Publication: Trade Policy and Exporters’ Resilience: Evidence from Indonesia
Loading...
Published
2022-05
ISSN
Date
2022-05-31
Author(s)
Editor(s)
Abstract
How does trade policy affect exporters’ ability to respond to foreign demand shocks Faced with a sudden change in the demand for their goods, exporting firms must optimally change their inputs and/or input sources. This paper tests whether a country’s own trade policy makes such adjustments harder for firms that rely on imported inputs. The analysis exploits new time-varying data on tariffs and non-tariff measures faced by Indonesian firms and focuses on the impact of exchange rate shocks on exports to Japan. In response to a depreciation of the yuan, which makes Chinese exports more competitive, the findings show that firms that face non-tariff measures on their inputs see a much larger drop in their export values compared to firms that do not face any non-tariff measures. That is not the case for import tariffs on inputs, which do not affect the export response to the shock. This difference is consistent with the (partial) fixed costs imposed by non-tariff measures on imports in contrast to the pure variable costs of tariffs. The magnitude of this effect depends on the type of non-tariff measure and on firms’ characteristics, such as their participation in global value chains, size, and product quality.
Link to Data Set
Citation
“Cali, Massimiliano; Ghose, Devaki; Montfaucon, Angella Faith; Ruta, Michele. 2022. Trade Policy and Exporters’ Resilience: Evidence from Indonesia. Policy Research Working Paper;10068. © World Bank. http://hdl.handle.net/10986/37489 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication South Africa’s Fragmented Cities: The Unequal Burden of Labor Market Frictions(Washington, DC: World Bank, 2026-01-08)Using high-resolution administrative, census, and satellite data, this paper shows that South African cities are characterized by spatial mismatches between where people live and where jobs are located, relative to 20 global peers. Areas within 5 kilometers of commercial centers have 9,300 fewer residents per square kilometer than expected, which is 60 percent below the global median. Poor, dense neighborhoods are most affected. In Johannesburg, a 10-percentile increase in distance from the nearest business hub corresponds to a 3.7-percentile drop in asset wealth (a proxy of household wellbeing) and 4.9-percentile drop in employment. In Cape Town, the declines are 4.0 and 3.7 percentiles, respectively. Employment is 87 percent lower in the poorest decile than the richest in Johannesburg and 61 percent lower in Cape Town. These findings suggest that South Africa’s spatial organization of people and economic activity constrains agglomeration and reinforces inequality. This methodology provides a scalable and standardized data-driven framework to analyze spatial accessibility and agglomeration frictions in complex, data-constrained urban systems.Publication The Evolution of Local Participatory Democracy in Nepal(Washington, DC: World Bank, 2025-11-05)Nepal is, according to its constitution, among the world’s most decentralized countries, with a long and complex tradition of local-level public participation. This paper traces the evolution of Nepal’s modern participatory institutions, examining the extent to which they are “induced” by external interventions versus being “organically” rooted in indigenous practices. The paper identifies three broad phases: an initial focus on participation in project implementation; a subsequent phase that expanded citizen engagement; and a third phase of citizen empowerment, culminating in the 2015 federal constitution, which granted unprecedented local autonomy. The analysis yields five key findings. First, over the past 50 years, successive reforms have progressively expanded opportunities for citizens to influence local decision-making. Second, these reforms have integrated traditional participatory mechanisms into formal institutions of local government. Third, although central-level initiatives exist, most participatory platforms continue to operate at the local level. Fourth, the federal constitution has created a new landscape of local democracy, embedding autonomy and accountability. Fifth, although they are still valued in many ethnic and territorial communities, traditional participatory practices are gradually disappearing. The paper concludes by offering policy recommendations to help donor agencies and governments strengthen Nepal’s democratic trajectory. It argues that effective interventions should build on Nepal’s deep participatory traditions while recognizing the constitutional reality of far-reaching local autonomy.Publication Institutional Capacity for Policy Implementation: An Analytical Framework(Washington, DC: World Bank, 2026-01-07)State capacity is an important prerequisite for policy implementation, yet at the country level it is difficult to measure, assess, and reform. This paper proposes a focus on institutional capacity: the ability of public institutions to implement the specific policy mandates for which they are responsible. Based on a review of existing literature, the paper defines the different dimensions that compose institutional capacity and groups them into two cross-cutting categories: organizational dimensions (personnel, financial resources, information systems, and management practices) and governance dimensions (transparency, independence, and accountability). The paper proposes measures for organizational and governance dimensions using existing data, shows intra-institutional variation of these measures within countries, and discusses how new data could be collected for better measurement of these concepts. Finally, the paper illustrates how the framework can be used to diagnose the sources of common problems related to weak policy implementation.Publication Closing the Gender Gap in Entrepreneurship: Overcoming Challenges in Law and Practice for Female Entrepreneurs(Washington, DC: World Bank, 2026-01-07)Despite significant strides toward gender equality, women around the world continue to encounter systemic obstacles that hinder their entrepreneurial success. This paper systematically reviews the literature on the barriers female entrepreneurs face and the solutions proposed to overcome these challenges. It discusses institutional factors, financial factors, human capital factors, and social and cultural factors. The literature overview is complemented by a series of stylized facts that illustrate how overcoming some of these existing barriers is correlated with improved women’s entrepreneurship and female labor force participation, drawing on the World Bank’s Women, Business and the Law database as well as the World Bank’s Enterprise Surveys. The findings underscore the need for creating an enabling environment where women can thrive as entrepreneurs.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Firms in Global Value Chains during Covid-19(World Bank, Washington, DC, 2023-07-18)Using detailed monthly firm-level trade data from Indonesia from February 2019 to June 2021, this paper shows that firm-level exports were overall more resilient than imports during Covid-19. Firms that participated in global value chains were more resilient to the Covid-19 shock beyond the immediate short-run compared to firms that did not. However, among global value chain firms, those that faced certain types of non-tariff measures on their import products, notably port of entry restrictions, on average faced larger reductions in export quantities and number of transactions compared to firms that did not face such restrictions, consistent with the evidence of major port congestion during Covid-19. Therefore, although international connectedness could be a source of vulnerability to global shocks in the immediate short run, policies that enable firms to be more globally engaged through global value chains could enhance resilience. Relatedly, tackling measures such as port of entry restrictions can ensure fast and efficient port and customs procedures, especially during periods of high port congestion, as global value chain trade requires goods to cross borders many times.Publication Non-Tariff Measures, Import Competition, and Exports(World Bank, Washington, DC, 2021-10)The empirical evidence on the impact of import competition on economic performance relies mainly on import tariff liberalization as the source of changes to competition. This paper extends this evidence by focusing on non-tariff measures, an increasingly important trade policy tool globally. The analysis examines the competition effect of four specific non-tariff measures on the exporting activity of the universe of Indonesian firms. The focus is on measures that do not clearly address any negative externalities of imports—the supposed objective of non-tariff measures—and hence appear to be protectionist in nature. The results suggest that by restricting import competition, these measures reduce the survival of firms in export markets as well as the intensive and extensive margins of their exports. Non-tariff measures have a more negative effect than import tariffs in most cases and these results are robust to various checks. The analysis provides suggestive evidence that markups are an important channel through which these effects are mediated.Publication Building a Dataset for Non-Tariff Measures and its Usage(World Bank, Washington, DC, 2023)As import tariffs have been declining over the past decades, non-tariff measures (NTMs) have become the most frequently used measures in trade policy. The increasing use of NTMs in global trade has highlighted the need for timely, high frequency and accurate data in order to better understand the implications that NTMs have on products, firms and the economy. This manual describes the first high-frequency panel dataset built by the World Bank on the universe of NTMs applied by a country, i.e. Indonesia. The manual includes a comprehensive overview of the purpose, building procedures and usage of the data for Indonesia. The dataset expands on and improves on existing data on Indonesian NTMs collected by other institutions (UNCTAD and ERIA) by covering a broader source base, customizing the data, and by increasing the frequency of updates. By documenting the data collection and transformation process, the manual hopes to facilitate the construction of similar datasets in other countries.Publication The Impacts of Lockdown Policies on International Trade in the Philippines(World Bank, Washington, DC, 2022-01)The Philippines was among the most infected countries in East Asia at the onset of the COVID-19 outbreak. This study analyzes how international trade on various margins was affected by the country’s own lockdown policies and those of trading partners. Using a monthly series of product-by-country data for the period from January 2019 to December 2020 and an event study design, the paper shows that domestic lockdown measures did not affect international trade but external lockdowns affected both ex- ports and imports. The introduction of lockdown measures by trading partners affected imports more than exports, leading to 7 and 56 percent monthly average drops in export and import values, respectively. Restrictions on internal movements and international travel controls in partner countries were responsible for the drop in exports. The slump in imports was because of workplace closure, stay-at-home requirements, restrictions on internal movement, and international travel controls by trading partners of the Philip- pines. Intermediate goods were the key driver of the drop in imports following foreign lockdowns, reflecting supply disruptions in backward global value chain participation. At the same time, exports of intermediate goods were more resilient to the lockdown policies. Finally, both exports and imports were more affected at the extensive margin than the intensive margin, as lockdown measures hindered interactions among people, in turn reducing the potential of businesses to create new relationships and launch new products in foreign markets. Overall, diversified and geographically dispersed suppliers can help countries adjust better to future disruptions.Publication Depreciations without Exports?(World Bank, Washington, DC, 2015-08)This paper analyzes how the exchange rate elasticity of exports has changed over time and across countries and sectors, and how the formation of global value chains has affected this relationship. The analysis uses a panel framework covering 46 countries over the period 1996-2012, and first finds evidence that the elasticity of manufacturing export volumes to the real effective exchange rate has decreased over time. The paper then examines whether the formation of supply chains has affected this elasticity using different measures of global value chain integration. Intuitively, as countries are more integrated in global production processes, a currency depreciation only improves the competitiveness of a fraction of the value of final goods exports. In line with this intuition, the analysis finds evidence that the rise of participation in global value chains explains on average 40 percent of the fall in the elasticity, and that corrections of the real effective exchange rate for participation in global value chains do not present the same decreasing pattern in elasticity.
Users also downloaded
Showing related downloaded files
Publication Doing Business 2020(Washington, DC: World Bank, 2020)Doing Business 2020 is the 17th in a series of annual studies investigating the regulations that enhance business activity and those that constrain it. It provides quantitative indicators covering 12 areas of the business environment in 190 economies. The goal of the Doing Business series is to provide objective data for use by governments in designing sound business regulatory policies and to encourage research on the important dimensions of the regulatory environment for firms.Publication Global Economic Prospects, January 2025(Washington, DC: World Bank, 2025-01-16)Global growth is expected to hold steady at 2.7 percent in 2025-26. However, the global economy appears to be settling at a low growth rate that will be insufficient to foster sustained economic development—with the possibility of further headwinds from heightened policy uncertainty and adverse trade policy shifts, geopolitical tensions, persistent inflation, and climate-related natural disasters. Against this backdrop, emerging market and developing economies are set to enter the second quarter of the twenty-first century with per capita incomes on a trajectory that implies substantially slower catch-up toward advanced-economy living standards than they previously experienced. Without course corrections, most low-income countries are unlikely to graduate to middle-income status by the middle of the century. Policy action at both global and national levels is needed to foster a more favorable external environment, enhance macroeconomic stability, reduce structural constraints, address the effects of climate change, and thus accelerate long-term growth and development.Publication Digital Africa(Washington, DC: World Bank, 2023-03-13)All African countries need better and more jobs for their growing populations. "Digital Africa: Technological Transformation for Jobs" shows that broader use of productivity-enhancing, digital technologies by enterprises and households is imperative to generate such jobs, including for lower-skilled people. At the same time, it can support not only countries’ short-term objective of postpandemic economic recovery but also their vision of economic transformation with more inclusive growth. These outcomes are not automatic, however. Mobile internet availability has increased throughout the continent in recent years, but Africa’s uptake gap is the highest in the world. Areas with at least 3G mobile internet service now cover 84 percent of Africa’s population, but only 22 percent uses such services. And the average African business lags in the use of smartphones and computers as well as more sophisticated digital technologies that catalyze further productivity gains. Two issues explain the usage gap: affordability of these new technologies and willingness to use them. For the 40 percent of Africans below the extreme poverty line, mobile data plans alone would cost one-third of their incomes—in addition to the price of access devices, apps, and electricity. Data plans for small- and medium-size businesses are also more expensive than in other regions. Moreover, shortcomings in the quality of internet services—and in the supply of attractive, skills-appropriate apps that promote entrepreneurship and raise earnings—dampen people’s willingness to use them. For those countries already using these technologies, the development payoffs are significant. New empirical studies for this report add to the rapidly growing evidence that mobile internet availability directly raises enterprise productivity, increases jobs, and reduces poverty throughout Africa. To realize these and other benefits more widely, Africa’s countries must implement complementary and mutually reinforcing policies to strengthen both consumers’ ability to pay and willingness to use digital technologies. These interventions must prioritize productive use to generate large numbers of inclusive jobs in a region poised to benefit from a massive, youthful workforce—one projected to become the world’s largest by the end of this century.Publication Employment and Poverty in the Philippines(World Bank, Washington, DC, 2015-12)This study analyzes labor market performance in the Philippines from the perspective of workers’ welfare. It argues that pervasive in-work poverty is the main challenge facing labor policy. Poverty is primarily due to low earning capacity of the poor and to their limited access to regular and productive jobs. Behind these are the two interrelated root causes of in-work poverty—low education of the poor, and the scarcity of productive job opportunities. The labor market is segmented into “good” and “bad” jobs, with the poor working in the latter. They hold jobs that are informal, temporary or casual, and low-paid. Widespread informality means that the poor neither benefit from the minimum wage policy nor from employment protection legislation. They do not benefit from wage growth either, because their bargaining power is weak. “Good” jobs are so few, especially in rural areas, that even better educated workers are often forced to take unskilled jobs and work as low-paid laborers. The reduction of in-work poverty hinges on removing constraints to gainful employment in both supply side (better education and skills) and demand side (better jobs). It is critical that the young poor have improved access to quality education, and be equipped with skills required in the modern sector of the economy. But in parallel, better jobs need to be created, which can be attained from the growth of the formal and higher value added sector of the economy. The process of structural transformation should be supported by effective labor policy. Labor regulations need to be made simpler and more flexible to facilitate the reallocation of labor from less to more productive activities, and from informal to formal sector. Targeted training programs have the potential to address the problem of low skills among the poor workers, especially the young ones. Such programs should be developed on a pilot basis and expanded if proven to be cost-effective.Publication Global Economic Prospects, June 2025(Washington, DC: World Bank, 2025-06-10)The global economy is facing another substantial headwind, emanating largely from an increase in trade tensions and heightened global policy uncertainty. For emerging market and developing economies (EMDEs), the ability to boost job creation and reduce extreme poverty has declined. Key downside risks include a further escalation of trade barriers and continued policy uncertainty. These challenges are exacerbated by subdued foreign direct investment into EMDEs. Global cooperation is needed to restore a more stable international trade environment and scale up support for vulnerable countries grappling with conflict, debt burdens, and climate change. Domestic policy action is also critical to contain inflation risks and strengthen fiscal resilience. To accelerate job creation and long-term growth, structural reforms must focus on raising institutional quality, attracting private investment, and strengthening human capital and labor markets. Countries in fragile and conflict situations face daunting development challenges that will require tailored domestic policy reforms and well-coordinated multilateral support.