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

IMF Working Papers, July 1, 2005

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

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Bibliographic details

• Authors: Mary Amiti, Jozef G Konings
• Published: July 1, 2005
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451861655.001

Summary

• This paper estimates the effects of trade liberalization on plant productivity, distinguishing productivity gains from lower tariffs on final goods (output tariffs) versus lower tariffs on intermediate inputs (input tariffs).
• Lower output tariffs can produce productivity gains by inducing tougher import competition.
• Cheaper imported inputs can raise productivity via learning, variety, or quality effects.
• Data: Indonesian manufacturing census data from 1991 to 2001, which includes plant-level information on imported inputs.
• Main quantitative results:
  • A 10 percentage point fall in output tariffs increases productivity by about 1 percent.
  • A 10 percentage point fall in input tariffs leads to a 3 percent productivity gain for all firms.
  • A 10 percentage point fall in input tariffs leads to an 11 percent productivity gain for importing firms.

Methodology and Data

• Data source: Indonesian manufacturing census data, 1991 to 2001, with plant-level information on imported inputs.
• Comparative identification: Separates effects of reductions in output tariffs from reductions in input tariffs to isolate channels (import competition vs. input-driven learning/variety/quality).

Key Findings

• Largest productivity gains arise from reducing input tariffs rather than output tariffs.
• Quantified effects:
  • Output tariff reduction: 10 percentage point → ~1 percent productivity increase.
  • Input tariff reduction: 10 percentage point → 3 percent productivity increase (all firms).
  • Input tariff reduction: 10 percentage point → 11 percent productivity increase (importing firms).

Subjects and Keywords

• Subject: Imports, Labor productivity, Productivity, Tariffs, Total factor productivity
• Keywords: goods tariff, input tariff, output tariff, productivity gain, WP

Content in this bundle

• _wp05146 — Input Price Indices in Indonesia, 1991–2001
  • _wp05146 — Input Price Indices in Indonesia, 1991–2001 (Markdown version)
  • _wp05146 — Input Price Indices in Indonesia, 1991–2001 (PDF)