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Does trade liberalization boost quality upgrading? : evidence from Indonesian plant-product-level data

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  • Hayakawa, Kazunobu
  • Matsuura, Toshiyuki
  • Takii, Sadayuki

Abstract

In this study, we examine the effects of tariff reduction on firms' quality upgrading by employing an Indonesian plant-product-level panel dataset matched with a plant-level dataset. We explore the effects of lower output and input tariffs separately, by focusing on the apparel industry. By estimating the Berry-type demand function, we derive product-quality indicators based on the Khandelwal (Review of Economic Studies, 2010) methodology, which enables us to isolate quality upgrading from changes in prices. Our findings are as follows. First, a reduction in output tariffs does not affect product quality upgrading. Second, a reduction in input tariffs boosts quality upgrading in general. In particular, this impact is greater for import firms, which is consistent with the fact that the source of the boost is the import of high-quality foreign inputs.

Suggested Citation

  • Hayakawa, Kazunobu & Matsuura, Toshiyuki & Takii, Sadayuki, 2015. "Does trade liberalization boost quality upgrading? : evidence from Indonesian plant-product-level data," IDE Discussion Papers 540, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    • Handle: RePEc:jet:dpaper:dpaper540
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    Cited by:

    1. Massie, Natanael Waraney Gerald & Mangunsong, Carlos, 2022. "Products as Network: An Empirical Approximation of the Manufacturing Production Network in Indonesia," MPRA Paper 114647, University Library of Munich, Germany.
    2. Hayakawa, Kazunobu & Laksanapanyakul, Nuttawut & Matsuura, Toshiyuki, 2020. "Do regional trade agreements really help global value chains develop? evidence from Thailand," Journal of the Japanese and International Economies, Elsevier, vol. 58(C).
    3. Narjoko, Dionisius & Urata, Shujiro, 2019. "Firm Adjustment to Trade Policy Changes in East Asia," ADBI Working Papers 945, Asian Development Bank Institute.
    4. Kiki Verico, 2021. "What has been happening to Indonesia’s Manufacturing Industry?," LPEM FEBUI Working Papers 202158, LPEM, Faculty of Economics and Business, University of Indonesia, revised 2021.
    5. Chih‐Hai Yang & Chao‐Jing Yang & Chung‐Yueh Chiu & Hsuan‐Yu Lin, 2018. "Resource Allocation, Structural Change, and the Dynamics of Manufacturing Productivity in Indonesia," The Developing Economies, Institute of Developing Economies, vol. 56(4), pages 297-327, December.

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    More about this item

    Keywords

    Indonesia; International trade; Productivity; Tariff; Trade Liberalization; Input Trade; Quality Upgrading;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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