ABSTRACT
Since 2009, the number of large and medium industries in Surakarta has decreased by 27.4% because of cost inefficiency problems. The purpose of this research is to estimate and analyze the cost inefficiency. The method is specifying a 2010–2015 panel data stochastic cost frontier model. The results show that the model is characterized by a linear homogeneity in factor price, a truncated half-normal distribution of cost inefficiency error term data and time-varying panel data. The results also show that in 2010, the industry experienced very high cost inefficiency. Since 2011, cost inefficiency had decreased sharply. The cause was governmental policies such as monetary and fiscal policies, and efforts of the industry such as cost and production adjustments. Another result is that textile (International Standard Industrial Classification (ISIC 13), textile product (ISIC 14), printing (ISIC 18), chemistry product, (ISIC 20), rubber product (ISIC 22) and other (ISIC 32) industries have a higher cost inefficiency level than food (ISIC 10) and furniture (ISIC 31) industries. This indicates that the first group finds it more difficult to adjust to a crisis, costs and production than the second group.
