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The social impact of a WTO agreement in Indonesia

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  • Robilliard, Anne-Sophie
  • Robinson, Sherman

Abstract

Indonesia experienced rapid growth and the expansion of the formal financial sector during the last quarter of the 20th century. Although this tendency was reversed by the shock of the financial crisis that spread throughout Asia in 1997 and 1998, macroeconomic stability has since then been restored, and poverty has been reduced to pre-crisis levels. Poverty reduction remains nevertheless a critical challenge for Indonesia with over 110 million people (53 percent of the population) living on less than $2 a day. The objective of this study is to help identify ways in which the Doha Development Agenda might contribute to further poverty reduction in Indonesia. To provide a good technical basis for answering this question, the authors use an approach that combines a computable general equilibrium (CGE) model with a microsimulation model. This framework is designed to capture important channels through which macroeconomic shocks affect household incomes. It allows making recommendations on specific trade reform options as well as on complementary development policy reforms. The framework presented in this study generates detailed poverty outcomes of trade shocks. Given the magnitude of the shocks examined here and the structural features of the Indonesian economy, only the full liberalization scenario generates significant poverty changes. The authors examine their impact under alternative specifications of the functioning of labor markets. These alternative assumptions generate different results, all of which confirm that the impact of full liberalization on poverty would be beneficial, with wage and employment gains dominating the adverse food price changes that could hurt the poorest households. Two alternative tax replacement schemes are examined. While direct tax replacement appears to be more desirable in terms of efficiency gains and translates into higher poverty reduction, political and practical considerations could lead the Government of Indonesia to choose a replacement scheme through the adjustment of value-added tax rates across nonexempt sectors.

Suggested Citation

  • Robilliard, Anne-Sophie & Robinson, Sherman, 2005. "The social impact of a WTO agreement in Indonesia," Policy Research Working Paper Series 3747, The World Bank.
  • Handle: RePEc:wbk:wbrwps:3747
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    References listed on IDEAS

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    1. Hertel, Thomas & Hummels, David & Ivanic, Maros & Keeney, Roman, 2007. "How confident can we be of CGE-based assessments of Free Trade Agreements?," Economic Modelling, Elsevier, vol. 24(4), pages 611-635, July.
    2. Anne-Sophie Robilliard & Sherman Robinson, 2003. "Reconciling Household Surveys and National Accounts Data Using a Cross Entropy Estimation Method," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 49(3), pages 395-406, September.
    3. François Bourguignon & Anne-Sophie Robilliard & Sherman Robinson, 2003. "Representative versus real households in the macro-economic modeling of inequality," Working Papers DT/2003/10, DIAL (Développement, Institutions et Mondialisation).
    4. Sherman Robinson & Andrea Cattaneo & Moataz El-Said, 2001. "Updating and Estimating a Social Accounting Matrix Using Cross Entropy Methods," Economic Systems Research, Taylor & Francis Journals, vol. 13(1), pages 47-64.
    5. World Bank, 2003. "Indonesia Development Policy Report : Beyond Macroeconomic Stability," World Bank Other Operational Studies 14664, The World Bank.
    6. Winters, L. Alan, 2000. "Trade, Trade Policy and Poverty: What Are The Links?," CEPR Discussion Papers 2382, C.E.P.R. Discussion Papers.
    7. Essama-Nssah, 2004. "Building and running general equilibrium models in EViews," Policy Research Working Paper Series 3197, The World Bank.
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    Citations

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    Cited by:

    1. John Gilbert, 2008. "Agricultural Trade Reform and Poverty in the Asia-Pacific: A Survey and Some New Results," Working Papers 2008-01, Utah State University, Department of Economics, revised 19 Dec 2008.
    2. Sara Wong & Ricardo Arguello & Ketty Rivera, 2007. "Poverty impacts of increased openness and fiscal policies in a dollarized economy: a CGE-micro approach for Ecuador," DOCUMENTOS DE TRABAJO 004367, UNIVERSIDAD DEL ROSARIO.
    3. Peter Warr & Arief Anshory Yusuf, 2014. "Fertilizer subsidies and food self-sufficiency in Indonesia," Agricultural Economics, International Association of Agricultural Economists, vol. 45(5), pages 571-588, September.
    4. Wong, Sara & Argüello, Ricardo, 2010. "Fiscal policies and increased trade openness: poverty impacts in Ecuador," Libros de la CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 2585, February.
    5. Rina Oktaviani & Eka Puspitawati & Haryadi, 2008. "Impacts of ASEAN Agricultural Trade Liberalization on ASEAN-6 Economies and Income Distribution in Indonesia," Working Papers 5108, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada..
    6. Kuiper, Marijke H. & Keita, M.S. & Barbier, Bruno, 2007. "Developing Country impacts - Evaluating case studies," Reports 9290, SEAMLESS: System for Environmental and Agricultural Modelling, Linking European Science and Society.
    7. Eveline S. van Leeuwen, 2010. "The effects of future retail developments on the local economy: Combining micro and macro approaches," Papers in Regional Science, Wiley Blackwell, vol. 89(4), pages 691-710, November.
    8. Walkenhorst, Peter & Cattaneo, Olivier, 2006. "Trade, Diversification and Growth in Nigeria," MPRA Paper 23735, University Library of Munich, Germany.
    9. Kenneth Reinert, 2007. "The European Union, the Doha Round, and Asia," Asia Europe Journal, Springer, vol. 5(3), pages 317-330, September.
    10. Hertel, Thomas W. & Winters, L. Alan, 2005. "Poverty impacts of a WTO agreement : synthesis and overview," Policy Research Working Paper Series 3757, The World Bank.

    More about this item

    Keywords

    Rural Poverty Reduction; Economic Theory&Research; Poverty Assessment; Achieving Shared Growth; Inequality;

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