Technical Efficiency Chemical Industry in Indonesia: Stochastic Frontier Analysis (SFA) Approach

This study aims to analyse the technical efficiency of Chemical Industry in Indonesia using Stochastic Frontier Analysis (SFA) approach. A survey explanatory method is adopted with panel type data at 4240 inputs and output level of companies during six years of observation (2010-2015). Determinant technical efficiency is estimated by using multiple regression. Both technical efficiency calculations and regression determinants are done using the TE effect approach in Frontier 4.1 software. The result of research indicates that market share variable significantly and negatively affects technical efficiency. Other variables, such as company age, business ownership, ratio concentration, and capacity utilisation affect the technical efficiency are not significant. This finding implies that to improve the efficiency of the chemical industry, market share needs to be increased through various activities such as promotion.