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The heterogeneous impact of tariff and non-tariff measures on total factor productivity on Indonesia firms

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  • Krisna Gupta

Abstract

Indonesian government has been working hard in engaging with the world market as average tariff keeps on decreasing. However, it seems to rely on Non-Tariff Measures (NTM) rather than tariffs to protect its industries. This paper inspects whether these measures hurt firms by limiting their access to better quality and cheaper foreign inputs. This paper builds on Amiti and Konings (2007) to inspect the impact of trade policy shocks to firm’s Total Factor Productivity (TFP). The results suggest unintended consequences of protectionism: tariff and NTMs hurt firms’ TFP and labour absorption significantly. The impact is less severe for bigger firms, confirming heterogeneous effect of trade policy. As the country is looking to boost foreign investment, the paper makes a strong case for reducing protection to keep mark-up in domestic manufacturing high as an incentive.

Suggested Citation

  • Krisna Gupta, 2021. "The heterogeneous impact of tariff and non-tariff measures on total factor productivity on Indonesia firms," Departmental Working Papers 2021-21, The Australian National University, Arndt-Corden Department of Economics.
    • Handle: RePEc:pas:papers:2021-21
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    File URL: https://acde.crawford.anu.edu.au/sites/default/files/publication/acde_crawford_anu_edu_au/2021-09/acde_gupta_2021_21.pdf
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Total factor productivity; Tariff; Non-tariff Measures; manufacturing; trade liberalization.;
    All these keywords.

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration

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