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

Author/Editor:

Mary Amiti ; Jozef G Konings

Publication Date:

July 1, 2005

Electronic Access:

Free Full text (PDF file size is 539 KB).Use the free Adobe Acrobat Reader to view this PDF file

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.

Series:

Working Paper No. 05/146

Subject:

English

Publication Date:

July 1, 2005

ISBN/ISSN:

9781451861655/1018-5941

Stock No:

WPIEA2005146

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

34

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