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The Elusive Pursuit of Import Substitution in 21st Century Indonesia

Author

Listed:
  • Dionisius Narjoko

    (Economic Research Institute for ASEAN and East Asia ERIA Annex Office Sentral Senayan II, 6th floor, Jalan Asia Afrika No. 8 Gelora Bung Karno, Senayan, Jakarta Pusat 10270, Indonesia Author email: dion.narjoko@eria.org)

  • Titik Anas

    (Presisi Indonesia and Padjajaran University Menara BCA, 50th floor Jl. M.H Thamrin No 1, Jakarta 10310, Indonesia Author email: tanas@presisi-indonesia.com)

  • Robertus Herdiyanto

    (Presisi Indonesia Menara BCA, 50th floor Jl. M.H Thamrin No 1, Jakarta 10310, Indonesia Author email: rherdiyanto@presisi-indonesia.com)

Abstract

This study evaluates the possible impact of an import substitution strategy recently implemented by the Government of Indonesia on the development of the intermediate inputs industry. Based on descriptive analysis, the study suggests that the implementation of the strategy was a misguided decision. Experiences from several countries confirm the negative impact of an import substitution strategy. The econometric analysis shows that trade protection impedes firms’ performance. Thus, it would be preferable for the government to have an open trade regime and to intensify foreign presence in the industry.

Suggested Citation

  • Dionisius Narjoko & Titik Anas & Robertus Herdiyanto, 2018. "The Elusive Pursuit of Import Substitution in 21st Century Indonesia," Asian Economic Papers, MIT Press, vol. 17(1), pages 73-93, Winter/Sp.
    • Handle: RePEc:tpr:asiaec:v:17:y:2018:i:1:p:73-93
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    References listed on IDEAS

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    1. Head, Keith & Ries, John, 1999. "Rationalization effects of tariff reductions," Journal of International Economics, Elsevier, vol. 47(2), pages 295-320, April.
    2. H H Aswicahyono & Hal Hill, 1995. "Determinants of Foreign Ownership in LDC Manufacturing: An Indonesian Case Study," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 26(1), pages 139-158, March.
    3. Haryo Aswicahyono & Hal Hill & Dionisius Narjoko, 2010. "Industrialisation after a Deep Economic Crisis: Indonesia," Journal of Development Studies, Taylor & Francis Journals, vol. 46(6), pages 1084-1108.
    4. Rahardja, Sjamsu & Varela, Gonzalo, 2014. "Nothing to Fear but Fear Itself: Evidence on Imported Intermediates in Indonesia," World Bank - Economic Premise, The World Bank, issue 136, pages 1-6, March.
    5. Bharat Diwakar & Gilad Sorek, 2015. "Economic Development and Stage-Dependent IPR," Auburn Economics Working Paper Series auwp2015-16, Department of Economics, Auburn University.
    6. Dionisius Narjoko, 2014. "Did Better Firms Enter the Indonesian Manufacturing Sector after the 1997-98 Crisis?," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 50(3), pages 371-391, December.
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    Cited by:

    1. World Bank, 2018. "Indonesia Economic Quarterly, December 2018," World Bank Publications - Reports 30969, The World Bank Group.
    2. Gupta, Krisna & Gretton, Paul & Patunru, Arianto, 2022. "Projecting the long run impact of an economic reform: the case of the Indonesian Omnibus Law and concurrent changes in trade policy," Conference papers 333472, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    3. World Bank, 2022. "Indonesia Economic Prospects : Trade for Growth and Economic Transformation," World Bank Publications - Reports 38451, The World Bank Group.

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