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Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia
Author: Mary Amiti and Mr. Jozef G Konings
Series:
IMF Working Papers
Volume/Issue:
Volume 2005: Issue 146
Language:
English
Publication Date:
01 Jul 2005
DOI:
https://doi.org/10.5089/9781451861655.001
ISBN:
9781451861655
ISSN:
1018-5941
Pages:
34
Keywords:
WP; input tariff; output tariff; productivity gain; goods tariff
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund