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

Krisna Gupta ()

Departmental Working Papers from The Australian National University, Arndt-Corden Department of Economics

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.

Keywords: Total factor productivity; Tariff; Non-tariff Measures; manufacturing; trade liberalization. (search for similar items in EconPapers)
JEL-codes: F14 F15 O14 O53 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2021
New Economics Papers: this item is included in nep-eff, nep-int and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:pas:papers:2021-21

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