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Poverty, Labour Markets and Trade Liberalization in Indonesia

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  • Kis-Katos, Krisztina

    ()
    (University of Freiburg)

  • Sparrow, Robert

    ()
    (Australian National University)

Abstract

We measure the effects of trade liberalization over the period of 1993-2002 on regional poverty levels in 259 Indonesian regions, and investigate the labour market mechanisms behind these effects. The identification strategy relies on combining information on initial regional labour and product market structure with the exogenous tariff reduction schedule over four three-year periods. We find that poverty reduced more in regions that were more strongly exposed to import tariff liberalization. Among the potential channels behind this effect, we highlight the formalization of the unskilled labour force and structural reallocation of labour. We also show that job formation and increases in unskilled wages were related to reductions in import tariffs on intermediate goods and not to reductions in import tariffs on final outputs. These results point towards increasing firm competitiveness as a driving factor behind the beneficial poverty effects.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7645.

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Length: 34 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:iza:izadps:dp7645

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Keywords: trade liberalization; labour markets; poverty; Indonesia;

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References

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  1. Chris Manning, 2000. "Labour Market Adjustment to Indonesia's Economic Crisis: Context, Trends and Implications," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 36(1), pages 105-136.
  2. Riyana Miranti, 2010. "Poverty in Indonesia 1984-2002: the impact of growth and changes in inequality," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 46(1), pages 79-97.
  3. Amiti, Mary & Cameron, Lisa, 2012. "Trade Liberalization and the Wage Skill Premium: Evidence from Indonesia," Journal of International Economics, Elsevier, vol. 87(2), pages 277-287.
  4. Menéndez, Marta & Castilho, Marta & Sztulman, Aude, 2009. "Trade Liberalization, Inequality and Poverty in Brazilian States," Economics Papers from University Paris Dauphine 123456789/5833, Paris Dauphine University.
  5. Krisztina Kis-Katos & Robert Sparrow, 2011. "Child Labor and Trade Liberalization in Indonesia," Journal of Human Resources, University of Wisconsin Press, vol. 46(4), pages 722-749.
  6. Sebastian Galiani & Pablo Sanguinetti, 2003. "The Impact of Trade Liberalization on Wage Inequality: Evidence from Argentina," Working Papers 65, Universidad de San Andres, Departamento de Economia, revised Oct 2003.
  7. David H. Autor & David Dorn & Gordon H. Hanson, 2013. "The China Syndrome: Local Labor Market Effects of Import Competition in the United States," American Economic Review, American Economic Association, vol. 103(6), pages 2121-68, October.
  8. Iacovone, Leonardo & Rauch, Ferdinand & Winters, L. Alan, 2013. "Trade as an engine of creative destruction: Mexican experience with Chinese competition," Journal of International Economics, Elsevier, vol. 89(2), pages 379-392.
  9. Brian, McCaig, 2011. "Exporting out of poverty: Provincial poverty in Vietnam and U.S. market access," Journal of International Economics, Elsevier, vol. 85(1), pages 102-113, September.
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  13. L. Alan Winters & Neil McCulloch & Andrew McKay, 2004. "Trade Liberalization and Poverty: The Evidence So Far," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 72-115, March.
  14. Gonzaga, Gustavo & Menezes Filho, Naercio & Terra, Cristina, 2006. "Trade liberalization and the evolution of skill earnings differentials in Brazil," Journal of International Economics, Elsevier, vol. 68(2), pages 345-367, March.
  15. Pinelopi Koujianou Goldberg & Nina Pavcnik, 2007. "Distributional Effects of Globalization in Developing Countries," Journal of Economic Literature, American Economic Association, vol. 45(1), pages 39-82, March.
  16. Goldberg, Pinelopi Koujianou & Pavcnik, Nina, 2003. "The Response of the Informal Sector to Trade Liberalization," CEPR Discussion Papers 3874, C.E.P.R. Discussion Papers.
  17. Suryahadi, Asep & Suryadarma, Daniel & Sumarto, Sudarno, 2009. "The effects of location and sectoral components of economic growth on poverty: Evidence from Indonesia," Journal of Development Economics, Elsevier, vol. 89(1), pages 109-117, May.
  18. Vikram Nehru, 2013. "Survey of recent developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 49(2), pages 139-166, August.
  19. Mary Amiti & Jozef Konings, 2007. "Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia," American Economic Review, American Economic Association, vol. 97(5), pages 1611-1638, December.
  20. Chiquiar, Daniel, 2008. "Globalization, regional wage differentials and the Stolper-Samuelson Theorem: Evidence from Mexico," Journal of International Economics, Elsevier, vol. 74(1), pages 70-93, January.
  21. Anna Wetterberg & Sudarno Sumarto & Lant Pritchett, 1999. "A National Snapshot of the Social Impact of Indonesia's Crisis," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 35(3), pages 145-152.
  22. Fitria Fitrani & Bert Hofman & Kai Kaiser, 2005. "Unity in diversity? The creation of new local governments in a decentralising Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 41(1), pages 57-79.
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