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Trade Liberalization and Comparative Advantage: Evidence from Indonesia and Asian Trade Partners

Author

Listed:
  • Rudi Purwono

    (Faculty of Economics and Business, Airlangga University, Surabaya 60286, Indonesia)

  • Lilik Sugiharti

    (Faculty of Economics and Business, Airlangga University, Surabaya 60286, Indonesia)

  • Rossanto Dwi Handoyo

    (Faculty of Economics and Business, Airlangga University, Surabaya 60286, Indonesia)

  • Miguel Angel Esquivias

    (Faculty of Economics and Business, Airlangga University, Surabaya 60286, Indonesia)

Abstract

This study analyzes whether ongoing liberalization has resulted in more profound trade expansion for Indonesia versus regional partner countries. A gravity model is first employed to find whether regional trade agreements resulted in more significant intra-regional exports or diverted trade. This study applies the generalized method of moment (GMM-sys) and the Poisson pseudo-maximum likelihood (PPML) estimator. Four groups of manufactured products are aggregated according to technology intensity, and two nature-based groups of products are estimated in the dynamic panel model. Additionally, revealed comparative advantage (RCA) and a trade balance index (TBI) for 5120 products are used to map goods based on specialization–advantage patterns. The gravity model indicates that regional trade agreements supported trade in manufactured and naturally sourced goods but not in high-tech and primary goods. Additionally, export expansion took place in goods that revealed comparative advantage and export specialization. Competition has increased between Indonesia and four regional trade partners: China, India, Thailand, and Vietnam. Indonesia gained from trading primary materials while losing in some low-cost manufacturing sectors. The potential for trade expansion remains large, as trade patterns differ among regional partners.

Suggested Citation

  • Rudi Purwono & Lilik Sugiharti & Rossanto Dwi Handoyo & Miguel Angel Esquivias, 2022. "Trade Liberalization and Comparative Advantage: Evidence from Indonesia and Asian Trade Partners," Economies, MDPI, vol. 10(4), pages 1-21, March.
    • Handle: RePEc:gam:jecomi:v:10:y:2022:i:4:p:80-:d:779718
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    References listed on IDEAS

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    2. Jolanta Droždz & Arūnas Burinskas & Viktorija Cohen, 2023. "The Impact of the COVID-19 Pandemic on the Revealed Comparative Advantage of Industries in the Baltic States," Economies, MDPI, vol. 11(2), pages 1-16, February.

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