The Role of Imported Intermediate Inputs in the Indonesian Economy

The recent emergence of a persistent deficit in Indonesia s trade balance has triggered concerns over reliance on imports. Notably, imports of intermediate inputs and capital goods have been on the rise over the last decade. Apart from firms partak...

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Main Authors:	Rahardja, Sjamsu, Varela, Gonzalo J.
Format:	Report
Language:	English en_US
Published:	World Bank, Jakarta 2015
Subjects:	TARIFFS ECONOMIC GROWTH SUBSTITUTION PRODUCTION PRODUCTION CHAINS TARIFF PROTECTION STOCK EXPORT STRUCTURES INVESTMENT POLICIES TRADE BARRIERS CONSUMER GOODS LABOR FORCE PROTECTIONIST EXPORTS DEVELOPING COUNTRIES DOMESTIC MARKET EXPORTERS LEGAL STATUS DISTRIBUTION GROWING TRADE VARIABLES EXPORT DATA PRICE INPUTS PRODUCT QUALITY INTERMEDIATE PRODUCTS PROTECTIONISM IMPORT LICENSES PRODUCTION PROCESS FOREIGN MARKETS DEVELOPMENT TRADE BALANCE TOTAL FACTOR PRODUCTIVITY IMPORTED INTERMEDIATE DOMESTIC PRODUCERS REDUCTION IN TARIFFS DOMESTIC INPUTS COMPETITIVE EFFECTS GLOBAL PRODUCTION PRODUCTS SURPLUS PRODUCTIVITY WORKERS’ SKILLS INDUSTRIALIZATION GLOBALIZATION WORLD EXPORTS MARKETS PRIVATE INVESTMENT TARIFF REDUCTIONS IMPORT RESTRICTIONS PRO-COMPETITIVE EFFECTS ACCESS IMPORTS PRODUCT CONSUMER CHOICE TRADE POLICIES NON-TARIFF MEASURES COMPETITIVE PRESSURES PRODUCT LEVEL CONSUMPTION HUMAN CAPITAL VALUE ADDED KNOWLEDGE SPILLOVERS INTERNATIONAL PRODUCTION SUBSTITUTE TRAVEL ECONOMIC PERFORMANCE WAGES OWNERSHIP STRUCTURE TRADE COSTS PRODUCTIVITY INCREASES MARKET PRICES VALUE COMPETITIVENESS DEMAND SHOCKS PRODUCT DIFFERENTIATION DEVELOPMENT STRATEGY PRODUCTION NETWORKS DEMAND INTERMEDIATE GOODS ECONOMY INPUT-OUTPUT TABLES EMPLOYMENT GROWTH OPENNESS MARKET BENCHMARK TRADE LIBERALIZATION SUPPLY CHAIN TARIFF LEVELS INTERNATIONAL NORMS REGRESSION ANALYSIS CAPITAL GOODS DOMESTIC DEMAND PRICE REDUCTIONS TRADE IMPORTED INPUTS GDP GOODS INVESTMENT TRANSPORT COST COMPARATIVE ADVANTAGE IMPORTED INTERMEDIATES BUSINESS ENVIRONMENT TARIFF SUPPLY TRADE LIBERALIZATION PROCESS COMPETITIVE MARKETS STATISTICAL ANALYSIS TOTAL OUTPUT SUPPLIERS INTERMEDIATE INPUTS PRICES
Online Access:	http://documents.worldbank.org/curated/en/2015/12/19789162/role-imported-intermediate-inputs-indonesian-economy-policy-note-iii http://hdl.handle.net/10986/23509

id	okr-10986-23509
recordtype	oai_dc
spelling	okr-10986-235092021-04-23T14:04:15Z The Role of Imported Intermediate Inputs in the Indonesian Economy Rahardja, Sjamsu Varela, Gonzalo J. TARIFFS ECONOMIC GROWTH SUBSTITUTION PRODUCTION PRODUCTION CHAINS TARIFF PROTECTION STOCK EXPORT STRUCTURES INVESTMENT POLICIES TRADE BARRIERS CONSUMER GOODS LABOR FORCE PROTECTIONIST EXPORTS DEVELOPING COUNTRIES DOMESTIC MARKET EXPORTERS LEGAL STATUS DISTRIBUTION GROWING TRADE VARIABLES EXPORT DATA PRICE INPUTS PRODUCT QUALITY INTERMEDIATE PRODUCTS PROTECTIONISM IMPORT LICENSES PRODUCTION PROCESS FOREIGN MARKETS DEVELOPMENT TRADE BALANCE TOTAL FACTOR PRODUCTIVITY IMPORTED INTERMEDIATE DOMESTIC PRODUCERS REDUCTION IN TARIFFS DOMESTIC INPUTS COMPETITIVE EFFECTS GLOBAL PRODUCTION PRODUCTS SURPLUS PRODUCTIVITY WORKERS’ SKILLS INDUSTRIALIZATION GLOBALIZATION WORLD EXPORTS MARKETS PRIVATE INVESTMENT TARIFF REDUCTIONS IMPORT RESTRICTIONS PRO-COMPETITIVE EFFECTS ACCESS IMPORTS PRODUCT CONSUMER CHOICE TRADE POLICIES NON-TARIFF MEASURES COMPETITIVE PRESSURES PRODUCT LEVEL CONSUMPTION HUMAN CAPITAL VALUE ADDED KNOWLEDGE SPILLOVERS INTERNATIONAL PRODUCTION SUBSTITUTE TRAVEL ECONOMIC PERFORMANCE WAGES OWNERSHIP STRUCTURE TRADE COSTS PRODUCTIVITY INCREASES MARKET PRICES VALUE COMPETITIVENESS DEMAND SHOCKS PRODUCT DIFFERENTIATION DEVELOPMENT STRATEGY PRODUCTION NETWORKS DEMAND INTERMEDIATE GOODS ECONOMY INPUT-OUTPUT TABLES EMPLOYMENT GROWTH OPENNESS MARKET BENCHMARK TRADE LIBERALIZATION SUPPLY CHAIN TARIFF LEVELS INTERNATIONAL NORMS REGRESSION ANALYSIS CAPITAL GOODS DOMESTIC DEMAND PRICE REDUCTIONS TRADE IMPORTED INPUTS GDP GOODS INVESTMENT TRANSPORT COST COMPARATIVE ADVANTAGE IMPORTED INTERMEDIATES BUSINESS ENVIRONMENT TARIFF SUPPLY TRADE LIBERALIZATION PROCESS COMPETITIVE MARKETS STATISTICAL ANALYSIS TOTAL OUTPUT SUPPLIERS INTERMEDIATE INPUTS PRICES The recent emergence of a persistent deficit in Indonesia s trade balance has triggered concerns over reliance on imports. Notably, imports of intermediate inputs and capital goods have been on the rise over the last decade. Apart from firms partaking in the emergence of global production networks, firms imported intermediates for various reasons, including value, variety, and quality. Concerns may arise about the impact that an increase in reliance on imported inputs may have on domestic jobs, and value added. A careful examination of sector and firm level data from the Indonesian manufacturing sector reveals that: (1) the growth of intermediates imports roughly matches the growth of Indonesian GDP, implying a relatively stable reliance on imported inputs. (2) Users of imported inputs in Indonesia are exceptional performers: they grow faster in terms of output, value added and employment, they are more productive, and they pay higher wages. (3) The increased availability of imported inputs has contributed to improved product quality in Indonesian manufacturing. Larger shares of imported inputs in total inputs, as well as lower tariffs on inputs, are associated with a higher probability of producing high quality goods. (4) Firms product diversification processes have been boosted by lower tariffs on inputs, and by increased usage of imported versions. In light of these results, this note argues that facilitating the import of intermediate products can help the Indonesian economy to diversify, avoid being stuck in low-skilled processing or around natural resource based manufacturing, and to climb up the value chain. Such an approach, however, is not sufficient in isolation and active policies are needed to increase firms absorptive capacities and workers skills. 2015-12-23T15:54:47Z 2015-12-23T15:54:47Z 2015-04 Report http://documents.worldbank.org/curated/en/2015/12/19789162/role-imported-intermediate-inputs-indonesian-economy-policy-note-iii http://hdl.handle.net/10986/23509 English en_US CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Jakarta Economic & Sector Work :: Policy Note Economic & Sector Work East Asia and Pacific Indonesia
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	TARIFFS ECONOMIC GROWTH SUBSTITUTION PRODUCTION PRODUCTION CHAINS TARIFF PROTECTION STOCK EXPORT STRUCTURES INVESTMENT POLICIES TRADE BARRIERS CONSUMER GOODS LABOR FORCE PROTECTIONIST EXPORTS DEVELOPING COUNTRIES DOMESTIC MARKET EXPORTERS LEGAL STATUS DISTRIBUTION GROWING TRADE VARIABLES EXPORT DATA PRICE INPUTS PRODUCT QUALITY INTERMEDIATE PRODUCTS PROTECTIONISM IMPORT LICENSES PRODUCTION PROCESS FOREIGN MARKETS DEVELOPMENT TRADE BALANCE TOTAL FACTOR PRODUCTIVITY IMPORTED INTERMEDIATE DOMESTIC PRODUCERS REDUCTION IN TARIFFS DOMESTIC INPUTS COMPETITIVE EFFECTS GLOBAL PRODUCTION PRODUCTS SURPLUS PRODUCTIVITY WORKERS’ SKILLS INDUSTRIALIZATION GLOBALIZATION WORLD EXPORTS MARKETS PRIVATE INVESTMENT TARIFF REDUCTIONS IMPORT RESTRICTIONS PRO-COMPETITIVE EFFECTS ACCESS IMPORTS PRODUCT CONSUMER CHOICE TRADE POLICIES NON-TARIFF MEASURES COMPETITIVE PRESSURES PRODUCT LEVEL CONSUMPTION HUMAN CAPITAL VALUE ADDED KNOWLEDGE SPILLOVERS INTERNATIONAL PRODUCTION SUBSTITUTE TRAVEL ECONOMIC PERFORMANCE WAGES OWNERSHIP STRUCTURE TRADE COSTS PRODUCTIVITY INCREASES MARKET PRICES VALUE COMPETITIVENESS DEMAND SHOCKS PRODUCT DIFFERENTIATION DEVELOPMENT STRATEGY PRODUCTION NETWORKS DEMAND INTERMEDIATE GOODS ECONOMY INPUT-OUTPUT TABLES EMPLOYMENT GROWTH OPENNESS MARKET BENCHMARK TRADE LIBERALIZATION SUPPLY CHAIN TARIFF LEVELS INTERNATIONAL NORMS REGRESSION ANALYSIS CAPITAL GOODS DOMESTIC DEMAND PRICE REDUCTIONS TRADE IMPORTED INPUTS GDP GOODS INVESTMENT TRANSPORT COST COMPARATIVE ADVANTAGE IMPORTED INTERMEDIATES BUSINESS ENVIRONMENT TARIFF SUPPLY TRADE LIBERALIZATION PROCESS COMPETITIVE MARKETS STATISTICAL ANALYSIS TOTAL OUTPUT SUPPLIERS INTERMEDIATE INPUTS PRICES
spellingShingle	TARIFFS ECONOMIC GROWTH SUBSTITUTION PRODUCTION PRODUCTION CHAINS TARIFF PROTECTION STOCK EXPORT STRUCTURES INVESTMENT POLICIES TRADE BARRIERS CONSUMER GOODS LABOR FORCE PROTECTIONIST EXPORTS DEVELOPING COUNTRIES DOMESTIC MARKET EXPORTERS LEGAL STATUS DISTRIBUTION GROWING TRADE VARIABLES EXPORT DATA PRICE INPUTS PRODUCT QUALITY INTERMEDIATE PRODUCTS PROTECTIONISM IMPORT LICENSES PRODUCTION PROCESS FOREIGN MARKETS DEVELOPMENT TRADE BALANCE TOTAL FACTOR PRODUCTIVITY IMPORTED INTERMEDIATE DOMESTIC PRODUCERS REDUCTION IN TARIFFS DOMESTIC INPUTS COMPETITIVE EFFECTS GLOBAL PRODUCTION PRODUCTS SURPLUS PRODUCTIVITY WORKERS’ SKILLS INDUSTRIALIZATION GLOBALIZATION WORLD EXPORTS MARKETS PRIVATE INVESTMENT TARIFF REDUCTIONS IMPORT RESTRICTIONS PRO-COMPETITIVE EFFECTS ACCESS IMPORTS PRODUCT CONSUMER CHOICE TRADE POLICIES NON-TARIFF MEASURES COMPETITIVE PRESSURES PRODUCT LEVEL CONSUMPTION HUMAN CAPITAL VALUE ADDED KNOWLEDGE SPILLOVERS INTERNATIONAL PRODUCTION SUBSTITUTE TRAVEL ECONOMIC PERFORMANCE WAGES OWNERSHIP STRUCTURE TRADE COSTS PRODUCTIVITY INCREASES MARKET PRICES VALUE COMPETITIVENESS DEMAND SHOCKS PRODUCT DIFFERENTIATION DEVELOPMENT STRATEGY PRODUCTION NETWORKS DEMAND INTERMEDIATE GOODS ECONOMY INPUT-OUTPUT TABLES EMPLOYMENT GROWTH OPENNESS MARKET BENCHMARK TRADE LIBERALIZATION SUPPLY CHAIN TARIFF LEVELS INTERNATIONAL NORMS REGRESSION ANALYSIS CAPITAL GOODS DOMESTIC DEMAND PRICE REDUCTIONS TRADE IMPORTED INPUTS GDP GOODS INVESTMENT TRANSPORT COST COMPARATIVE ADVANTAGE IMPORTED INTERMEDIATES BUSINESS ENVIRONMENT TARIFF SUPPLY TRADE LIBERALIZATION PROCESS COMPETITIVE MARKETS STATISTICAL ANALYSIS TOTAL OUTPUT SUPPLIERS INTERMEDIATE INPUTS PRICES Rahardja, Sjamsu Varela, Gonzalo J. The Role of Imported Intermediate Inputs in the Indonesian Economy
geographic_facet	East Asia and Pacific Indonesia
description	The recent emergence of a persistent deficit in Indonesia s trade balance has triggered concerns over reliance on imports. Notably, imports of intermediate inputs and capital goods have been on the rise over the last decade. Apart from firms partaking in the emergence of global production networks, firms imported intermediates for various reasons, including value, variety, and quality. Concerns may arise about the impact that an increase in reliance on imported inputs may have on domestic jobs, and value added. A careful examination of sector and firm level data from the Indonesian manufacturing sector reveals that: (1) the growth of intermediates imports roughly matches the growth of Indonesian GDP, implying a relatively stable reliance on imported inputs. (2) Users of imported inputs in Indonesia are exceptional performers: they grow faster in terms of output, value added and employment, they are more productive, and they pay higher wages. (3) The increased availability of imported inputs has contributed to improved product quality in Indonesian manufacturing. Larger shares of imported inputs in total inputs, as well as lower tariffs on inputs, are associated with a higher probability of producing high quality goods. (4) Firms product diversification processes have been boosted by lower tariffs on inputs, and by increased usage of imported versions. In light of these results, this note argues that facilitating the import of intermediate products can help the Indonesian economy to diversify, avoid being stuck in low-skilled processing or around natural resource based manufacturing, and to climb up the value chain. Such an approach, however, is not sufficient in isolation and active policies are needed to increase firms absorptive capacities and workers skills.
format	Report
author	Rahardja, Sjamsu Varela, Gonzalo J.
author_facet	Rahardja, Sjamsu Varela, Gonzalo J.
author_sort	Rahardja, Sjamsu
title	The Role of Imported Intermediate Inputs in the Indonesian Economy
title_short	The Role of Imported Intermediate Inputs in the Indonesian Economy
title_full	The Role of Imported Intermediate Inputs in the Indonesian Economy
title_fullStr	The Role of Imported Intermediate Inputs in the Indonesian Economy
title_full_unstemmed	The Role of Imported Intermediate Inputs in the Indonesian Economy
title_sort	role of imported intermediate inputs in the indonesian economy
publisher	World Bank, Jakarta
publishDate	2015
url	http://documents.worldbank.org/curated/en/2015/12/19789162/role-imported-intermediate-inputs-indonesian-economy-policy-note-iii http://hdl.handle.net/10986/23509
_version_	1764454032821190656

The Role of Imported Intermediate Inputs in the Indonesian Economy

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