Trade Liberalization and Comparative Advantage: Evidence from Indonesia and Asian Trade Partners

Rudi Purwono, Lilik Sugiharti, Rossanto Dwi Handoyo and Miguel Angel Esquivias
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Rudi Purwono: Faculty of Economics and Business, Airlangga University, Surabaya 60286, Indonesia
Lilik Sugiharti: Faculty of Economics and Business, Airlangga University, Surabaya 60286, Indonesia
Rossanto Dwi Handoyo: Faculty of Economics and Business, Airlangga University, Surabaya 60286, Indonesia

Economies, 2022, vol. 10, issue 4, 1-21

Abstract: This study analyzes whether ongoing liberalization has resulted in more profound trade expansion for Indonesia versus regional partner countries. A gravity model is first employed to find whether regional trade agreements resulted in more significant intra-regional exports or diverted trade. This study applies the generalized method of moment (GMM-sys) and the Poisson pseudo-maximum likelihood (PPML) estimator. Four groups of manufactured products are aggregated according to technology intensity, and two nature-based groups of products are estimated in the dynamic panel model. Additionally, revealed comparative advantage (RCA) and a trade balance index (TBI) for 5120 products are used to map goods based on specialization–advantage patterns. The gravity model indicates that regional trade agreements supported trade in manufactured and naturally sourced goods but not in high-tech and primary goods. Additionally, export expansion took place in goods that revealed comparative advantage and export specialization. Competition has increased between Indonesia and four regional trade partners: China, India, Thailand, and Vietnam. Indonesia gained from trading primary materials while losing in some low-cost manufacturing sectors. The potential for trade expansion remains large, as trade patterns differ among regional partners.

Keywords: revealed comparative advantage; trade balance; products mapping; trade liberalization; Indonesia; free trade agreements; regional integration; trade creation; ASEAN; gravity equation; regionalism (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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