Globalisation and deglobalisation: the Indonesian perspective

Globalisation has created new opportunities for both advanced and emerging economies. In the case of Indonesia, the country’s integration with world markets has correlated positively and strongly with economic growth. Foreign direct investment has supported a shift to higher value added industries, while total factor productivity growth has also tended to benefit from globalisation. The effects on the labour market have also been positive. However, globalisation and increasing trade openness also have unintended consequences, in that the economy becomes more susceptible to global economic and financial cycles. Supply chains between Asian countries become the pass-through channel for any global shocks to price instability, particularly those related to production costs. Meanwhile, increasing automation in some sectors, the growing skill premium, and rising employment in the informal have contributed to growing inequality. To realise the full benefits of globalisation, domestic authorities should focus on maintaining the domestic economy’s soundness and competitiveness. By improving their policy coordination and strengthening risk management, national authorities should seek to create systemic resilience in withstanding bouts of uncertainty and volatility from open economic and financial markets.