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SUMMARYIn this paper, we analyse the diffusion and adoption of paper making machinery in the Indonesian pulp and paper industry, from 1923 till 2000. The two main questions in this paper are: (1) What patterns of technology diffusion can be discerned in the Indonesian paper manufacturing sector? (2) What role have industrial policies played in the diffusion of technology and the expansion of the paper industry? To address these questions, we develop a machine index (mach), which measures the technological distance of each paper machine to the world technological frontier through time. The documented trends in an aggregate version of the technology index reveal a pattern of rapid catch up. The paper argues that industrial policy has played an important role in the speed and nature of diffusion of paper making machinery in Indonesia. A more disaggregated analysis indicates that conglomerate owned mills adopted advanced paper machines close to the technological frontier, while independent and publicly owned mills installed more outdated equipment. Embodied technological catch up in paper making has thus been a highly polarised phenomenon, limited to only a few firms, which had the financial resources and the capabilities to install large-scale modern machinery. KeywordsAsia, Indonesia, Pulp and paper industry, Technology diffusion, Technology adoption, Industrial policy ACKNOWLEDGEMENTSWe would like to express our gratitude to the Centre for Strategic and International Studies (CSIS) in Jakarta, Indonesia for hosting the first author in 2001 and to the Yale Economic Growth Center for hosting the second author in 2005 Previous versions of this paper were presented at a seminar of the Eindhoven Centre for Innovation Studies (ECIS) and the Schumpeter 2004 conference in Milan. We thank the participants for comments and suggestions. The usual disclaimer applies. Financial support from SOBU is also gratefully acknowledged.

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