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Does trade liberalization boost quality upgrading? : evidence from Indonesian plant-product-level data

Author

Listed:
  • Hayakawa, Kazunobu
  • Matsuura, Toshiyuki
  • Takii, Sadayuki

Abstract

In this study, we examine the effects of tariff reduction on firms' quality upgrading by employing an Indonesian plant-product-level panel dataset matched with a plant-level dataset. We explore the effects of lower output and input tariffs separately, by focusing on the apparel industry. By estimating the Berry-type demand function, we derive product-quality indicators based on the Khandelwal (Review of Economic Studies, 2010) methodology, which enables us to isolate quality upgrading from changes in prices. Our findings are as follows. First, a reduction in output tariffs does not affect product quality upgrading. Second, a reduction in input tariffs boosts quality upgrading in general. In particular, this impact is greater for import firms, which is consistent with the fact that the source of the boost is the import of high-quality foreign inputs.

Suggested Citation

  • Hayakawa, Kazunobu & Matsuura, Toshiyuki & Takii, Sadayuki, 2015. "Does trade liberalization boost quality upgrading? : evidence from Indonesian plant-product-level data," IDE Discussion Papers 540, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    • Handle: RePEc:jet:dpaper:dpaper540
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    References listed on IDEAS

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    1. Toshiyuki Matsuura & Kazunobu Hayakawa & Nuttawut LAKSANAPANYAKUL & Yuta Watabe, 2014. "Price and Quality Changes in Outsiders of Regional Trade Agreements," Working Papers e084, Tokyo Center for Economic Research.
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    7. 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.
    8. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    9. Bernini, Michele & Tomasi, Chiara, 2015. "Exchange rate pass-through and product heterogeneity: Does quality matter on the import side?," European Economic Review, Elsevier, vol. 77(C), pages 117-138.
    10. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(4), pages 1450-1476.
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    Cited by:

    1. Massie, Natanael Waraney Gerald & Mangunsong, Carlos, 2022. "Products as Network: An Empirical Approximation of the Manufacturing Production Network in Indonesia," MPRA Paper 114647, University Library of Munich, Germany.
    2. Hayakawa, Kazunobu & Laksanapanyakul, Nuttawut & Matsuura, Toshiyuki, 2020. "Do regional trade agreements really help global value chains develop? evidence from Thailand," Journal of the Japanese and International Economies, Elsevier, vol. 58(C).
    3. Dionisius Narjoko & Shujiro Urata, 2019. "Firm Adjustment to Trade Policy Changes in East Asia," ADBI Working Papers 945, Asian Development Bank Institute.
    4. Aristide Bonsdaouêndé Valea & Lota D. Tamini & Damien Rousselière, 2025. "Agri‐food trade liberalization, export prices, and quality upgrading: Evidence from the meat and chocolate sectors in OECD countries," Agribusiness, John Wiley & Sons, Ltd., vol. 41(3), pages 765-791, July.
    5. Kiki Verico, 2021. "What has been happening to Indonesia’s Manufacturing Industry?," LPEM FEBUI Working Papers 202158, LPEM, Faculty of Economics and Business, University of Indonesia, revised 2021.
    6. Tsumagari, Masatoshi, 2025. "Product quality, institutional quality, and market globalization," Journal of Economic Behavior & Organization, Elsevier, vol. 236(C).
    7. Chih‐Hai Yang & Chao‐Jing Yang & Chung‐Yueh Chiu & Hsuan‐Yu Lin, 2018. "Resource Allocation, Structural Change, and the Dynamics of Manufacturing Productivity in Indonesia," The Developing Economies, Institute of Developing Economies, vol. 56(4), pages 297-327, December.

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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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