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

_IMF Working Papers, July 1, 2005_

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**Canonical URL:** [Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia](https://www.imf.org/en/publications/wp/issues/2016/12/31/trade-liberalization-intermediate-inputs-and-productivity-evidence-from-indonesia-18377)

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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

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### 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

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## Content in this bundle

- **_wp05146 — Input Price Indices in Indonesia, 1991–2001**
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  - [_wp05146 — Input Price Indices in Indonesia, 1991–2001 (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2005/_wp05146.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/trade-liberalization-intermediate-inputs-and-productivity-evidence-from-indonesia-18377_