What is it about?
This paper analyses determinants of agricultural exports and imports from Indonesia, including a set of variables capturing effects of growth in income from partners, market size, changes in prices, trade tariffs, and exchange rates. Additionally we test whether variables related to logistics, competitiveness, trade policy and innovation support a larger expansion of trade. The main focus of the paper is on trade creation and diversion effects, asking whether the implementation of Free Trade Agreements of Indonesia with more than 20 countries leads to faster than usual trade in Agricultural goods and Food Products. The dataset comprises 50 countries with data on exports and imports from 2007 until 2017.
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Why is it important?
The signing and implementation of multiple Free Trade Agreements (FTAs) could lead to higher than usual trade among the partners or to a diversion in trade form more competitive non-partners who do not receive special treatment. Besides, in the last two decades, free-trade partners of Indonesia had improved significantly in logistics, innovation, and governance, suggesting that more competitive environment may work in favor or against domestic markets in Indonesia.
Perspectives
The results find trade creation effects for agro raw goods and food, with larger effects in creation in exports within agricultural raw goods, and higher trade creation effects through imports in food. Indonesia also experienced trade expansion with non-free trade partners. Demand variables (e.g., income, market size, sophistication) are a more critical driver of growth rather than agreements. Price factors affect agricultural goods, with food products experiencing inelastic price demand, while raw goods are affected by prices and exchange rate. Gains in competitiveness, logistics performance, and innovation is supporting agricultural exports (imports as well), although Indonesia is behind most of its trade partners. The current implementation of the FTA should be critically evaluated concerning food products as imports have expanded more rapidly than exports, and domestic goods may have experienced pressure from liberalization.
Dr Miguel Angel Esquivias Padilla
Universitas Airlangga
Read the Original
This page is a summary of: Analysis of determinants of Indonesian agricultural exports, Journal of Entrepreneurship and Sustainability Issues, June 2020, Entrepreneurship and Sustainability Center,
DOI: 10.9770/jesi.2020.7.4(8).
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