Global Value Chain: Indonesia's Integration with the World Economy

What is it about?

This study analyses the development of Indonesia within the Global Value Chain (GVC) as a result of the intensive fragmentation of Production Networks in Asia. By employing a Global Input-Output Table covering 64 countries and 34 different sectors, this study measures the integration of Indonesia within the Global Value Chain by breaking down its gross exports into components of value-added. We look at the period of 1995 to 2015. The system allows for differentiating value-added exports that goes in the form of intermediate goods or final products, as well as direct exports, and indirect ones (multiple-cross-border trade). By doing so we can track how value-added travels across regional and global chains and how links are created with regional and global partners.

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Photo by frank mckenna on Unsplash

Photo by frank mckenna on Unsplash

Why is it important?

Asia has experienced a deep fragmentation in production and trade, resulting in changes in the patterns of trade and integration. More than 75% of total trade is in intermediate goods suggesting that countries participate more actively in producing specific shares of value-added of goods rather than entire products. Value-added exported under fragmented production networks account for the largest share of export growth, allowing countries to expand at a faster than usual speed. Only within 1995 to 2011 Indonesian value-added exports expanded by more than 300% from 1995 to 2011. The rapid change also suggests a change in the trade focus of Indonesia as it re-directed towards Asian partners, mainly to specific sectors within mining (33% of the increase) and within manufacturing (41% of growth).

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