Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia

Mary Amiti () and Jozef Konings ()

No 05/146, IMF Working Papers from International Monetary Fund

Abstract: This paper estimates the effects of trade liberalization on plant productivity. In contrast to previous studies, we distinguish between productivity gains arising from lower tariffs on final goods relative to lower tariffs on intermediate inputs. Lower output tariffs can produce productivity gains by inducing tougher import competition whereas cheaper imported inputs can raise productivity via learning, variety, or quality effects. We use Indonesian manufacturing census data from 1991 to 2001, which includes plant-level information on imported inputs. The results show that the largest gains arise from reducing input tariffs. A 10 percentage point fall in output tariffs increases productivity by about 1 percent, whereas an equivalent fall in input tariffs leads to a 3 percent productivity gain for all firms and an 11 percent productivity gain for importing firms.

Keywords: Tariffs; Indonesia; Trade liberalization; Productivity; Economic models (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eff and nep-int
Date: 2005-08-08
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Related works:
Working Paper: Trade Liberalization, Intermediate Inputs and Productivity: Evidence from Indonesia (2005)
Journal Article: Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia (2007)
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