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Behind the Boom and Bust of Indonesian Exports
Titik Anas, June 2012
The Australian National University
Abstract
This thesis examines Indonesia’s export performance from the 1970s. It provides a rigorous and comprehensive analysis of the currently limited discussion on Indonesia’s trade issues. The main research questions are threefold: how good is Indonesia’s export performance over the last 30 years?. How does it compare to its close competitors?. What factors contributed to the performance?
This thesis begins with a discussion of the economic policy dynamics in Indonesia since the 1970s and focuses on the economic reforms Indonesia has undertaken since the mid 1980s, followed by chapters devoted to discussion on Indonesia’s comparative advantage and competitiveness relative to its close competitors and the determinants of exports, at the macro and firm levels.
On comparative advantage, this thesis shows that the number of products for which Indonesia has a comparative advantage has increased over time. The increase is mainly due to the manufacturing sector. A closer assessment of the manufacturing sector confirms Indonesia’s comparative advantage in labour intensive and resource based labour intensive industries. However, recent data show these industries experienced deterioration in their export strength.
On Indonesia’s competitive position relative to China, Malaysia, Thailand and Viet Nam, this thesis shows Indonesia is more competitive in the agriculture sector especially in recent times; relatively less competitive in the manufacturing sector; and on a par in the mining sectors except for the last few years when Indonesia has been relatively more competitive. Closer assessment of the manufacturing sector reveals that Indonesia is relatively more competitive in resource based labour intensive and resource based capital-intensive industries.
This thesis also shows the long run relationship between exports, the real exchange rate, and demand and supply factors. The signs and the magnitude of the effect of each of the factors differ across sectors and subsectors. For manufacturing exports, the real exchange rate, demand and supply factors are positive and statistically significant. For agriculture exports, the effect of real exchange rate, world demand and supply capacity are also positive. However, only coefficients of world demand and supply capacity are statistically significant. For the mining sectors, although those three variables exhibit positive impacts on exports, only world demand shows a statistically significant impact. This chapter also shows the particular impact of economic reform on the manufacturing sector. It also shows differences in exports performance across sector during the crisis.
At the firm level, this thesis shows the impact of firm heterogeneity and spillovers on export decisions and export performance. The results are relatively consistent for pre and post-crisis period. On the export decisions, the effect of labour productivity, size, foreign ownership, sectoral and regional spillovers are positive. On export performance, the effect of firm heterogeneity and spillovers are also relatively consistent for pre and post-crisis, while the magnitudes are generally higher during the post-crisis period, except for sectoral spillovers. Assessment of the labour-intensive sector shows their superior export performance compared to other manufacturing exports. The assessment on Batam also reveals its superior export performance relative to other regions.
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