35,384.33
16 0.00 0.00 82.00 288.00 208.00
17 0.00 0.00 3.00 90.00 79.00
18 0.00 0.00 1,908.00 3,068.00 8,410.09
19 0.00 0.00 683.00 774.00 840.01
20 0.00 0.00 53.00 162.00 201.00
21 0.00 0.00 5.00 42.00 104.00
22 0.00 0.00 0.00 0.00 0.00
190 3,720,140.98 1,018,550.95 4,640,554.76 67,806.95 162,938.62 200 3,549,376.01 383,427.23 130,936.02 25,570.01 112,195.14 201 2,731,347.00 615,093.77 800,182.11 31,553.02 80,045.81 202 10,169,571.02 753,369.49 634,293.09 32,021.02 112,268.14 203 1,153,122.00 109,813.78 124,067.02 12,097.01 21,241.22
204 66,087.00 15,908.97 54,191.01 4,081.00 6,640.07
205 -3,987,781.01 -403,492.19 0.00 0.00 0.00
Sector 16 17 18 19 20
1 0.00 0.00 1,109,474.81 40,236.97 1,868.00
2 0.00 167.00 401,915.91 50,442.96 25,954.99
3 0.00 0.00 66,064.99 0.00 493.00
4 995,256.05 28,209,897.47 32,218.00 157,374.89 0.00
5 0.00 0.00 157,421.98 29,009.98 49,558.99
6 4.00 0.00 4,098.00 425.00 118.00
7 0.00 202.00 3,665.00 119.00 130.00
8 0.00 0.00 0.00 0.00 0.00
9 0.00 0.00 251,332.97 8,619.99 94,392.98
10 404.00 0.00 224,617.99 4,274.00 17,662.00
11 4,328.01 4.00 3,435,441.18 3,926,068.01 73,389.00
12 36,909.04 0.00 5,867.00 2,449.00 1,493.00
13 12,808.02 11,156.01 65,795.03 39,185.00 16,700.01
14 6.00 18.00 192.00 1,584.00 653.00
15 132.00 0.00 3,032.00 14,330.98 6,877.99
16 61,323.07 0.00 637,283.95 73,219.95 54,690.99
17 2,220.00 0.00 900,370.90 199,396.87 378,512.94
18 28,431.03 10.00 2,813,848.70 1,393,116.07 358,099.94
19 3,954.00 0.00 2,712,025.80 607,067.62 172,937.98
20 3,466.00 0.00 2,740,749.81 162,867.90 1,560,526.80
21 382.00 0.00 496,383.95 595,951.61 432,931.93
22 0.00 0.00 0.00 0.00 0.00
190 1,149,623.22 28,221,454.47 16,061,799.96 7,305,739.79 3,246,991.54 200 144,573.15 6,379,857.38 1,858,911.78 1,837,920.76 393,738.93 201 228,063.24 7,528,308.45 9,811,576.86 2,829,876.09 1,783,466.69 202 286,406.30 9,663,357.58 19,365,875.76 1,711,067.84 6,113,772.94 203 219,895.23 1,568,663.09 2,214,739.74 2,119,566.57 475,622.92 204 26,088.03 502,578.03 884,158.90 99,356.93 80,509.99
205 -175,906.19 0.00 0.00 -40,080.97 0.00
Sector 21 22 180 301 302 1 2,903,289.67 0.00 42,610,516.74 14,573,148.17 0.00
2 561,052.91 0.00 18,565,758.57 1,974,032.79 0.00
3 1,780,301.91 0.00 2,541,933.00 1,675,359.01 0.00
4 812,022.95 0.00 48,814,810.72 122,963.00 0.00
5 182,703.98 0.00 38,666,057.87 30,092,183.94 0.00
6 5,516.00 0.00 21,762.00 59,663.00 0.00
7 368,267.91 0.00 884,960.31 69,400.99 0.00
8 0.00 0.00 16,591,780.01 0.00 0.00
9 1,902,865.85 0.00 2,446,353.04 240,281.99 0.00
10 42,284.00 0.00 296,713.98 196,354.01 0.00
11 580,066.07 0.00 8,825,823.53 1,142,376.19 0.00
12 158,739.98 0.00 1,611,510.08 183,919.98 0.00
13 157,061.09 0.00 1,032,848.70 226,893.14 0.00
14 1,522.00 0.00 134,508.07 3,297.99 0.00
15 86,125.93 0.00 167,885.23 78,910.94 0.00
16 306,813.99 0.00 1,168,225.97 710,517.03 0.00
17 1,690,219.91 0.00 4,189,398.77 0.00 0.00
18 5,981,379.73 0.00 18,532,683.71 22,018,262.22 0.00
19 1,765,054.98 0.00 6,197,601.58 6,927,669.30 0.00
20 648,222.99 0.00 6,583,766.75 5,213,991.24 0.00
21 1,308,430.95 0.00 3,349,766.51 4,003,282.06 23,655,921.36
22 0.00 0.00 0.00 0.00 0.00
190 21,241,942.80 0.00 223,234,665.14 89,512,507.00 23,655,921.36 200 1,315,376.93 0.00 27,232,031.09 10,199,104.00 0.00
201 9,956,956.44 0.00 89,108,114.70
202 1,722,627.90 0.00 228,797,780.42
203 1,261,136.93 0.00 21,349,676.82
204 49,323.00 0.00 8,053,247.18
205 -7,369.00 0.00 -4,617,369.36
Sector 303 304 305 Total Output
1 7,023,419.60 2,746,041.84 3,021,934.83 69,975,061.18
2 0.00 364,467.96 2,002,789.78 22,907,049.10
3 0.00 139,590.00 856,320.00 5,213,202.00
4 10,996,493.92 4,770,746.96 77,365,017.42 142,070,032.01
5 1.00 -2,621,489.91 47,408,825.34 113,545,578.25
6 14.00 7,964.00 67,925.00 157,328.00
7 173,626.97 61,757.99 1,340,701.75 2,530,448.01
8 2,576,559.00 -1,928,685.00 18,285,504.99 35,525,159.00
9 0.00 228,476.99 1,318,738.97 4,233,851.00
10 0.00 2,441.00 120,142.01 615,651.00
11 0.00 362,259.06 7,071,404.20 17,401,862.99
12 29.00 84,959.99 612,252.95 2,492,672.00
13 582,570.36 278,338.17 4,263,573.64 6,384,224.00
14 2,857.00 -4,959.99 37,425.94 173,129.00
15 79,743.94 14,166.99 154,621.89 495,329.00
16 0.00 0.00 0.00 1,878,743.00
17 46,012,087.22 3,662,733.02 0.00 53,864,219.00
18 1,758,644.02 435,051.00 7,452,422.08 50,197,063.03
19 487,565.02 109,766.00 2,140,845.09 15,863,447.00
20 10,099.00 0.00 286,246.01 12,094,103.00
21 252,850.00 0.00 4,278,175.07 35,539,995.00
22 0.00 0.00 0.00 0.00
190 69,956,560.04 8,713,626.10 178,084,866.95 593,158,146.59
200 8,322,241.00 4,687,388.00 0.00 50,440,764.09
201 89,108,114.70 202 228,797,780.42 203 21,349,676.82 204 8,053,247.18 205 -4,617,369.36 210 78,278,801.04 13,401,014.10 178,084,866.95 986,290,360.45
Appendix 3. Technical Coefficient Matrix Classification of 22 Sectors
Sector 1 2 3 4 5 6
1 0.18093 0.00000 0.00000 0.00000 0.19334 0.00061
2 0.01539 0.17058 0.00766 0.00035 0.10054 0.00000
3 0.00300 0.01718 0.00720 0.00000 0.00002 0.00000
4 0.00000 0.00000 0.00000 0.08818 0.00079 0.00126
5 0.00172 0.00000 0.00000 0.00000 0.33579 0.00000
6 0.00000 0.00000 0.00000 0.00000 0.00009 0.00000
7 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000
8 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000
9 0.00043 0.00006 0.00202 0.00000 0.00001 0.00000
10 0.00005 0.00000 0.00028 0.00000 0.00001 0.00000
11 0.00650 0.00030 0.00538 0.00012 0.00245 0.00000
12 0.01918 0.00001 0.00000 0.00004 0.00046 0.00000
13 0.00001 0.00000 0.00000 0.00000 0.00003 0.44931
14 0.00001 0.00000 0.00002 0.00000 0.00008 0.00000
15 0.00026 0.00003 0.00035 0.00000 0.00000 0.00000
16 0.00011 0.00000 0.00087 0.00000 0.00016 0.00000
17 0.01325 0.00031 0.01341 0.00007 0.00004 0.00000
18 0.04677 0.00193 0.02095 0.00021 0.03877 0.00000
19 0.00660 0.00071 0.01233 0.00005 0.00322 0.00000
20 0.01483 0.00018 0.00217 0.00002 0.00359 0.00000
21 0.00431 0.00017 0.00178 0.00003 0.00172 0.00000
22 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000
Sector 7 8 9 10 11 12
1 0.00013 0.00000 0.00000 0.00000 0.00000 0.01648
2 0.38115 0.00000 0.00000 0.00561 0.00000 0.00000
3 0.02062 0.00000 0.00000 0.00000 0.00000 0.00000
4 0.00123 0.00000 0.29283 0.00000 0.21378 0.39214
5 0.00000 0.00000 0.00000 0.00005 0.00000 0.00000
6 0.00002 0.00000 0.00000 0.00129 0.00000 0.00000
7 0.19919 0.00000 0.00000 0.00642 0.00000 0.00000
8 0.00000 0.46511 0.00090 0.00000 0.00000 0.00000
9 0.00002 0.00000 0.00000 0.23691 0.00000 0.00000
10 0.00001 0.00000 0.00000 0.00166 0.00000 0.00000
11 0.00105 0.00000 0.00000 0.02002 0.00000 0.00000
12 0.00010 0.00000 0.00000 0.01018 0.00000 0.00000
13 0.00243 0.00000 0.00000 0.00013 0.00000 0.00000
14 0.00408 0.00000 0.00000 0.05565 0.00000 0.00000
15 0.00001 0.00000 0.00000 0.00007 0.00000 0.00000
16 0.00029 0.00000 0.00000 0.00498 0.00000 0.00000
17 0.00005 0.00000 0.00000 0.00012 0.00000 0.00000
18 0.01099 0.00000 0.00000 0.09469 0.00000 0.00000
19 0.00162 0.00000 0.00000 0.02367 0.00000 0.00000
20 0.00045 0.00000 0.00000 0.00414 0.00000 0.00000
21 0.00013 0.00000 0.00000 0.00160 0.00000 0.00000
22 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000
Sector 13 14 15 16 17 18
1 0.61090 0.00000 0.00121 0.00000 0.00000 0.02210
2 0.00533 0.00000 0.06864 0.00000 0.00000 0.00801
3 0.00000 0.00000 0.00000 0.00000 0.00000 0.00132
4 0.00637 0.00519 0.01628 0.52975 0.52372 0.00064
5 0.00000 0.00000 0.00000 0.00000 0.00000 0.00314
6 0.00000 0.00000 0.00003 0.00000 0.00000 0.00008
7 0.00001 0.00000 0.00869 0.00000 0.00000 0.00007
8 0.01016 0.00000 0.00000 0.00000 0.00000 0.00000
9 0.00001 0.00026 0.00000 0.00000 0.00000 0.00501
10 0.00001 0.00001 0.00000 0.00022 0.00000 0.00447
11 0.00021 0.02306 0.00092 0.00230 0.00000 0.06844
12 0.00000 0.00023 0.00009 0.01965 0.00000 0.00012
13 0.09301 0.02498 0.10201 0.00682 0.00021 0.00131
14 0.00043 0.31100 0.03978 0.00000 0.00000 0.00000
15 0.00000 0.00139 0.07144 0.00007 0.00000 0.00006
16 0.00001 0.00166 0.00042 0.03264 0.00000 0.01270
17 0.00000 0.00052 0.00016 0.00118 0.00000 0.01794
18 0.00030 0.01772 0.01698 0.01513 0.00000 0.05606
19 0.00011 0.00447 0.00170 0.00210 0.00000 0.05403
20 0.00001 0.00094 0.00041 0.00184 0.00000 0.05460
21 0.00000 0.00024 0.00021 0.00020 0.00000 0.00989
22 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000
Total 0.72688 0.39166 0.32895 0.61191 0.52394 0.31997
Sector 19 20 21 22 Total
1 0.00254 0.00015 0.08169 0.00000 0.07184
2 0.00318 0.00215 0.01579 0.00000 0.03130
3 0.00000 0.00004 0.05009 0.00000 0.00429
4 0.00992 0.00000 0.02285 0.00000 0.08230
5 0.00183 0.00410 0.00514 0.00000 0.06519
6 0.00003 0.00001 0.00016 0.00000 0.00004
7 0.00001 0.00001 0.01036 0.00000 0.00149
8 0.00000 0.00000 0.00000 0.00000 0.02797
9 0.00054 0.00780 0.05354 0.00000 0.00412
10 0.00027 0.00146 0.00119 0.00000 0.00050
11 0.24749 0.00607 0.01632 0.00000 0.01488
12 0.00015 0.00012 0.00447 0.00000 0.00272
13 0.00247 0.00138 0.00442 0.00000 0.00174
14 0.00010 0.00005 0.00004 0.00000 0.00023
15 0.00090 0.00057 0.00242 0.00000 0.00028
16 0.00462 0.00452 0.00863 0.00000 0.00197
17 0.01257 0.03130 0.04756 0.00000 0.00706
18 0.08782 0.02961 0.16830 0.00000 0.03124
19 0.03827 0.01430 0.04966 0.00000 0.01045
20 0.01027 0.12903 0.01824 0.00000 0.01110
21 0.03757 0.03580 0.03701 0.00000 0.00565
22 0.00000 0.00000 0.00000 0.00000 0.00000
Total 0.46054 0.26848 0.59769 0.00000 0.37635
Appendix 4. Leontief Inverse Matrix: Closed Input-Output Classification of 22 Sectors
Sector 1 2 3 4 5 6
1 1.24249 0.01031 0.00590 0.01777 0.37164 0.41606
2 0.02943 1.20894 0.01119 0.00577 0.19422 0.02384
3 0.00589 0.02164 1.00796 0.00133 0.00577 0.00476
4 0.02865 0.00220 0.01332 1.09925 0.01586 0.01896
5 0.03010 0.01536 0.00736 0.02679 1.52599 0.06839
6 0.00005 0.00002 0.00002 0.00004 0.00018 1.00010
7 0.00021 0.00006 0.00007 0.00010 0.00016 0.00028
8 0.00001 0.00000 0.00001 0.00001 0.00001 0.00943
9 0.00205 0.00044 0.00258 0.00050 0.00155 0.00173
10 0.00060 0.00014 0.00046 0.00021 0.00059 0.00065
11 0.01937 0.00305 0.01173 0.00369 0.01774 0.01379
12 0.02407 0.00030 0.00021 0.00053 0.00801 0.00840
13 0.00053 0.00016 0.00023 0.00025 0.00056 0.49610
14 0.00011 0.00003 0.00009 0.00003 0.00024 0.00041
15 0.00048 0.00009 0.00043 0.00008 0.00021 0.00031
16 0.00197 0.00050 0.00155 0.00075 0.00211 0.00225
17 0.01970 0.00130 0.01467 0.00103 0.00813 0.00807
18 0.08116 0.01288 0.02906 0.01726 0.09519 0.06240
19 0.01848 0.00461 0.01605 0.00574 0.01700 0.01820
20 0.03030 0.00347 0.00567 0.00517 0.02151 0.02056
21 0.01072 0.00217 0.00369 0.00320 0.00860 0.01024
22 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000
200 0.05763 0.03350 0.01562 0.05852 0.04136 0.14695
Sector 7 8 9 10 11 12
1 0.04326 0.01507 0.06221 0.05256 0.07767 0.08315
2 0.58636 0.00450 0.01871 0.02586 0.02328 0.01938
3 0.03890 0.00112 0.00463 0.00420 0.00578 0.00476
4 0.00955 0.00206 0.32969 0.10303 0.24510 0.43915
5 0.06013 0.02274 0.09387 0.07050 0.11720 0.09507
6 0.00012 0.00003 0.00014 0.00140 0.00017 0.00014
7 1.24897 0.00008 0.00034 0.00836 0.00042 0.00034
8 0.00008 1.86955 0.00170 0.00048 0.00002 0.00002
9 0.00143 0.00042 1.00175 0.23964 0.00218 0.00179
10 0.00057 0.00018 0.00072 1.00271 0.00090 0.00074
11 0.01199 0.00298 0.01237 0.04644 1.01541 0.01279
12 0.00133 0.00042 0.00175 0.01182 0.00217 1.00216
13 0.00417 0.00021 0.00086 0.00404 0.00108 0.00088
14 0.00749 0.00002 0.00010 0.08109 0.00013 0.00011
15 0.00024 0.00006 0.00026 0.00045 0.00032 0.00027
16 0.00235 0.00063 0.00260 0.00888 0.00325 0.00266
17 0.00335 0.00080 0.00333 0.00564 0.00415 0.00369
18 0.05551 0.01443 0.05964 0.15102 0.07442 0.06145
19 0.01679 0.00481 0.01986 0.04629 0.02479 0.02032
20 0.01357 0.00436 0.01799 0.02550 0.02246 0.01863
21 0.00785 0.00268 0.01107 0.01272 0.01382 0.01134
22 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000
200 0.13109 0.04969 0.20507 0.15228 0.25604 0.20755
Total 2.24510 1.99686 1.84865 2.05490 1.89076 1.98639
Sector 13 14 15 16 17 18
1 0.84553 0.11383 0.19067 0.04770 0.05237 0.06180
2 0.02950 0.02613 0.12621 0.01287 0.01584 0.02106
3 0.00473 0.00638 0.00948 0.00313 0.00389 0.00466
4 0.02829 0.03248 0.03798 0.61748 0.58158 0.05203
5 0.03328 0.12507 0.14581 0.06179 0.07877 0.04818
6 0.00005 0.00019 0.00025 0.00010 0.00012 0.00016
7 0.00021 0.00049 0.01224 0.00024 0.00029 0.00050
8 0.02095 0.00079 0.00237 0.00016 0.00002 0.00006
9 0.00164 0.00301 0.00304 0.00138 0.00147 0.00879
Sector 19 20 21 22 301 Total
1 0.08303 0.03001 0.15096 0.00000 0.36216 4.33615
2 0.02773 0.01202 0.04278 0.00000 0.10811 2.57374
3 0.00762 0.00401 0.05672 0.00000 0.02693 1.23431
4 0.10074 0.03877 0.10547 0.00000 0.04954 3.95118
5 0.10816 0.03867 0.06105 0.00000 0.54652 3.38080
6 0.00020 0.00007 0.00026 0.00000 0.00081 1.00465
7 0.00097 0.00073 0.01377 0.00000 0.00196 1.29078
8 0.00009 0.00007 0.00023 0.00000 0.00011 1.90618
9 0.00571 0.01266 0.05894 0.00000 0.01016 1.36286
10 0.00165 0.00220 0.00264 0.00000 0.00421 1.02872
11 0.28149 0.02069 0.05575 0.00000 0.07170 1.81428
12 0.00271 0.00126 0.00818 0.00000 0.01010 1.13290
13 0.00443 0.00256 0.00667 0.00000 0.00502 1.80845
14 0.00041 0.00034 0.00057 0.00000 0.00060 1.60741
15 0.00144 0.00094 0.00303 0.00000 0.00151 1.09130
16 0.00978 0.00738 0.01398 0.00000 0.01514 1.14290
17 0.02168 0.04057 0.05946 0.00000 0.01925 1.27414
18 0.17315 0.06692 0.23446 0.00000 0.34676 3.03381
19 1.07054 0.02881 0.07838 0.00000 0.11551 1.69672
20 0.04022 1.15845 0.04739 0.00000 0.10470 1.73027
21 0.05511 0.04790 1.05103 0.00000 0.06440 1.39822
22 0.00000 0.00000 0.00000 1.00000 0.00000 1.00000
200 0.22780 0.06753 0.11205 0.00000 1.19395 4.01328
1.1 Background
Industry is one of the most important pillars in the development of a country. Industrial sector has an important role in adding more value to the factors of production (input), which produce economic benefits. The basic role of industry for the development can be boarded into industrialization strategy, which consists of Import Substitution Strategy (ISS) and Export Promotion Strategy (EPS). Through those strategies, the industrial sector becomes the main sector after agricultural sector in Indonesian economy. In Indonesia, industries can be divided into four groups; big scale industry, medium scale industry, small-scale industry and home industry. The grouping was based on numbers of workforce without considering the raw materials usage.
Industrial sector was the biggest contributor for Indonesia’s Gross Domestic Product (GDP) until 2011. During the orde baru, the role of non-oil industry was
the main contributor for national income due to oil boom when Indonesia experience significant surge in incoming capital, Badan Pusat Statistik (BPS),
2
In the period of 2005 until 2010, Indonesia’s national GDP obtained the largest contribution from non-oil products. This fact showed that non-oil contribution to Indonesian economy was significant and able to increase Indonesian economy by empowering its human resources through a synergy with Indonesia’s abundant natural resources.
0" 1" 2" 3" 4" 5" 6" 7" 8"
2006" 2007" 2008" 2009" 2010"
Percen
tage)
Year)
GDP" Non2Oil"&"Gas" Oil"&"Gas" Source: BPS Indonesia, 2012
Figure 1.1. The Development of Gross Domestic Product (GDP) of Indonesia (2006-2010)
Table 1.1 The Role of The Region/Island in The Formation of National GDP (percentage)
Region/Island 2009 2010 2011
First quarter Second quarter
Sumatra 22.6 23.1 23.5 23.6
Java 58.6 58.0 57.8 57.7
Bali and Nusa Tenggara 2.7 2.7 2.5 2.6
Kalimantan 9.2 9.2 9.5 9.5
Sulawesi 4.6 4.6 4.6 4.6
Maluku and New Guinea 2.3 2.4 2.1 2.0
Source: BPS Indonesia, 2012
The industry that gave the highest contribution to Indonesia’s GDP is manufacturing industry, where pulp and paper industry is one of the prominent players. These industries need forest commodities as their input, where more time is needed to fulfill the supply for demand. In 2006, the national pulp & paper production reached 6.29 million tons of pulp (average capacity utilization was 93.04 percent of established capacity) and 8.64 million tons of paper. This achievement positioned Indonesia as the world major producer of pulp for paper, major pulp exporter for paper, major paper producer, and major paper exporter – ranked at 9th, 7th, 11th and 9th respectively in the world (FAOSTAT, 2007). The trend was continuing until 2011. The pulp and paper industry has been giving major contribution to national economy through investment value added; export increase, business opportunities creation and human resources employment as well as national income from tax and non-tax revenues.
4
achievements is Indonesian high consumption on paper products. In 2005, Indonesia’s paper consumption per capita reached 20.67 kg or ranked eleventh in the world (World Resources Institute, 2007). This fact was putting pulp and paper as one of the top ten export commodity champions for increasing the country’s foreign exchange reserves.
Pulp and paper production costs in Indonesia are also relatively cheaper than the cost in other producer countries. According to the Research Information Systems Inc. (RISI), the fourth quarter of 2005, cash cost per ton of pulp in Indonesia was only US$ 184, which in the USA reached US$ 385, in Canada for US$ 330, and in Brazil US$ 271. Judging from the cash cost, Indonesia has great potential to expand the pulp and paper industry than others. This potential needs to be developed further by the government and related companies. The continuing technological developments in the world does not reduce paper consumption, as shown by the growth in paper demand by an average of 2.71 percent per year, with growth in developing countries by an average of 4.1 percent per year and the average for developed countries by the average of 0.5 percent per year. This fact shows that Indonesia as a developing country should be able to improve its production in order accomodating the increasing market demand up to 4.1 percent per year.
industry is the intermediate products producer to supply the downstream industry, where they will process the intermediate products to be packaged and marketed for direct consumption to the end users.
6
Figure 1.2 The Capacity of Major Players in National Pulp and Paper Industry
Table 1.2 Gross Regional Domestic Product of Riau Province at Current Prices Based on The Business Field In 2006 – 2010
Source: Badan Perencanaan dan Pembangunan Daerah (Bappeda) Riau Province, 2011
Field of Business 2006
Agriculture 36,294,175.88 43,595,169.01 53,137,563.80 60,270,256.01 69,025,079.71
Mining and Quarrying
Electricity, gas & water 339,751.00 392,735.09 461,086.39 525,583.52 584,546.11
Building 4,258,801.15 7,043,077.64 11,308,251.44 14,758,030.96 19,262,905.24
Trade, Hotel & Restaurant 11,179,723.48 14,064,410.65 19,317,092.67 24,878,634.72 32,276,354.84 Transport & Communication 3,216,185.09 3,853,213.87 4,867,262.36 5,762,017.91 6,719,791.07 Finance, Leasing & corporate services 3,134,172.22 3,924,150.41 5,068,118.69 6,644,795.85 8,453,374.03
Services 5,904,570.60 6,853,973.75 8,279,660.08 10,333,183.11 12,982,674.73
8
Development is the target of a system placed in the economy with the goals
in achieving social welfare and stability in certain aspects such as economy, social
and politics. As mentioned in Pancasila, the national ideology of Indonesia, point
number three, the Indonesia state purposes is to provide social justice, therefore
social welfare becomes the major goal in Indonesian economy. Based on its
national ideology, Indonesian economy system is aiming on economic growth for
improving its GDP and living quality, including Riau Province through the
economy system that geared to economic growth, which can increase both GRDP
and GDP. Pulp and paper industry contribution is expected to improve local,
regional and national community welfare aligned with economic development
main goals. Input-Output Table will be used to understand the role of pulp and
paper industry in the development of the economy of Riau Province.
1.2 Research Problems
The economy of Riau Province has shown positive growth, which can be
seen from its GRDP growth for the past five years. This fact shows Riau Province
has the ability to survive within the global economy challenges. Industrial
contribution, especially manufacturing industry, is one of the main supporting
factor for GRDP growth, this include the pulp and paper industry. Pulp and paper
industry also has linkage with other sectors in the economy of Riau Province,
whether it is industrial sector or non-industrial sector. Reciprocal relationships
between sectors in national economy are the main key for overall growth of the
The ability of paper industry to encourage its upstream and downstream
sectors can be seen by comparing with other sectors and identifying linkages with
other sectors as well. As mentioned above, therefore several issues that can be
identified are:
1. How is the contribution of pulp and paper industry in the economy of Riau
Province, in term of demand structure, output structure, gross value added,
investment and export–import?
2. How are the linkages between pulp and paper industry with other sectors in
the economy of Riau Province?
3. How is the contribution of pulp and paper industry in encouraging and
pulling the growth of its upstream and downstream sectors?
4. How are the output multiplier and income multiplier of pulp and paper
industry in the economy of Riau Province?
5. How is the role of pulp and paper industry in key sectors of the economy of
Riau Province?
1.3 Research Goals
The development of pulp and paper industry in the economy of Riau
Province has been increasing from time to time. Therefore we need to analyze the
impact created by paper industry in the economy of Riau Province. According to
the previous issues formulation, therefore the goals of this study are:
1. To analyze the contribution of pulp and paper industry in the economy of
Riau Province, in term of demand structure, output structure, gross value
10
2. To analyze the linkages between pulp and paper industry with other sectors
in the economy of Riau Province.
3. To analyze the contribution of pulp and paper industry in encouraging and
pulling the growth of its upstream and downstream sectors.
4. To analyze the output multiplier and income multiplier of pulp and paper
industry in the economy of Riau Province.
5. To analyze the role of pulp and paper industry in key sectors of the
economy of Riau Province.
1.4 Research Significances
The study is expected to gain benefits as follow:
1. As source of information for government decision makers especially for
pulp and paper industry development.
2. As literature materials in pulp and paper industry development for the
stakeholders within the industry.
3. As source of information and data for further relevant studies.
1.5 Scope and Limitations of Research
The study will cover the pulp and paper industry that consist of companies
that process raw materials into pulp and paper, which can be consumed directly or
intermediate products that can be used as input materials for other industries.
Therefore, the paper products industry that is not produces their inputs (paper and
pulp), for example printing and publishing industry will not be covered by this
the types of paper in this study are newspaper paper, printing paper, household
tissue paper, money paper, decoration paper, etc.
Analysis in this study will be done by doing the analysis on data written in
Input-Output Table of Riau Province 2010 based on domestic transaction using
producer price with software application Input Output Analysis for Practitioners
(IOAP) 1.0.1 and Microsoft Excel 2011. The analysis will be used to analyze the
role of pulp and paper industry in Riau Province economic growth.
The main limitation of this study is related to the aggregation of sectors and
Input-Output model used in this research. The analysis of this research will only
covered the economic aspects and not include the environmental aspects.
Employment data for Input-Output Table is not available so it is not possible to
analyze the employment multiplier. Input-Output Analysis used in this research is
II. LITERATURE REVIEW
2.1 Pulp and Paper
2.1.1 Definition of Pulp and Paper
Pulp is a mixture of cellulose material, such as wood, paper, and rags,
ground up and moistened to make paper, while paper (papier) is a human creation
of goods originating from forest commodities, which are very important in life.
Wood pulp is the most common raw material in papermaking. The timber
resources used to make wood pulp are referred to as pulpwood. Wood pulp comes
from softwood trees such as spruce, pine, fir, larch and hemlock, and hardwoods
such as eucalyptus, aspen and birch (Wikipedia, 2012). Paper is a thin material
that mainly used for writing upon, printing upon, drawing or for packaging.
Pressing together moist fibers and cellulose pulp derived from Typically wood,
Rags or grasses, then drying them into flexible sheet produce it.
Paper is a versatile material with many uses. Whilst the most common is for
writing and printing upon, it is also widely used as a packaging material, in many
cleaning products, in number of industrial and construction processes, and even as
a food ingredient particularly in Asian cultures. Thus, paper is unseparateable and
very important for human cultures and daily activities across their lives.
2.1.2 History of Pulp and Paper
The first fairly recent innovation is using wood to make paper. In the 1800s,
fibre crops such as linen fibres were the primary material source, and paper was a
with the development of mechanical pulping in Germany by F.G. Keller in the
1840s, and by the Canadian inventor Charles Fenerty in Nova Scotia. Almost a
decade later the first commercial sulfite pulp mill was built in Sweden. It used
magnesium as the counter ion and was based on work by Carl Daniel Ekman. By
1900, sulfite pulping had become the dominant means of producing wood pulp,
surpassing mechanical pulping methods.
The oldest known archaeological fragments of the immediate precursor to
modern paper date to second century BC China. Papermaking is considered one of
the Four Great Inventions of China, and the pulp papermaking process is ascribed
to Cai Lun, a second century AD Han court eunuch. Paper spread from China
through the Islamic world to medieval Europe in the 13th century, where the first water-powered paper mills were built. In the 19th century, industrial manufacture greatly lowered its cost, enabling mass exchange of information and contributing
to significant cultural shifts. In 1844, Canadian inventor Charles Fenerty and
German F.G. Keller independently developed processes for pulping wood fibers.
The word "paper" is etymologically taken from Latin papyrus, which comes
from the Greek (papuros), the word for the Cyperus papyrus plant. Papyrus is a
thick, paper-like material produced from the pith of the Cyperus papyrus plant
which was used in ancient Egypt and other Mediterranean cultures for writing
before the introduction of paper into the Middle East and Europe. Although paper
is etymologically derived from papyrus, these two things are actually produced
very differently and the development of modern paper is separate from the
14
manufactured from fibres whose properties have been changed by maceration or
disintegration.
2.2 Pulp and Paper Industry
Industry can be broadly defined as any efforts and activities that are
productive in the economic field, while the narrow processing industry including
the paper industry is an activity that changes the basic stuff mechanically,
chemically, or manually creating goods that are ready for immediate consumption
and intermediate goods which can be used as input for further processing.
The pulp and paper industry comprises companies that use wood as raw
material and produce pulp, paper, board and other cellulose-based products. The
industry is dominated by North American (United States and Canada), northern
European (Finland, Sweden, and North-West Russia) and East Asian countries
(such as China, Japan, and South Korea). Australasia and Brazil also have
significant pulp and paper enterprises. The trend is expand globally to countries
like Russia, China and Indonesia with low wages and low environmental
oversight. Pulp and paper industry needs a huge capital because the industry is
capital oriented. Ministry of Industry and the Indonesian Pulp and Paper
Association (APKI) classified pulp and paper industry into (Paper Industry
Roadmap, 2009):
1. The scope of pulp industry as follows:
a) Based on the length of fiber is divided into: needle bleached kraft pulp
b) Based on the manufacturing process is distinguished by: chemical
pulp and mechanical pulp.
c) Based on raw materials divided into: wood pulp and non-wood pulp.
d) Also divided into : virgin pulp (pristine pulp obtained from the
processing of wood or non-wood into pulp either by chemical or
mechanical processes) and recycled pulp from waste paper.
2. The scope of paper industry as follows:
a) Paper Culture, consists of newsprint; printing and writing paper
valuable paper (paper stock, paper, stamps, etc.).
b) Paper Industry, consist of sack kraft, kraft liner, Corrugating medium,
board, and paper wrappers.
c) Tissue Paper, consist of household tissue paper and paper cigarrate.
d) Specialty Paper, consist of paper money; decor paper; paper overlay;
thermo paper; label paper, and etc.
In production, the paper industry in the past used raw materials, which
mostly comes from virgin pulp sourcing from wood raw material. Along with the
decline in timber stock, and the raises of global awareness on environmental
issues, the usage of waste paper as raw material for paper industry (recycling) is
growing rapidly. The use of recycled paper can also save the company’s
production cost. The need for waste paper for the national paper industry currently
reach 6 million tons per year, whereas 3 million tons of waste paper collection is
domestically supplied and the rest is obtained from import. The uses of waste
16
environment issues. Development of wood raw material can be carried out by
countries that still have considerable potential in countries like Indonesia.
2.2.1 Vertical Integration on Pulp and Paper Industry
Vertical integration is the incorporation of companies that have a continuing
process of production (Hasibuhan, 1994). Integration is classified into the
integration of upstream and downstream integration. Companies that apply to the
upstream vertical integration strategy is the company that produces its own inputs,
whereas if the company decides to distribute the output to consumers through an
integrated organisation, that company shall perform downstream vertical
integration. Vertical integration can be done in two ways (Ministry of Industry,
2009) :
1. Full Integration
Full integration occurs when firms produce all the needed input or when the
company is distributing all output generated by subsidiaries integrated with
it.
2. Taper Integration
Taper Integration occurs when firms purchase resources that are needed for
production from other companies or distribute the products through an
integrated company within its organization body as well as companies that
are not integrated.
According Karseno and Mulyaningsih, in Ramli 2006, vertical integration
by pulp and paper companies will increase the efficiency of companies in the
costs in anticipation of growing demand for paper products. The integration of
pulp and paper industries can be seen in figure 2.1 (APKI, 2009).
Source: Department of Industry, 2009
Figure 2.1 The Integration of Pulp and Paper Industry
Ministry of Industry and Indonesian Pulp and Paper Association (APKI)
grouping of vertical integration in the paper industry as follows:
1. Core industry : Paper Industry
2. Supporting industry (upstream industry): Manufacture of pulp, which
consist of virgin pulp and recovered paper industry. There are two types of
virgin pulp such as, Leaf and Needle Bleach, Kraft Pulp Bleach , and Kraft
Pulp. Paper as intermediate products, such as liner and medium paper Kraft
Liner, which is an industrial raw material packaging Cardboard Box Wave.
3. Industry-related (Downstream): Photocopy paper industry, packaging
industry box, the printing and graphics industry and converting industries
(Such as book industry, household tissue, etc.).
Most of the paper companies have their own integration of downstream
integration to minimize the cost of production, for example PT. Indah Kiat Pulp
and Paper and PT. Riau Andalan Pulp and Paper, which have their own pulp mills
18
2.3 Theoretical Review
2.3.1 Industrial Theory
Dumairy (1996) explained that there are two definitions of industry in the
economics sense. First, the industry is the set of the company -its peers, for
example the paper industry is a group of companies producing paper. Second, the
industry is the economic sector whereas there are productive activities in
processing raw materials into finished or semi-finished goods. In the second
sense, the industry is more often called as processing or manufacturing industry.
According to Dumairy’s theory, the pulp and paper industry is an activity or
business to process basic goods or raw materials of pulp and paper that have
added value for society by the companies. Industrial development is a major
nation’s objective to create a strong and balanced economy system, which is
supported by agriculture sector.
Industrialization is the process of economic modernization covering all
economics sectors that have a relationship with one another. Industrialization aims
to increase value-added to the sectors of the economy. Industrialization is the
crucial condition for sustaining long-term process of economic development with
a high rate and sustainable economic growth. The process of industrialization can
be defined as the process of changing the economic structure, which there are
increased in the industrial sector's contribution to consumer demand, GDP,
According to Badan Pusat Statistik (BPS), 2011, industry can be divided
into four types:
a) Major Industries, are industries that use machine labor force with upwards
of 50 people or industries that do not use the engine power but has a
workforce of 100 people over.
b) Medium Scale Industries, are industries that use the labor force by as much
as 5 to 49 people or industries that do not use the machine but it has a labor
force of 10 to 99 people.
c) Small Scale Industries, are industries that use machine labor force by as
much as 1 to 4 people or industries that do not use the machine but it has a
labor force of 1 to 9 people.
d) Household Industries or Micro Scale Industries, are the industries doing the
processing of an item that has a value-added goods, but that industry has a
workforce that is not to be paid.
2.3.2 Concept of Regional Development
Trickle down effect strategy used in the new order development assumes the
need to prioritize economic growth first, and then do equity. This theory assumes
that the level of living will increase with the economic growth achieved through
accelerated growth and the industry in growth centers (center) which then will
have an impact on surrounding areas (edges or peripheral) so that the
industrialization and development of the central area into a major destination. In
fact, in many countries, including in Indonesia, this theory failed to create
20
resources and human resources in the countryside will provide benefits to the
central region and creating poverty for suburbs. This situation requires a shift in
paradigm towards growth that makes people becoming human centered
development as a primary goal of development through the contribution of each
people participation in the improvement of the economy.
Regional development that concerns to the community development is
shown in the income improvement, decrease of the jobless productive age, as well
as regional physical development facilities of the region. Uses of human resources
and potention of the region shall be developed efficient and effectively. Efficiency
is shown in the natural resources exploration that is fit with the precise uses and
also the sustainability efforts to retain it for the long term use. The objectives of
the development should be reach effectively whereas region would be able to
develop itself becoming the established region. The purpose of regional
development is to improve living standards, advances the public mindset and
self-reliance of local economies. The local community living standards can be measure
quantitatively by specific indicators, such as the income of the community,
employment (unemployment), food consumption, and cleanliness.
The Law No. 25 of 2004 provide formal legitimacy of regional autonomy to
local governments as an instrument for institutionalizing participatory planning in
development, as well as the obligation to promote and develop the
competitiveness of regional or local economic competitiveness according to Law
No. 32 of 2004. Enhanced regional competitiveness through improving the local
economy by pursuing the creation of or increase in value-added areas that can be
sectors, linkage between sectors who want to be developed, and local resources
including natural resources, human resources, as well as other potential resources.
2.4 Input Output (I-O) Table
Output Table was first introduced by W. Leontif, in 1930s.
Input-Output quantitative model can provides overall preview of the interdependencies
between sectors within a region. Based on the Input-Output Model, the influence
of economic interactions can be classified into three types includes: direct effects,
indirect effects, and the total effect.
Influence of certain sector description to other sectors development
activities in order to enhance the regional economic is only explainable using the
Input-Output Model, thus through Input-Output Model, it would be clearly shown
which sector that can be the key sector in the regional development (Daryanto,
1993) :
1. A sector is considered as a key sector if the backward linkage and the
forward linkage are relatively high.
2. A sector is considered as a key sector if it can produce a relatively high
gross output, which also shows relatively high demand.
3. A sector seen as key sectors if it is able to produce net revenue is relatively
high.
4. A sector seen as key sectors if it is able to create high jobs (employment).
Through the four conditions and the development of key sectors through the
existing data, it can be seen whether or not pulp and paper industry could be one
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Advantages to be gained when using the Input-Output Table:
1. Detailed description of the national economy and regional economies with
interdependences among sectors and quantify sources of exports and
imports can be provided through the Input-Output Table.
2. Final demand can be determined by the size of the output of each sector and
the need for production factors and resources.
3. The detail in the impact in demand on the economy caused by both public
and private of changes can be track and.
4. Technology and relative prices changes can be integrated into the model
through changes in technical coefficients.
Data are presented in Input-Output Table have detailed information about
the input and output capable of describing the sectorial linkages between sectors
in an economic activity. Input-Output Table is static and closed, in which
households are considered as endogenous or households to determine
consumption inside of the existing economic system. The basic assumptions in
Input-Output Table are:
1. Homogeneity, namely the assumption that every economic sector produces
only one type of goods or services with a single input arrangement and there
is no automatic substitution at the input and output of other sectors.
2. Proportionality, assuming that the relation of input and output of each sector
is linear, then any increase and decrease the output of a sector is
proportional to the increase and decrease in input use.
3. Additively, assuming that the total effect and production activities in
2.4.1 Limitations of Input-Output Table
Input-Output Table also has its limitations where the coefficients input or
technical coefficients assumed to be fixed (constant) during the period of analysis.
Then the technology used in the production process is also assumed to be constant
so that changes in quantity and input prices will always be proportional to the
quantity and price changes in output prices. The more aggregated grouping made
to the existing sectors will lead to violations of the assumption of homogeneity of
the trend higher. Then this will create a lot of detailed economic information is
not revealed in the analysis
2.4.2 Input-Output Table Structure
Input-Output Table provides information about goods and services
transactions that occur between the production sectors in an economy with a
matrix form of presentation. In addition to transactions between sectors,
Input-Output Tables record the balance of consumption, payment of labor services and
capital owners in the line of value-added, and import transactions.
From the Table 2.1 it shows that there are three matrixes (Z, Y, and V).
These matrixes can be calculated to result the output structure, demand structure,
gross value added, export and import of regional economy. The calculated of the
table also produce value of linkages; dispersion and multiplier to define what
sector in the production sector that gives the highest contribution, or defined as a
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Table 2.1 Input-Output Table Simplification
Source : Daryanto, 2010
To understand the table, it takes basic notions are used, namely:
1. Output
In Table IO, calculations on the basis of producer prices used in the output to
avoid double calculations, because consumer prices are on the margin trading
and transportation costs that should go into the trade and transport sectors.
2. Intermediate Input
Intermediate input consist items that are usually finished in the input of
single-use, such as raw materials. In Table Input-Output, intermediate input is Zij,
which is described by the production sector j to produce the required input
from sector i as Zij.
3. Primary Input
In the Input-Output Table, the primary input reflected by wages and salaries,
business surplus, indirect taxes and subsidies.
4. Final Demand
Includes household consumption expenditure, government consumption
5. Export and import
In the Input-Output Table, export and import is transactions of the goods and
services between residents of an area with a population outside the region, both
other provinces and abroad.
Simplification of the Input-Output tables can be created in the form of
general equation (1) as follows.
�!" +�! = �! !
!!!
for i = 1,2,3, ………. (2.1)
On the table there are three basic matrix Z the matrix, the matrix Y, and the
matrix V. Matrix Z is a matrix of transactions between the input; matrix Y is a
matrix of final demand consists of demand for household consumption (C),
government (G), investment (I), and exports (X); matrix V describes the primary
input consisting of wages (W), business surplus (S), depreciation (D), and
subsidies (T). There are two equations in the balance sheet as follows:
���: �!"+�!
= �! !
!!!
, ∀i = 1,2,…,n …………... (2.2)
������: �!" +�!+ �! = �!
!
!!!
, ∀j= 1,……,n …. (2.3)
Definition of balance is the balance sheet at the time of production (output)
is equal to the number of inputs (input). In the equation, Xij is the value of the
flow of goods or services from sector i to sector j; Yi is the total final demand; Vj
is mj is the value added and imports. Flow between industries can be transformed
into a coefficients by assuming the purchase amount is fixed for each level of
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possibility of substitution between raw materials, in other words, the input is
assumed to be fixed. Flow coefficients of this industry are:
�!" = �!"
�! … … … …. (2.4) , or
�!"+ �!"�! … …. .…. (2.5) By inserting equation (5) into equation (2) obtained:
�!"�! +�! = �! !
!!!
, ∀i = 1,……,n ……….…… (2.6)
In matrix notation equation (6) can be written as follows:
��+�=�………... (2.7)
Where �!" � �!"!;�! � �!"!; �! � �!"!
By manipulating equation (2.7), the basic relationship of the IO table can be
determined that:
(I-A)-1 Y = X ... (2.8)
Whereas (I – A) -1 named as Leontief inverse matrix. This matrix contains information about how to increase the production of an industrial sector will lead
to the development of other industrial sectors. Leontief inverse matrix describing
the full impact of changes in production (output) of an industrial sector to the total
production of other sectors into coefficient sector- the coefficient is called the
multiplier output. Multiplier is numbers that is visible from the inverse matrix
Leontief. Input-Output analysis form the basis of economic analysis on the state
of the economy. In general, the matrix in the Input-Output Table is divided into
a) Quadran I (Intermediate Quadran)
Every cell in quadrant I show a transaction between the goods and services
used in the production process. The quadrant shows visible linkages
between economic sectors in the production process.
b) Quadran II (Final Demand Quadran)
Shows the sales of goods and services produced by sectors of the economy
to meet the final demand (output) is directly used by households,
government, fixed capital formation, exports and stock changes.
c) Quadran III (Primary Input Quadran)
Show purchases generated outside the system of production by sectors in
the intermediate quadrant. This quadrant is the quadrant that produces
value-added gross domestic product of the region.
d) Quadran IV (Primary Input- Final Demand Quadran)
Indicating a direct transaction between the primary inputs quadrant with
final demand without going through the production system or a quadrant
between.
2.4.3 Input-Output Sector Classification
Classification of sectors in the Input-Output table is a framework that
determines the initial research stages of subsequent identification. Sector
classification aims to classify the economic activity of great diversity to be one - a
sector unit as far as possible have the same production process and output are
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There are two main criteria in classifying economic sectors, namely:
1. Economic activities (Input)
Grouped according to similarity of structure input, despite having the use of
a different output. This also called "horizontal grouping".
2. Activity (Output)
The economic activities that produce several kinds of goods and services,
even though the number of outputs and services are changes can be
classified into one sector. This classification occurs in the economic
activities are carried out according to the successive stages in the production
process. This classification also called "vertical grouping".
Clustering of these sectors will facilitate the analysis of the study, in which
sectors of the grouping is done completely and clearly where it includes any
activities or commodity in every sector in Riau Province, both concerning the
regional production and imports from outside of Riau Province.
2.4.4 Linkage Analysis
Explain the relationship between industries or sectors. Backward linkage
shows linkage to total purchases in the purchase of inputs used for the production
process. While the forward linkage shows the relationship of sales to total sales
generated output. Direct linkage is shown by the coefficients directly, while the
direct and indirect linkages are shown from the Leontief inverse matrix. Leontief
inverse matrix is also called the coefficient matrix of the relationship because it
contains important information about the structure of the economy to determine
2.4.5 Dispersion Effect Analysis
The dispersion effect analysis is the development from direct
backward-forward analysis, by comparing direct and indirect linkage multiplies by number
of sector with total direct–indirect linkage values from all sectors. This analysis is
the best way to know the dependences between sectors.
1. Coefficient of Dispersion
This analysis is describing the effect caused by some units of end demand
for all sectors in one economy. Coefficient of Dispersion also called
backward dispersion.
2. Sensitivity of Dispersion
Sensitivity of Dispersion is a description of the effect caused by a unit of
final demand for all sectors in the economy. Sensitivity of dispersion is a
direct linkage or indirect forward linkage.
2.4.6 Multiplier Effect Analysis
There are two types of multiplier analysis that used in this research:
1. Output Multiplier
Output multiplier calculated in the per unit change in the output of a sector
as the initial effect, will be an increase or decrease in the total output of all
sectors by one monetary unit.
2. Income Multiplier
Measures the increase in output revenue due to changes in the economy of a
region. Income as defined in the input output table is wages and salaries
