Publication: The Role of Imported Intermediate Inputs in the Indonesian Economy
Date
2015-04
ISSN
Published
2015-04
Author(s)
Rahardja, Sjamsu
Varela, Gonzalo J.
Abstract
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.
Citation
“Rahardja, Sjamsu; Varela, Gonzalo J.. 2015. The Role of Imported Intermediate Inputs in the Indonesian Economy. © World Bank, Jakarta. http://hdl.handle.net/10986/23509 License: CC BY 3.0 IGO.”