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American Economic Review: Vol. 97 No. 5 (December 2007)

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

Article Citation

Amiti, Mary, and Jozef Konings. 2007. "Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia." American Economic Review, 97(5): 1611-1638.

DOI: 10.1257/aer.97.5.1611

Abstract

This paper estimates the productivity gains from reducing tariffs on final goods and from reducing tariffs on intermediate inputs. Lower output tariffs can increase productivity by inducing tougher import competition, whereas cheaper imported inputs can raise productivity via learning, variety, and quality effects. We use Indonesian manufacturing census data from 1991 to 2001, which include plant-level information on imported inputs. The results show that a 10 percentage point fall in input tariffs leads to a productivity gain of 12 percent for firms that import their inputs, at least twice as high as any gains from reducing output tariffs. (JEL F12, F13, L16, O14, O19, O24)

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Authors

Amiti, Mary (Federal Reserve Bank of New York and CEPR)
Konings, Jozef (Katholieke Universiteit Leuven and CEPR)

JEL Classifications

F12: Models of Trade with Imperfect Competition and Scale Economies
F13: Trade Policy; International Trade Organizations
L16: Industrial Organization and Macroeconomic Industrial Structure; Industrial Price Indices
O14: Industrialization; Manufacturing and Service Industries; Choice of Technology
O19: International Linkages to Development; Role of International Organizations
O24: Development Planning and Policy: Trade Policy; Factor Movement; Foreign Exchange Policy


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