Arya B. Gaduh () (Department of Economics, Centre for Strategic and International Studies) Kurnya Roesad (Department of Economics, Centre for Strategic and International Studies)
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For most of the 1980s and 1990s, Indonesia’s forest industry was characterized by protectionist policies. The combination of a log-export ban and the enforcement of artificially low prices of logs by APKINDO had fostered the inefficient domestic wood-panel producers, while potentially killed off more efficient wood-panel producers abroad. The removal of APKINDO and the log export ban, as major parts of the IMF – led economic reform agenda since 1998 was expected to improve allocative efficiency in the wood – processing sector. However, the removal of these policies likely increased pressure on Indonesia’s forests. An artificially low price of logs reduces their supply, and henceforth, relieves pressures off forests. Taking away the ban gradually moves the prices back to the international level, hence increasing the rate of wood extraction. As such, absent other forms of intervention, we face a trade-off between economic efficiency and environmental sustainability of the log export ban policy. This paper is an attempt to describe, and quantify when possible, this trade-off empirically. It asks whether the log export ban has encouraged less efficient use of domestic logs and whether it has helped to reduce the rate of round wood extraction. The empirical study suggests that the former did occur during the LEB and APKINDO regime of 1985-1997, while the latter cannot be shown empirically.
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Paper provided by East Asian Bureau of Economic Research in its series Microeconomics Working Papers with number
66.
Length: 19 pages Date of creation: Feb 2004 Date of revision: Handle: RePEc:eab:microe:66
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Find related papers by JEL classification: P45 - Economic Systems - - Other Economic Systems - - - International Linkages Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
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