Nasir, M: Impact of Efficiency Improvement and Technical

Technological change has a positive role on Indonesian economic growth.Furthermore, foreign direct investment (FDI) as the means of technological transfer also has a positive role on Indonesian economic growth. This study investigates four inherentlyinterconnected issues: the growth rates of output and inputs and also differences between sectors; the role of technological change on economic growth; government policies toward supporting economic growth; and the role of FDI on economic growth. The central research issue is on exploring the contribution of technological change on Indonesian economic growth. By modeling the role of technological change as a Malmquist index as applied by Coelli et al. (1998) and the role of FDI on economic growth, this study investigates the role of technological change and FDI on Indonesian economic growth. Using time series data for the period of 1971-2005 for Indonesia, the results show that Indonesian economic growth fluctuates over time, meanwhile labor fluctuates less compared to capital. So far foreign direct investment (FDI) inflow shows broadly fluctuation over time.