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Is It Worthwhile for Indonesia to Rush into a Free Trade Deal with Japan?


  • Oyamada, Kazuhiko


This report represents a preliminary attempt to refine some basic ideas on the potential impact Indonesia might experience from a free trade arrangement with Japan, using a forward-looking, multi-regional, multi-sectoral applied general equilibrium model of global trade to capture growth effects through capital accumulation paying attention to the changes in the patterns of interregional capital flows that might happen even before the policy change occurs. The simulation results revealed that the welfare gains of rushing into trade liberalization with Japan are not so large. This makes out that taking time over negotiations might be the best choice for Indonesia if the government places priority on convincing the Indonesian people that a free trade deal with Japan will definitely bring positive effects, while proceeding rapidly might be the answer if the country is serious about recovering the welfare levels that might be lowered by free trade arrangements among Malaysia, the Philippines, and Japan.

Suggested Citation

  • Oyamada, Kazuhiko, 2007. "Is It Worthwhile for Indonesia to Rush into a Free Trade Deal with Japan?," IDE Discussion Papers 92, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  • Handle: RePEc:jet:dpaper:dpaper92

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    References listed on IDEAS

    1. Rioja, Felix & Valev, Neven, 2004. "Does one size fit all?: a reexamination of the finance and growth relationship," Journal of Development Economics, Elsevier, vol. 74(2), pages 429-447, August.
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    4. Gianni De Nicolo & Patrick Honohan & Alain Ize, 2003. "Dollarization of the Banking System; Good or Bad?," IMF Working Papers 03/146, International Monetary Fund.
    5. Honohan, Patrick & Shi, Anging, 2001. "Deposit dollarization and the financial sector in emerging economies," Policy Research Working Paper Series 2748, The World Bank.
    6. Lee, Jaewoo, 1996. "Financial development by learning," Journal of Development Economics, Elsevier, vol. 50(1), pages 147-164, June.
    7. Amuedo-Dorantes, Catalina & Pozo, Susan, 2004. "Workers' Remittances and the Real Exchange Rate: A Paradox of Gifts," World Development, Elsevier, vol. 32(8), pages 1407-1417, August.
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    More about this item


    Applied general equilibrium; Economic growth; Forward-looking; Free trade agreement; Interregional capital flows; International trade; International agreements; Trade policy; Indonesia; Japan; 応用一般均衡; 経済成長; 前向きの; 自由貿易協定; 地域間資本移動; 貿易; 国際協定; 貿易政策; インドネシア; 日本;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • F15 - International Economics - - Trade - - - Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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