Promoting Small Scale and Cottage Industries in Indonesia: An Impact Analysis for Central Java

Abstract

This paper reviews the promotion of small scale and cottage industries (SSCI) in Indonesia and its impact on employment creation. The review was conducted for the province of Central Java, the ‘heartland’ of SSCI employment. Secondary data showed that participation rates in technical and financial assistance programs for SSCI are low, suggesting that programs may continue for many years before a majority of SSCI producers are reached. A field survey in six clusters of SSCI investigated the effectiveness of current programs to enhance the development of these industries. The analysis provides little evidence that the programs have a positive impact on employment in the less dynamic clusters of SSCI. In the very dynamic clusters, firms using a combination of technical and financial assistance were most successful in terms of employment generation. The study concludes that present assistance programs are not a ‘cause’ of employment growth in SSCI, but are accommodating such growth.