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Measuring Export Diversification Strategies Amid Global Geo-Economic Fragmentation

Author

Listed:
  • Donni Fajar Anugrah

    (Bank Indonesia)

  • Cicilia Anggadewi Harun

    (Bank Indonesia)

  • Dian Rahmawati

    (Bank Indonesia)

  • Sulistiyo Kadam Ardiyono

    (Bank Indonesia)

  • Hilya Jannatul Imron

    (Bank Indonesia)

Abstract

The global economy is currently experiencing geo-economic fragmentation, one of which is driven by the trade war between the United States (US) and China. This trade war has led to tariff increases that have significantly impacted strategic sectors, creating distortions in global supply chains. Indonesia's export dependence on the US and China makes its export performance particularly sensitive to tensions between these countries. To mitigate risks and capitalize on export opportunities arising from global geoeconomic fragmentation, this study analyzes the costs and benefits of trade cooperation and strategies for diversifying Indonesia’s export products and markets. The methods used include the Structural Match Index (SMI), Demand Index, Revealed Comparative Advantage (RCA), and the Global Trade Analysis Project (GTAP) model, based on version 9.0 data. The results indicate that the simulation of alternative cooperation with the Chinese trade bloc yields better export performance for Indonesia than the US bloc. A 95% tariff reduction simulation across all sectors shows a more significant increase in Indonesia’s export value to allied blocs. The study also identifies nontraditional export destinations with high potential as alternative markets for Indonesia, such as Canada, Mexico, Brazil, Pakistan, and South Africa. Indonesia demonstrates comparative advantages in commodities like rubber, iron, steel, and minerals, though challenges remain in improving product competitiveness in international markets. Therefore, Indonesia must enhance its manufacturing capacity and strengthen trade relations with nontraditional countries, reducing dependence on traditional markets and seizing opportunities emerging from global trade shifts.

Suggested Citation

  • Donni Fajar Anugrah & Cicilia Anggadewi Harun & Dian Rahmawati & Sulistiyo Kadam Ardiyono & Hilya Jannatul Imron, 2024. "Measuring Export Diversification Strategies Amid Global Geo-Economic Fragmentation," Working Papers WP/06/2024, Bank Indonesia.
    • Handle: RePEc:idn:wpaper:wp062024
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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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