Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia

July 1, 2005

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Mary Amiti, and Jozef G Konings. Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia, (USA: International Monetary Fund, 2005) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper estimates the effects of trade liberalization on plant productivity. In contrast to previous studies, we distinguish between productivity gains arising from lower tariffs on final goods relative to lower tariffs on intermediate inputs. Lower output tariffs can produce productivity gains by inducing tougher import competition whereas cheaper imported inputs can raise productivity via learning, variety, or quality effects. We use Indonesian manufacturing census data from 1991 to 2001, which includes plant-level information on imported inputs. The results show that the largest gains arise from reducing input tariffs. A 10 percentage point fall in output tariffs increases productivity by about 1 percent, whereas an equivalent fall in input tariffs leads to a 3 percent productivity gain for all firms and an 11 percent productivity gain for importing firms.

Subject: Imports, Labor productivity, Productivity, Tariffs, Total factor productivity

Keywords: Goods tariff, Input tariff, Output tariff, Productivity gain, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2005/146
Stock No:

WPIEA2005146
ISBN:

9781451861655
ISSN:

1018-5941

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