03. Journals
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These are journal articles published in World Bank journals as well as externally by World Bank authors.
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Publication
Book Review of Managing Globalization in the Asian Century: Essays in Honour of Prema-Chandra Athukorala
(Taylor and Francis, 2017)Asia is a region of economic miracles, and this festschrift for the esteemed development economist Prema-Chandra Athukorala highlights a major driver of Asia’s success: globalization. Economic progress in Asia cannot be separated from globalization’s role in industrializing the region’s agrarian economies. Most countries in Asia have, to varying degrees, embraced globalization by opening up to foreign direct investment (to stimulate markets and to transfer know-how) and facilitating the growth of export-oriented industries. -
Publication
Long-term Impacts of Global Food Crisis on Production Decisions: Evidence from Farm Investments in Indonesia
(Taylor and Francis, 2016-05-12)This paper estimates farmers’ investment response to food price spikes using household panel data collected before and after the 2007/08 food price crisis in Indonesia. We found that an increase in farmers’ terms-of-trade allowed relatively large crop-producing farmers to increase their investments at both extensive and intensive margins. Food price spikes had a significant income effect among farmers whose production surplus is large for market sales. During the food price crisis, large farmers particularly increased machine investments, which saved some labour inputs, pointing to the importance of complementarities between land and machine investments. -
Publication
The Impact of Monetary Policy on Financial Markets in Small Open Economies: More or Less Effective During the Global Financial Crisis?
(Elsevier, 2015-06)This paper estimates the impact of monetary policy on exchange rates and stock prices of eight small open economies: Australia, Canada, the Republic of Korea, New Zealand, the United Kingdom, Indonesia, Malaysia, and Thailand. On average across these countries in the full sample, a one percentage point surprise rise in official interest rates leads to a 1% appreciation of the exchange rate and a 0.5–1% fall in stock prices, with somewhat stronger effects in OECD countries than non-OECD countries (though differences are sometimes not significant). We find little robust evidence of a change in the effect of monetary policy surprises during the recent financial crisis. -
Publication
The Role of Markets, Technology, and Policy in Generating Palm-Oil Demand in Indonesia
(Taylor and Francis, 2015-03-30)Indonesia produces more palm oil and consumes more palm oil per capita than any country in the world. This article examines the processes through which Indonesia has promoted palm-oil consumption and some of the consequences of that promotion. Partial equilibrium modelling shows that Indonesia's remarkable increase in palm-oil consumption since 1985 is not largely attributable to population and income growth. Instead, much of this consumption growth has resulted from substitution away from coconut oil, facilitated by government policies on technology, pricing, distribution, and trade. The switch from coconut oil to palm oil in Indonesia was associated with increased land conversions to agriculture and diminished smallholder competitiveness. Despite lower rates of cooking-oil substitution in the future, simulations suggest that Indonesia's total palm-oil consumption in 2035 will be at least double that of 2010. -
Publication
Should Aid Reward Performance? Evidence from a Field Experiment on Health and Education in Indonesia
(American Economic Association, 2014-10)We report an experiment in 3,000 villages that tested whether incentives improve aid efficacy. Villages received block grants for maternal and child health and education that incorporated relative performance incentives. Subdistricts were randomized into incentives, an otherwise identical program without incentives, or control. Incentives initially improved preventative health indicators, particularly in underdeveloped areas, and spending efficiency increased. While school enrollments improved overall, incentives had no differential impact on education, and incentive health effects diminished over time. Reductions in neonatal mortality in non-incentivized areas did not persist with incentives. We find no systematic scoring manipulation nor funding reallocation toward richer areas. -
Publication
Survey of Recent Developments
(Taylor and Francis, 2014-03-24)As Indonesia heads to the polls in 2014, its economy is slowing. The end of the commodities boom and the global return to more normal monetary policy has exposed some weaknesses. Exchange-rate depreciation has absorbed some of the adjustment; but structural rigidities are still likely to limit the expansion of non-commodity sectors, and the increased fuel-subsidy bill for imported oil is putting pressure on the current account and the budget. The immediate focus is on demand-side consolidation to manage inflation and the current account deficit. For an economy like Indonesia’s to be overheating, and for monetary and fiscal authorities to be engineering a soft landing, when growth is below 6%, points to major structural problems. If Indonesia is to prevent the current rate of growth from becoming the new normal, there will need to be a substantial supply-side response to lift productivity, as well as a restructuring of the economy and the introduction of policies that make the economy more flexible in adjusting to shocks. The current economic slowdown has yet to trigger sweeping reforms; policy coordination remains problematic as Indonesia enters a big political year. Compared with its neighbors, Indonesia is largely on the outside of the regional production networks, and its manufacturing sector does not play into factory Asia. Now, faced with lower commodity prices globally—and growth in non-resource sectors is critical— the lack of a large manufacturing base appears to be a weakness. Indonesia is attracting more foreign direct investment than ever and is climbing the global rankings of preferred economies in which to invest, but this is occurring without improvements to its investment environment or competitiveness. Indonesia can participate more fully in global supply chains and increase its potential for growth by upgrading its infrastructure, improving its investment environment, and using regional initiatives strategically to make strong commitments that reinforce its priorities for domestic reform. In its hosting of APEC in 2013, Indonesia championed infrastructure investment where the lack of structural reform and macroeconomic constraints are inhibiting much-needed expansion, both in Indonesia and in the region. The positive outcome, albeit only a small step forward for the Doha Round, at the WTO Ministerial Conference in Bali, in December, also builds momentum for better regional and global cooperation. The priority now is for Indonesia to commit to, and show leadership in, the Regional Comprehensive Economic Partnership (RCEP) and the implementation of the ASEAN Economic Community. -
Publication
Do Crises Catalyze Creative Destruction? Firm-level Evidence from Indonesia
(MIT Press, 2013-12)Using Indonesian manufacturing census data (1991–2001), this paper rejects the hypothesis that the East Asian crisis unequivocally improved the reallocative process. The correlation between productivity and employment growth did not strengthen, and the crisis induced the exit of relatively productive firms. The attenuation of the relationship between productivity and survival was stronger in provinces with comparatively lower reductions in minimum wages, but not due to reduced entry, changing loan conditions, or firms connected to the Suharto regime suffering disproportionately. On the bright side, firms that entered during the crisis were relatively more productive, which helped mitigate the reduction in aggregate productivity. -
Publication
Beyond Univariate Measurement of Spatial Autocorrelation : Disaggregated Spillover Effects for Indonesia
(Taylor and Francis, 2013-08-02)Most studies that incorporate spatial effects use a very limited number of spatial variables in the growth model, e.g. growth spillovers or infrastructure impacts of neighbouring regions. This article innovates on previous work in spatial econometrics by differentiating among spatial contributions to economic development; e.g. infrastructure, capital, human capital, land and labour. We explore whether including more spatial effects can improve the viability of a growth model, and also test the hypothesis that the differential spatial effects of various important predictor variables are discernible for Indonesia. We develop two econometric estimations based on the Durbin representation of the Spatial Error Model. We take advantage of a panel data set spanning Indonesia's post-decentralization years, 2003–2008. The first model uses a modified fixed effects formulation, and the second uses a maximum likelihood estimator. The two sets of models are reported together to serve as a check to the robustness of the results. Multiple estimation methods were attempted, including (to control for potential endogeneity) two-stage least squares (2SLS) and generalized method of moments (GMM). The findings suggest that various types of spillover effects affect a place by different processes, and accounting for this variety of processes in growth models improves the efficacy of those models. Our findings suggest that, for Indonesian districts, the influence of neighbours extends beyond GRDP per capita levels and growth, and also includes demographics, human capital and infrastructure components. We also demonstrate empirically that accounting for spatial effects in analysis of GRDP per capita can improve growth-model estimations. -
Publication
Urbanization and Economic Growth in Indonesia : Good News, Bad News, and (Possible) Local Government Mitigation
(Taylor and Francis, 2013-01-08)Time series analysis for Indonesia over the period 1960-2009 suggests that the level of urbanization is positively associated with economic growth but that the rate of change of urbanization is negatively correlated with growth of economic output. A sub-national dynamic panel investigation provides additional evidence of the positive and negative level and rate effects, respectively. The panel analysis also implies that the harmful impact of urban population growth is linked to insufficient local public infrastructure spending. Local governments that invest more heavily in infrastructure are better able to cope with the apparent detrimental effects of rapid urbanization on economic growth. -
Publication
Crises, Food Prices, and the Income Elasticity of Micronutrients : Estimates from Indonesia
(Oxford University Press on behalf of the World Bank, 2012-11)The 2008 global food price crisis and more recent food price spikes have led to a greater focus on policies and programs to cushion the effects of such shocks on poverty and malnutrition. Analysis of the income elasticities of micronutrients and their changes during food price crises can shed light on the potential effectiveness of cash transfer and nutrition supplement programs. This article examines these issues using data from two cross-sectional household surveys in Indonesia, taken before (1996) and soon after (1999) the 1997–98 economic crisis, which led to a sharp increase in food prices. First, using nonparametric and regression methods, the article examines how the income elasticity of calories from starchy staples as a share of total calories differs between the two survey rounds. Second, the article estimates income elasticities of important nutrients in Indonesia. The analysis finds that, although summary measures such as the income elasticity of the starchy staple ratio might not change during crises, this stability masks important differences across individual nutrients. In particular, income elasticities of some key micronutrients, such as iron, calcium, and vitamin B1, are significantly higher in a crisis year than in a normal year, yet the income elasticities of others—such as vitamin C—remain close to zero. These results suggest that cash transfer programs might be even more effective during crises to ensure the consumption of essential micronutrients. But to ensure that all key micronutrients are consumed, nutrition supplement programs are also likely required.