Backward and Forward Linkage Effects on Firm Survival: Evidence from East Java Large and Medium Manufacturing Survey

Firm survival in dynamic business environments is significantly influenced by the strength of a firm’s intersectoral linkages. While the impact of backward linkages on firm performance has been widely studied, their effect on firm survival remains unclear, especially in emerging economies like Indonesia. This study investigates the effects of both backward and forward linkages on the survival of manufacturing firms in East Java, Indonesia, using a survival analysis approach coupled with Survival-time inverse-probability-weighted regression adjustment (STIPWRA). Analysis of enterprise- level large and medium industry survey data from 1995 to 2015 (published by the Central Bureau of Statistics (BPS)), complemented by Input-Output tables for 2000, 2005, 2010, and 2015, revealed that while backward linkages did not significantly impact survival, forward linkages had a positive and significant impact. Firms with strong forward linkages demonstrated greater resilience and longer survival times. These findings highlight the crucial role of forward-looking strategies, like cultivating strong customer relationships and market positioning, for the long-term sustainability of manufacturing firms. Policy implications center on fostering robust forward linkages through strategic investments in infrastructure, R&D, and workforce training to enhance the competitiveness of East Javan manufacturing enterprises.