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Industrial Policy in Indonesia: A Global Value Chain Perspective
Abstract
The gains of a country from participating in global value chains (GVCs) will depend on the productive activities taking place in its jurisdiction and their linkages to the domestic economy. Lead firms’ decision on where to locate and how to coordinate production activities is influenced, among others, by industrial policies. On the one side, policy space provides governments with some leverage in guiding economic activities and influencing development outcomes. On the other hand, policy risks have the potential to adversely affect the outcomes. This study focuses on industrial policies in Indonesia, using the mineral sector as a mini case study. The case study assesses the Indonesian Government’s recent effort to boost domestic value addition in the sector. This paper argues that the effectiveness of government policies in maximizing the gains from GVC participation depends not only on policy design, but also on policy consistency and coherence, effective implementation, and coordination.
... Despite inclining to decline slightly, manufacturing remains a potential sector to be developed as an engine of growth comparing to other sectors like agriculture, oil and gas, and mining. In so doing, the government of Indonesia has intervened specific activities, industries, and sectors deemed beneficial for the long-term economy through introducing a set of industrial policy since 2008 to boost rapid and sustainable economic growth (Aswicahyono, Hill, & Narjoko, 2012;Tijaja & Faisal, 2014). The industrial sector in this paper refers to manufacturing industries specifically, not included extractive industries. ...
... This situation signifies the importance of industrial revitalization in Indonesia by strengthening the weakest links, innovation, and human capital (Tijaja & Faisal, 2014). Besides ensuring that supply-side investment, open policies, and regulatory reform (Aswicahyono et al., 2012), focusing on innovation and human capital as the basis of industrial revitalization is essential agenda for the government to prompt re-industrialization effort as a way of avoiding growth slowdown. ...
... The former emphasized the promotion of export-oriented industries, specifically agro-based, transportation, and information technology and telecommunication equipment industries, while the latter focused on regulatory reform and implementation of economic corridor strategy in facilitating industrialization across 15 subsectors, strengthening national connectivity, and improving human capital and R&D investment. Both policies emphasize the development of human resources, innovation, and technological capabilities as a necessary prerequisite for increasing global competitiveness and the contribution of the industrial sector to national (Tijaja & Faisal, 2014;World Bank, 2014a). ...
As competitiveness gains currency, it compels many governments' concerns in achieving economic resilience to avoid the Middle-income Trap. Indonesia has focused on promoting industrialization and economic diversification as a response to the probability of being trapped. However, it has been shown that the performance of the manufacturing sector in Indonesia has been unsatisfying due to the inability to enhance human and technological competences and managing the transition from labor- and resource-intensive to capital- and technology-intensive industries. This situation signifies the importance of industrial revitalization in Indonesia by strengthening the weakest links, innovation, and human capital through the adoption of capability-focused industrial policy on innovation and technology. This paper examines factors that challenge Indonesia to develop innovation and technological capabilities in the industrial sector and analyze the role of the state in organizing industrial policy based on the adoption of the capabilities-focused strategy within re-industrialization in the democratic setting. Employing Thee Kian Wie’s conditions for industrial technology development and Dani Rodrik’s industrial policy, this study reveals vital factors challenging Indonesia’s efforts on innovation and technological development in manufacturing industries. It also found two ideational factors that affect the Orde-Baru bureaucratic culture and practice remain intact in the policy formulation and implementation, and ultimately obstructing current industrial policy to achieve the policy goals and right institutional setting.
... The implications of these efforts for firm performance, especially manufacturing firms' performance, are not well understood. Because the manufacturing sector is the largest contributor to aggregate output in Indonesia, reaching 24% of GDP in 2013 (Tijaja & Faisal, 2014), further examination of the linkage between financial deepening and manufacturing firms' performance is needed to understand whether financial deepening spurs economic growth as a whole. ...
... Concomitantly, Indonesia has faced deindustrialization problems in recent years. As described by Tijaja and Faisal (2014), deindustrializaton is a condition in which the growth of the manufacturing sector is lower than the total GDP growth. For Indonesia, in 2011Indonesia, in , 2012Indonesia, in , and 2013, the manufacturing sector grew by 6.1%, 5.7%, and 5.6%, respectively, while total GDP grew by 6.5%, 6.2%, and 5.8%. ...
... The Ministry of Industry issued another regulation in 2010, setting a target contribution of non-oil and gas output to total GDP from around 24% to 30% by 2020. This policy further identifies several action priorities: increasing added value, increasing market share at the local and international level, strengthening innovation and technological capabilities, and broadening industrial development (Tijaja & Faisal, 2014). Cothren, 1997;Deidda & Fattouh, 2002). ...
Using a survey of 41,862 manufacturing firms in Indonesia from 2004 through 2013, this study documents that firms in provinces with deeper financial infrastructure exhibit better performance in general; but this is true especially for firms with higher financial constraints (measured by a low-intensity use of fixed capital), and only when financial depth at the province level already exceeds a certain level. That is, this paper documents the presence of firm-level and province-level thresholds in the nexus between financial deepening and firm performance. It is important to consider such conditioning factors, in addition to boosting financial development, in order to improve manufacturing firms' performance and thus industrialization in Indonesia.
... The implications of these efforts for firm performance, especially manufacturing firms' performance, are not well understood. Because the manufacturing sector is the largest contributor to aggregate output in Indonesia, reaching 24% of GDP in 2013 (Tijaja & Faisal, 2014), further examination of the linkage between financial deepening and manufacturing firms' performance is needed to understand whether financial deepening spurs economic growth as a whole. ...
... Concomitantly, Indonesia has faced deindustrialization problems in recent years. As described by Tijaja and Faisal (2014), deindustrializaton is a condition in which the growth of the manufacturing sector is lower than the total GDP growth. For Indonesia, in 2011Indonesia, in , 2012Indonesia, in , and 2013, the manufacturing sector grew by 6.1%, 5.7%, and 5.6%, respectively, while total GDP grew by 6.5%, 6.2%, and 5.8%. ...
... The Ministry of Industry issued another regulation in 2010, setting a target contribution of non-oil and gas output to total GDP from around 24% to 30% by 2020. This policy further identifies several action priorities: increasing added value, increasing market share at the local and international level, strengthening innovation and technological capabilities, and broadening industrial development (Tijaja & Faisal, 2014). Cothren, 1997;Deidda & Fattouh, 2002). ...
... The emergence of economic zones had transformative effects on the economic structure, as is evident from the share of manufacturing in GDP, which grew from 10% in 1970 to 27% by 1997 (Grabowski and Self 2020). The 1997 Asian financial crisis, followed by political regime change, hit Indonesia hard and took 6 long years to show recovery signs (Tijaja and Faisal 2014). Indonesia entered the third phase of development to be implemented through 5-year medium-term plans called the Rencana Pembangunan Jangka Menengah Nasional (RPJMN). ...
... In Indonesia, the industrial estate business has become overwhelmingly dominated by the private sector. Currently, 94% of Indonesia's industrial estates are managed by the private sector, in stark contrast to its regional counterparts: Malaysia (78%) and Thailand (48%) (Tijaja and Faisal 2014). Thus, on one side of the spectrum is Thailand giving a rather limited role to the private sector in establishing economic zones, and on the other side is Indonesia giving an extensive role to the private sector in setting up both SEZs and GEZs. ...
This technical study, a first of its kind, focuses on the IMT-GT subregion and assesses its performance from the lens of economic zones. It brings together a wide array of literature on economic zones in Indonesia, Malaysia and Thailand using a typological framework and characteristics of economic zones. The study provides a theoretical framework explaining the relevance of a cross border subregion. It identifies the challenges facing IMT-GT economic zones and offers recommendations for policy makers to support active clustering and specialization efforts in the subregion. The study also proposes a strategic framework for successful SEZs development and cooperation in
the IMT-GT. It identifies collaborative and competitive actions that the IMT-GT stakeholders can adopt amid the coronavirus disease (COVID-19) crisis. The COVID-19 pandemic has highlighted the need for more robust cooperation, given that SEZs are critical tools to boost trade, sustain supply chains, attract quality and investment, generate employment, and build economic resilience inclusively.
... This is the typical case of developing countries, where the predominant apparel SMEs generally have advanced technology and know-how shortcomings to produce sophisticated products (González, 2017;Lanz et al., 2018). Similarly, Indonesian SMEs have also been facing uphill struggles for tapping higher benefits from GVCs participation as they continue to generate low valueadded activities (Stöllinger, 2021;Tijaja & Faisal, 2014). Thus, their overall share of participation in GVCs is the smallest among ASEAN members (6.3%) as Malaysia's SMEs lead at 40% (Ministry of Cooperatives and SMEs, 2020). ...
... Third, in general, it can be means to boost the export performance and backward participation GVCs of Indonesian SMEs at the same time (Bas & Strauss-Kahn, 2014). However, this policy might need several adjustments before bringing it into force because it is still only accessible to large firms (Tijaja & Faisal, 2014). For example, the recipient of KITE should be a limited company (PT), while many SMEs have a limited partnership scheme (CV). ...
After recording remarkable growth and gaining more prominence within the domestic economy, Indonesian small and medium enterprises (SMEs) are now being pushed by the government to go beyond the domestic market. Indonesian government has introduced global value chains (GVCs) to SMEs to boost their export in the last recent years. Apparel SMEs normally can join GVCs through backward or forward participation. But in this case, the GVCs’ impact on apparel SMEs export remains sluggish because they are highly concentrated in forward participation. This research, therefore, provides empirical cases on how Indonesian apparel SMEs can engage in backward participation to raise their competitiveness in global market using the evidence of apparel SMEs. Utilizing three dimensions of GVCs analysis: governance, upgrading, and local policy network, this research finds that SMEs can easily engage in backward participation to obtain foreign inputs by using the internet. Moreover, the decision to venture into GVCs and global market is heavily influenced by e-commerce. Findings of this research can provide guidance for Indonesian policymakers about the importance of GVCs on SMEs’ export performance, creating a better environment for manufacturing and cross-border e-commerce that can be exploited by SMEs as the largest economic driver.JEL Classification F59; F63; L67
... A capacidade de inserção nas cadeias de valor é dependente das condições de infraestrutura e para a indústria mineral, em específico, estes fatores tomam uma direção ainda mais essencial para uma maior participação nas CGVs. O upgrading na indústria mineral exige uma abordagem mais holística e um foco maior na inovação e na infra-estrutura (Tijaja & Faisal, 2014). Como trata-se de uma indústria caracterizada pela rigidez locacional, uma vez que os depósitos minerais encontram-se em determinadas localidades os quais, muitas vezes afastados dos centros comerciais, a infra-estrutura e logística tornam-se fundamentais. ...
... Da mesma forma, muitas das tecnologias desenvolvidas em centros de pesquisas de desenvolvimento mineral e universidades são feitas em escala piloto, e muitas vezes por falta de investimento, não têm continuidade ou não são comercializadas. Na Indonésia por exemplo, muitas universidades desenvolveram protótipos de processamento mineral e equipamentos de refino, mas nenhum deles foram aplicados pela indústria (Tijaja & Faisal, 2014). ...
Objetivo: Investigar os fatores que contribuem para a participação da indústria mineral nas cadeias globais de valor (CGVs) dos países que serão analisados.
Método: De cunho explicativo e abordagem quantitativa, este estudo utilizou como técnica estatística a regressão múltipla por meio do Modelo de Efeito Fixo. A estrutura dos dados é em painel, referente a 62 países, e corresponde ao referente a sessenta e dois países para o período de 2001 a 2015.
Principais resultados: Os resultados apontam que 77% dos países em desenvolvimento possuem baixa participação de suas respectivas indústrias minerais nas CGVs em relação à média apresentada dos países da amostra. Além disso, o resultado do modelo sugere que a abertura comercial e a qualificação da mão de obra são fundamentais para elevar a participação desta indústria nas CGVs.
Relevância/originalidade: A indústria mineral é estratégica do ponto de vista econômico para muitos países e além disso, fornece insumos essenciais para a cadeia produtiva de grande parte dos bens utilizados pela sociedade moderna. Apesar disso, são poucos os estudos que analisam esta indústria sob a lente teórica das CGVs.
Contribuições teóricas/metodológicas: Este estudo busca expandir a literatura CGV ao trazer evidências de quais fatores contribuem para a participação da indústria mineral nestas cadeias.
Contribuições sociais / para a gestão (opcional): São apresentados possíveis caminhos que podem melhorar a participação dos países que possuem a indústria mineral pouco integrada.
... A large part of this recent revival has been due to the country's overall economic recovery as well as the refocusing of the state's national agenda on industrial development. For instance, as outlined by the national industrial policy, the share of the manufacturing sector to the total GDP is targeted to increase from 24% in 2010 to 30% in 2020 (Tijaja and Faisal 2014). The declaration of Indonesia's Masterplan for Economic Acceleration and Expansion 2011-2025 (MP3EI) under Susilo Bambang Yudhoyono's presidency and its subsequent Packages of Economic Policy under Joko Widodo's presidency have further laid the basis for national manufacturing development in the long run. ...
... As this exogenously driven pattern seems to be entrenched in the JMA's global spatial configuration, Therborn's (2011) observation on state/city-coupling in contemporary globalization may provide an underlying argument for this paper's findings. As Tijaja and Faisal (2014) summarized, Indonesia's national policy in terms of manufacturing development is essentially exogenously driven. It leans on attracting global investments without vivid efforts to branch out domestic firms. ...
This paper presents an analysis of the position of the Jakarta metropolitan area (JMA) in global inter-urban networks. Our starting point is our aim to provide a more nuanced understanding of the JMA’s connectivity in world city networks (WCNs). To this end, we steer clear of top-down approaches, which tend to analyze cities in singular taxonomies of global prominence, and instead propose a framework that is attuned to the JMA’s contexts to provide an alternative and complementary reading of how the JMA has been inserted into the WCN. To this end, by drawing on the interlocking network model, which helps to proxy inter-urban networks based on the multi-locational operations of manufacturing firms, we examine the JMA’s network positionality on the global and national scales. The results provide evidence of the JMA’s global inter-city relations being strongly geared toward East Asian cities. In addition, the results suggest that the JMA cannot be detached from its national geography, as evidenced by its strong connections with cities located on the island of Java.
... In 2012 Indonesia's GDP growth ranges from 3.75% after experiencing high economic growth in prior periods. Indonesia therefore becomes the largest country in Southeast Asia which contributed nearly 40% of total GDP in ASEAN and 16 in the world rankings (Tijaja and Faisal, 2014). ...
... Along with Malaysia and Thailand, Indonesia categorized as a second newly industrialized country by the World Bank due to high manufacturing exports since the late 1980s (Wie, 2006). Some of the reforms carried out in the mid-1980s, including the reform of customs duty, exemption tariff to replace export subsidies, exante tax exemption unconditionally or various ex-post pieces have extended access domestic enterprises to input markets internationally while reducing business costs and uncertainty significantly (Tijaja and Faisal, 2014). These reforms contribute to boost export competitiveness. ...
The development of new trade theory which incorporates the interaction between trade and international capital flows indicates if the possibility of changes in a country's comparative advantage due to the opening of international capital flows. International capi tal flows allow for changes in the industrial structure of a country depends on the composition of the products produced in that coun try. More capital-intensive types of products produced by a country, the greater the need for capital and the higher marginal rate of capital that can be given to attract greater international capital flows. Therefore, a comparative advantage should be seen as dynamic rather than static. As a country with large population, Indonesia tends to specialize in labor -intensive products. The other hand, efforts to attract foreign direct investment are very intensively conducted. The estimation results indicate if there was a shift in the pattern of industrial specialization Indonesia, from labor –intensive tends toward capital intensive.
... 4 The Dutch disease is the tendency of currency overvaluation that arises from commodity exports and is aggravated by commodity price increases (see . 5 In our cases, Bolivia (2006-2009 and 2010-2014) appears as having both outcomes and could be a good case-study for the future (see Naqvi, 2021 for an exploration). Outside of that, China and India (Kaur & Singh, 2013) and Indonesia (Tijaja & Faisal, 2014) appear as important examples of more "complete" development strategies. These examples deviate from older developmental states examples who also pursued industrial policies with exchange rate manipulation, such as South Korea (see Amsden, 1992). ...
In the early 2000s, Latin America witnessed a resurgence in debates concerning the state's economic role, coinciding with a political transformation as new parties emerged to power. Existing literature on the “return of Industrial Policy” in the region largely offers a descriptive perspective, bypassing the intricacies of policy typifications and their associated political foundations. This paper addresses these gaps with two main contributions: First, it posits that the state's proactive economic interventions in Latin America were not comprehensive, but instead divided into two distinct channels: the sectoral and the macroeconomic. Second, by employing a fuzzy‐set Qualitative Comparative Analysis (fsQCA) of 59 democratic Latin American administrations, the paper delves into the political dynamics that underlie each channel. A detailed comparative analysis between Brazil and Chile serves as a focal point, illuminating their notable policy divergence. The research concludes that labor‐supported parties are predisposed toward adopting active developmental roles, especially in contexts lacking complex economic structures. However, even incomplete strategies require the presence of robust developmental institutions and is contingent upon a government's capability to establish developmental coalitions and countervail opposing interests.
... In the 1970s, Indonesia's industrial policies were dictated by protectionism (importsubstitution) inherited from Soekarno's nationalistic ideology. The neoliberal era in Indonesia began in the 1980s when the government initiated deregulatory policies to attract global private investors and engage with international markets) (Damuri et al., 2015;Kusno, 2010;Tijaja and Faisal, 2014). Indonesia also joined various international market institutions, such as the Asia-Pacific Economic Cooperation in 1989, the Association of Southeast Asian Nations Free Trade Area in 1992 and the World Trade Organization in 1994 (Chandra, 2011). ...
As a manifestation of current approaches to global planning, megaproject planning is an open-ended process that unfolds through the contestation, negotiation and contradiction of social (power) relations. However, recent studies still perceive local government authorities as elusive actors in shaping megaproject planning and development processes. This article uses two case studies to investigate the multifaceted roles that local government played in dealing with actors’ overlapping interests in two Indonesian special economic zone (SEZ) megaprojects. The qualitative content analysis of the two cases relies on interviews, archival research and field observation conducted between 2019 and 2021. This article shows that rather than acting as entrepreneurial agencies that serve state or private actors, local government authorities can articulate and negotiate community interests in developing megaprojects. Moreover, the ‘social relation’ framework explains the conditions under which local government units can engage in political negotiations and demand equitable planning processes.
... According to Tijaja & Faisal (2014), the manufacturing industry has long been recognized as the backbone of the Indonesian economy. The manufacturing sector contributes to overall output, reaching 24% of GDP in 2013. ...
Change in policy and externalshock is crucial for the manufacturing sector since they could affect their main cost of inputs, which are capital and labor. In fact, given that manufacturing sector absorbs more labor than the agriculture and service sectors, policy reform and external shocks have the ability to shift the labor market. This shift could be in the change of demand for labor, both skilled and unskilled, or change in the wage as the cost of production in manufacturing sectors. Under this background, the subject of this doctoral thesis revolves around the analysis of these links between policy reform, external shocks, and the labor market manufacturing sectors. The thesis provides rigorous empirical tests to analyze those links, using rich manufacturing firm data in Indonesia between 1990 and 2015. In this manner, Indonesia is an ideal country to observe sincec the developing nation has abundant unskilled workers, an open economy, a price taker on the global market, and experiencing various reforms and shocks during the observation period. The structure of this dissertation is as follow. Chapter 1 will discuss the relationship between financial liberalization and skill premium for medium and large manufacturing firms in Indonesia. Chapter 2 use a similar dataset to look upon the effect of external skocks like the fluctuations of palm oil price to labor demand and wage structure of the palm oil processing industry in the country. Chapter 3 provides evidence that women entrepeneurs will benefit from better access to bank lending in increasing the firms’performance.
... For example, students learn how to milk a cow manually, while the industry uses machinery. The Ministry of Trade provides some training, for example, a course on export, but the services provided by government-funded training centres are very limited and often irrelevant to the needs of the industry"(Tijaja & Faisal 2014).Recommendations ...
... The potential to achieve value added was evident in the case of nickel ore, where in the relevant years 2009-2014, Indonesia was the world's largest exporter, accounting for between 22 and 37% of global exports per year (see figure 2.2) (Hidalgo and Simoes, 2018). In effect, it was estimated that rather than exporting 55 million tonnes of nickel ore at $35 per tonne, that same amount could be refined into half a million tonnes of nickel at $18,000 per tonne, marking an increase in value added of $7.1 billion (Faisal and Tijaja, 2014). In addition to obliging companies to refine ores domestically, the 2009 Mining Law places a strong emphasis on state presence throughout the mineral sector. ...
... According to Tijaja and Faisal (2014), the manufacturing industry has long been recognized as the backbone of the Indonesian economy. The manufacturing sector makes a major contribution to overall output, reaching 24% of GDP in 2013. ...
Aggregate productivity is one of the major sources of economic growth and directly depends on how efficiently firms use available resources. In this dissertation, I contribute to the literature by drawing attention to exploring various performance measures at the firm level and the aggregate productivity in developing countries. In general, firms face numerous and serious constraints on their productivity in developing countries, ranging from corruption to lack of infrastructure to inability to access finance. Therefore, in the first chapter co-authored with Zenathan Hasannudin, we investigate the impact of financing access on micro and small enterprises (MSEs) in Indonesia. MSEs are considered the backbone of the Indonesian economy accounting for 99.3% of total firms in Indonesia and providing 62.5% of total employment. We found that access to external formal financial source has a significant positive effect on the growth of firms in terms of total factor productivity (TFP), labor productivity, and sales in Indonesia. In addition small firms must rely more on their funds to invest and grow significantly faster if they have greater access to external funds. Moreover, in developing countries, women entrepreneurs are key drivers of national, regional, and global growth. Therefore, examining their role in the second chapter is important and studying their impact on firm growth as measured by employment and sales growth. In addition, I highlight the effect of gender-differentiated use of formal external credit on the performance gaps between men’s and women’s firms. The data used is a sample of 33,971 firms from 62 countries over the period 2006-2016. Overall, the study confirms mixed results of women-owned firms ill firm growth across regions and income-level countries. Finally, in the last chapter, l used the Hsieh and Klenow (2009) framework to study the misallocation and productivity linkages in the Indonesian manufacturing sector using the datasets of 103.018 observations during the period 1990-2015. Reallocation of resources from low productivity firms to high productivity firms can generate significant aggregate gains. This study uses census data from Indonesia’s manufacturing sector to measure the country’s hypothetical productivity gains ; the productivity gaps appear to have widened somewhat. This suggests that the process of "catching up" remains a challenge and a potential opportunity, especially if total factor productivity is assumed to be the dominant source of future economic growth. This analysis only considers the misallocation of resources within sectors. There may be other, perhaps significant, misallocations of resources across sectors. If so, closing these gaps could further boost total factor productivity and gross domestic product growth.
... As stated by President Joko Widodo in the Vision of Indonesia 2045, an optimistic goal to become a developed country and the fifth-largest economy in the world has been set for Indonesia when it marks its 100th anniversary of independence in 2045 (Negara and Ramayandi, 2020). To realize this vision, the government has committed to reforming its resource-based economy into an economy based on manufacturing and modern services by investing in equitable infrastructure regional development that is adequate and wellintegrated (Tijaja and Faisal, 2014). The development is focused on increasing connectivity with economic growth centers and decreasing disparities among regions ...
To
achieve its vision of becoming a developed and prosperous economy in 2045,
Indonesia focuses on expanding its regional development by developing its six
economic corridors based on each corridor’s potential industries. Therefore,
adequate infrastructure that improves regional connectivity and drives economic
activities should be developed to help accelerate the industrial development in
each economic corridor. This paper examines the financial feasibility of
investing in industrial supporting infrastructure projects and develops
financing and institutional schemes for the implementation of public-private
partnerships to enhance the attractiveness of the projects for the private
sector. The results of life-cycle cost analysis and system dynamics simulation
show that with a required initial cost of USD 254 million and operation and
maintenance (OM) cost of USD 224.29 million, the development is deemed
financially feasible, generating a revenue of USD 872.38 million for a 40-year
concession period. From the 45 cost-sharing scenarios investigated, the optimal
internal rate of return (IRR) value of 15.62% was obtained, with the private
sector covering 64.14% of the initial cost and 73.61% of the OM cost, as well
as gaining 76.62% of the total revenue.
... The majority of Indonesia's imports are intermediate commodities, such as chemical products, machinery, and transportation equipment, to support the country's domestic industry. Indonesia's trade performance has deteriorated in recent years due to the dominance of low-value-added commodities in its exports and the country's substantial reliance on higher-value-added manufactured imports (Tijaja and Faisal 2014). ...
This study aimed to scrutinize the impact of financial development, energy consumption, industrialization, and trade openness on economic growth in Indonesia over the period 1984-2018. To do so, the study employed the autoregressive distributed lag (ARDL) model to estimate the long-run and short-run nexus among the variables. Furthermore, fully modified ordinary least squares (FMOLS), dynamic least squares (DOLS), and canonical cointegrating regression (CCR) were used for a more robust examination of the empirical findings. The result of cointegration confirms the presence of cointegration among the variables. Findings from the ARDL indicate that industrialization, energy consumption, and financial development (measured by domestic credit) positively influence economic growth in the long run. However, financial development (measured by money supply) and trade openness demonstrate a negative effect on economic growth. The positive nexus among industrialization, financial development, energy consumption, and economic growth explains that these variables were stimulating growth in Indonesia. The error correction term indicates a 68% annual adjustment from any deviation in the previous period's long-run equilibrium economic growth. These findings provide a strong testimony that industrialization and financial development are key to sustained long-run economic growth in Indonesia.
... Work readiness in the vocational field, especially in the automotive sector, is influenced by the implementation of industrial practice programs and competence in the field of expertise, namely vehicle tuning. One of the link and match policies in Indonesia is through industrial practice programs [8], [9]. The industrial practice program is an apprenticeship program equivalent to a dual system education in which vocational students develop their experience in the industry directly. ...
This study aims to examine the effect of industrial practice work programs and vehicle tune-up competencies on job readiness. A quantitative research using an ex-post facto approach was selected to test hypotheses based on existing facts. 169 respondents were selected as part of the cluster randomization technique. The data were collected through tests and observations and analyzed using the SPSS software. The results showed that (1) there was a positive effect on practical work programs on job readiness with a contribution of 14.7%; (2) positive influence of tune-up engine competency on job readiness with a contribution of 72.1%; and (3) both have the effect of 23.3% simultaneously. The important factors in preparing for employment are the supply of vocational training students prior to the implementation of industrial practice programs and increased opportunities to put development drivers into practice.
... Namun, di sisi lain, implementasi desen--tralisasi justru dianggap semakin memperlebar ketimpangan antarwilayah (Aginta et al., 2021;Mahi, 2016;Nasution, 2017), serta meningkatkan potensi korupsi oleh pemerintahan daerah (Cahyaningsih & Fitrady, 2019;Kraemer, 1997;Lewis, 2016). Pesimisme ini timbul karena implementasi desentralisasi dilaksanakan tanpa persiapan yang matang seperti kapasitas institusi yang mumpuni dan kemampuan para pejabat di tingkat daerah (Aginta et al., 2021;Brodjonegoro, 2004;Tijaja & Faisal, 2014). ...
Implementasi desentralisasi fiskal dalam dua dasawarsa terakhir menghasilkan berbagai temuan-temuan: positif dan negatif. Beberapa studi mengevaluasi desentralisasi fiskal sebagai suatu sistem ideal agar tujuan pembangunan dapat disesuaikan berdasarkan preferensi masyarakat daerah, sehingga pemerintah akan lebih akurat dalam membedakan permintaan warga atas layanan dibandingkan dengan pemerintah pusat. Namun, studistudi lain menganggap bahwa desentralisasi fiskal yang dimulai pada tahun 2001 sangat minim persiapan dari daerah-daerah. Implementasi desentralisasi justru dianggap semakin memperlebar ketimpangan antarwilayah, serta meningkatkan potensi korupsi oleh pemerintahan daerah. Oleh karena itu, studi ini bertujuan untuk membahas sejauh mana desentralisasi fiskal, sebuah reformasi administrasi, dapat menjadi pendorong pembangunan pada daerah-daerah di Indonesia. Metode tinjauan sistematis (systematic review) digunakan pada studi ini untuk mengumpulkan dan menganalisis studi-studi terkait dampak desentralisasi fiskal terhadap sektor-sektor yang menjadi fokus studi ini antara lain pendidikan, kesehatan, ekonomi, dan pelayanan publik. Studi ini menemukan bahwa desentralisasi belum memberikan manfaat optimal bagi sektor pendidikan, kesehatan, perekonomian dan pelayanan publik.
... Namun, di sisi lain, implementasi desen--tralisasi justru dianggap semakin memperlebar ketimpangan antarwilayah (Aginta et al., 2021;Mahi, 2016;Nasution, 2017), serta meningkatkan potensi korupsi oleh pemerintahan daerah (Cahyaningsih & Fitrady, 2019;Kraemer, 1997;Lewis, 2016). Pesimisme ini timbul karena implementasi desentralisasi dilaksanakan tanpa persiapan yang matang seperti kapasitas institusi yang mumpuni dan kemampuan para pejabat di tingkat daerah (Aginta et al., 2021;Brodjonegoro, 2004;Tijaja & Faisal, 2014). ...
Implementasi desentralisasi fiskal dalam dua dasawarsa terakhir menghasilkan berbagai temuan-temuan: positif dan negatif. Beberapa studi mengevaluasi desentralisasi fiskal sebagai suatu sistem ideal agar tujuan pembangunan dapat disesuaikan berdasarkan preferensi masyarakat daerah, sehingga pemerintah akan lebih akurat dalam membedakan permintaan warga atas layanan dibandingkan dengan pemerintah pusat. Namun, studi-studi lain menganggap bahwa desentralisasi fiskal yang dimulai pada tahun 2001 sangat minim persiapan dari daerah-daerah. Implementasi desentralisasi justru dianggap semakin memperlebar ketimpangan antarwilayah, serta meningkatkan potensi korupsi oleh pemerintahan daerah. Oleh karena itu, studi ini bertujuan untuk membahas sejauh mana desentralisasi fiskal, sebuah reformasi administrasi, dapat menjadi pendorong pembangunan pada daerah-daerah di Indonesia.
... The worry seems to be reasonable since the decentralization process in Indonesia was implemented without much preparation, in the sense that it was not accompanied by adequate institutional capacity or skilled officials at the local level (Brodjonegoro 2004;Nasution 2017). Some studies even argue that decentralization contributes to the negative growth of investment (Brodjonegoro 2004;Tijaja and Faisal 2014) owing to increased policy inconsistency and business uncertainty at the regional level. Motivated by the limited research and an inconclusive answer about the effect of decentralization on the regional income disparity dynamics, this article studies the evolution of regional income disparities and prospects for convergence across 514 districts of Indonesia over the 2000-2017 period. ...
This article aims to re-examine the regional convergence hypothesis on income in Indonesia over the 2000–2017 period. By applying a non-linear dynamic factor model, this article tests the club convergence hypothesis using a novel dataset of income at the district level. The results show significant five convergence clubs in Indonesian districts’ income dynamics, implying the persistence of income disparity problems across districts even after implementing the decentralization policy. The subsequent analysis reveals two appealing features regarding the convergence clubs. First, districts belonging to the same province tend to be in the same club, and second, districts with specific characteristics (i.e. big cities or natural resources-rich regions) dominate the highest income club. Overall, our findings suggest some insightful policy implications, including the importance of differentiated development policies across convergence clubs and inter-provincial development strategies.
... in Indonesia aim to create international competitiveness in order to target all activities in the chain or specific ones to benefit from world's economy (Tijaja & Faisal, 2014). ...
The Industrial Revolution 4.0 promotes digitalization and innovation across many sectors of industries allowing them to thrive by increasing productivity, profitability, product quality and performance. However, the utilization of digital technology especially in agricultural sector, requires effective governance in which must adhere to sustainability practices for upgrading strategies. As one of the main export commodities in Indonesia, the palm oil industry is in alert to face challenges brought by the Industrial Revolution 4.0. This research draws from the latest work of Gerrefi and Lee on Global Value Chain. In the framework of horizontal industrial cluster and vertical global value chain governance, the theory examines how governance and upgrading trajectories produces economic upgrading which correlates to social and environmental upgrading. This research, then scrutinizes the question posed by the role of technology which supports as well as accelerates the upgrading strategies. The GVC analysis of Indonesian palm oil industry will be used as a case study to understand the complexity of how actors operate in every cluster of governance. Economic upgrading is not always associated with social and environmental upgrading. Therefore, a strong linkage between actors suggests that the Industrial Revolution 4.0 is relevant and essential to enhance synergy to cater for economic, social and environmental dimensions in order to harness the potential of sustainable development.
... The worry seems to be reasonable since the decentralization process in Indonesia was implemented without much preparation, in the sense that it was not accompanied by adequate institutional capacity or skilled officials at the local level (Brodjonegoro, 2004;Nasution, 2016). Some studies even argue that decentralization contributes to the negative growth of investment (Brodjonegoro, 2004;Tijaja and Faisal, 2014) owing to increased policy inconsistency and business uncertainty at the regional level. Motivated by the limited research and an inconclusive answer about the effect of decentralization on the regional income disparity dynamics, this paper studies the evolution of regional income disparities and prospects for convergence across 514 districts of Indonesia over the 2000-2017 period. ...
Reducing regional income disparities is a central challenge for promoting sustainable development in Indonesia. In particular, the prospect for these disparities to be reduced in the post-decentralization period has become a major concern for policymakers. Motivated by this background, this paper aims to re-examine the regional convergence hypothesis at the district level in Indonesia over the 2000-2017 period. By using non-linear dynamic factor model, this study analyzes novel data set to investigate the formation of multiple convergence clubs. The results indicate that Indonesian districts form five convergence clubs, implying that the growth of income per capita in Indonesian 514 districts can be clustered into five common trends. From the lens of spatial distribution, two common occasions can be observed. First, districts belonging to the same province tend be in the same club and second, the highest club is dominated by districts with specific characteristic (i.e., big cities or natural resources rich regions). From a policy standpoint, this findings of multiple convergence clubs at significantly different levels of income allows regional policy makers to identify districts facing similar challenges. It may have meaningful implications for regional development policies, including the call of inter-provincial development policy.
... Under the existing agreement, Indonesia has bound 96.6% of its tariff lines at a rate of 40%. However, this agreement does not apply to Indonesia's agricultural sector, where tariffs on more than 1,300 products have bindings at 47.7% (Tijaja & Faisal, 2014). Although it has a high bound tariff, the average rate applied is below 7%; currently it is 6.8%, lower than most ASEAN countries. ...
This article examines Indonesia’s conflicting roles in global trade governance, particularly in the Doha Development Round. This article argues that multilateral trade governance is utilised by Indonesian foreign policymakers to be the arena for Indonesia’s aspiration to exercise a greater role at the global level. This aspiration is reflected in its support towards liberalisation agenda at the global level. However, the commitments made, as well as the rhetoric calling for a more liberalised multilateral trading system within the Round, are not in line with Indonesia’s protectionist-leaning domestic trade policies. This condition, arguably, is the result of the co-optation of trade policy in Doha Round by the Indonesian foreign policy agenda. While the Ministry of Trade has full authority to formulate trade negotiation position, Indonesia’s aspiration for international status pursued by foreign policymakers has significantly influenced its trade policy agenda in the Doha Round. Thus, Indonesia’s behaviour in the Doha Round can only be interpreted as role-playing in which Indonesia ‘play the role’ to enhance its international status rather than based its position on coherent domestic economic interest.
... From the start of the decade, the government increasingly used trade and investment measures to strengthen the domestic production capacity. For example, the 2009 Mining Law required domestic and foreign mining companies to expand investment in domestic resource processing, and the 2014 Industrial Law allowed the Ministry of Industry to set local content rules in selected industries (Tijaja and Faisal 2014). During the second half of the 2010s, another dramatic policy change took place with the government's adoption of the strategy of actively mobilizing state-owned entities. ...
... Several scholars have consequently argued that the observed geographical fragmentation of today's industries is not compatible with traditional industrial policy, in line with which nations seek to build complete production chains within their borders (Gereffi, 2013, p. 238;Gereffi & Sturgeon, 2013, p. 330;Milberg, 2013;Milberg et al., 2014;Tijaja & Faisal, 2014). These scholars called for a GVC-oriented industrial policy and a 'shift from the traditional industrial policy stance aimed at developing industry, where industry was conceived as a fully integrated production structure' (Milberg et al., 2014, p. 170). ...
This article critically examines the thesis of GVC-oriented industrial policy and the view that traditional industrial policy is no longer relevant. This is done from the perspective of Africa. Placing Africa at the core of GVC-oriented industrial policy reveals several problems. Using the example of industrial policy in Nigeria’s cement sector, the article will argue for the relevance of traditional industrial policy, whereby a country seeks to build a complete production chain within its borders. The case study fleshes out the argument that traditional industrial policy is still relevant – both in itself and as a pre-condition for GVC-oriented industrial policy in Africa.
... Ministry of Economics has developed six policies: (1) domestic industry security through a competitive industry in the face of global competition, (2) infrastructure development, (3) improvement of the quality of public service, (3) improvement of the regulation, (4) fiscal policy, and (5) human resource development in the field of industry (Kementerian Koordinator Bidang Perekonomian, 2011). Tijaja & Faisal (2014) stated that Indonesia experiences a lack of energy to support industrialization, low labor productivity, bureaucracy, and lack of synergy between the ministries and government agencies. Therefore, MP3EI program is expected to help boost the productivity of industrial oil palm and rubber plantations in Indonesia. ...
The study aimed to assess the role of palm oil and rubber toward the economy in West Kalimantan. Another aim was to develop oil palm and rubber industry to strengthen the economy of West Kalimantan. The method used in this research was the analysis of Input-Output. The main data was the Input-Output (IO) data in 2011 from the Central Bureau of Statistics (BPS), which consists of 54 sectors. The results show that the industrial output of palm oil and rubber, as well as oil palm and rubber, is still low. Weak innovation and technology lead to the low output and role of these two sectors to the economy of West Kalimantan. Another obstacle that leads to the economy of rubber and palm oil industries under the standard is the lack of motivation research, infrastructure, and connectivity.
... Kedua, komposisi ekspor Indonesia yang didominasi produk primer (63%) (Kementerian Perdagangan RI, 2015) memiliki nilai tambah yang rendah. Di sisi lain, produk impor bernilai tambah tinggi, akibatnya kinerja ekspor mengalami penurunan (Tijaja & Faisal, 2014). Ketiga, produk ekspor manufaktur yang merupakan penyumbang 37% nilai ekspor, 65% inputnya merupakan produk intermediate impor (OECD-WTO, 2015). ...
Indonesian fiscal policy is designed as pro growth and pro poor. Fiscal space and inequality rapid growth become constraints for this policy. Beside that constraints, pro poor and pro growth fiscal policy was debatable. Okun’s Law, Kuznet Theory and inclusive growth concept were sources of this debate. This paper investigates the impact of fiscal policy on growth and inequality. Using Error Correction Model (ECM), this paper shows that between 1980 until 2015, fiscal policy become more pro growth than pro poor. ABSTRAK Kebijakan fiskal Indonesia dirancang dalam kerangka pro growth dan pro poor. Keterbatasan ruang fiskal dan tingginya kecepatan peningkatan ketimpangan menjadi kendala. Selain kendala tersebut, usaha untuk merancang kebijakan fiskal yang pro growth dan pro poor menjadi perdebatan. Teori Kuznet, Hukum Okun, dan konsep pertumbuhan inklusif menjadi pangkal perdebatan ini. Penelitian ini bertujuan melihat dampak kebijakan fiskal terhadap pertumbuhan dan ketimpangan. Menggunakan Error Correction Model (ECM), hasil penelitian menemukan bahwa selama periode 1980 sampai dengan 2015 kebijakan fiskal cenderung mendorong pertumbuhan dibanding pemerataan.
... One notable factor was the enhanced political stability and the economic recovery in the last couple of years. As Tijaja and Faisal (2014) argue, the improvement of the country's overall political and economic conditions has served as a basis for the state to bring industrial development back on to the national agenda. Over the entire period of 1990-2014, one can also witness variations in terms of incoming manufacturing FDI within the JMA. ...
This paper investigates the way in which factors at the global and local level interact in the emergence and development of “global city-regions”, which are deemed to be the contemporary growth machines of the global economy. To this end, this paper takes the Jakarta metropolitan area (JMA) as a case to investigate its evolution in the context of the intertwined dynamics of foreign direct investment (FDI) inflow and state intervention over the past three decades. The findings indicate that from a macro-level perspective the JMA has maintained its position as the country's hotspot for manufacturing investment embedded in East Asian production networks. In addition, we find that the national state has continuously privileged the JMA as the main grounds for national economic development in spite of the country's shifting political system. We reveal how the nexus between “global” forces (incoming FDI) and “local” conditions (the state's strategic intervention) has led to the development and restructuring of the JMA as a global city-region.
... Neoliberalism is the political-economic practices that propose freemarket and freetrade; the state is to protect the institutional framework for such practices (Harvey, 2005 (Heryanto, 2003;Tijaja & Faisal, 2014). The arrival of International capital from manufacturing industrieshas boosted economic development through the production of transporatation and other types of infrastructures. ...
This article focuses on the effect of Neoliberalism towards the relation between the state and corporate. Between the year 1970-1980's, capitalism and free trade has produced modernized economic atmosphere and economic growth in Indonesia's New Order period. The Yamaha Manufacturing Industry, a Japanese firm, is one concrete manifestation of the foreign economic apparatus that has not only provide infrastructural needs but has also boosted the Indonesia's economy. However, the Neoliberalist approach to economic growth may not always provide a balanced social-economic development. The free market tendency to pursue profit accumulation, in return, has indirectly caused the continual rise of wage cost. Social security is not covered completely by the state, and the corporate on the other hand, has become the receiving party to cover the Non-Wage cost.
... • Re-installment of duty drawback facilities and tariff exemption to replace the export subsidy scheme which was General Agreement on Tariffs and Trade (GATT) incompliant (Tijaja and Faisal 2014). • Replacement of complex licensing with/of unconditional ex ante tax exemption or ex post rebate which further reduced business costs and uncertainties. ...
... • Re-installment of duty drawback facilities and tariff exemption to replace the export subsidy scheme which was General Agreement on Tariffs and Trade (GATT) incompliant (Tijaja and Faisal 2014). • Replacement of complex licensing with/of unconditional ex ante tax exemption or ex post rebate which further reduced business costs and uncertainties. ...
Indonesia and Malaysia are two developing nations that are deemed successful in avoiding the “resource curse” by achieving strong growth trajectory in the past three decades. However, they are now faced with the challenge of overcoming “middle-income trap.” Although sharing many similar features, the two countries differ in the adoption of industrial policies and national development strategies. By historically comparing national development planning and industrial policies, this research aims to illustrate how Indonesia and Malaysia circumvented the resource curse. This study also explains how contemporary challenges shape national development planning in Indonesia and Malaysia to achieve greener growth. This paper argues that effectiveness of government policies in attaining sustainable growth and maximizing the utilization of natural resources depend not only on development planning but also on policy consistency, coherence, coordination, and implementation.
... This has obvious implications for the industry, such as the transformation of the functions and relationships between suppliers, a growing number of suppliers are involved in the design, production, create a complete module, while the concentrations of the value of manufacturing engineering, product quality and customer service (Alonso, 2011). There are several studies focus on the GVC governance explored the internal and external structure (Humphrey & Schmitz, 2004;Schmitz, 2004;Gereffi, Humphrey and Sturgeon, 2003;Gereffi et al., 2005;Tran & Phillips, 2013, Tijaja & Faisal, 2014. ...
Nowadays, Global Value Chain (GVC) theoretical framework has become a tool can be utilized by country and company to understanding its competitive advantage and position in global economy. By governing companies from various country around the globe into global network relationships, GVC has shown a great value added to the product. The competition among lead firms are built through their ability to gain the most efficient production by sourcing globally, in which involve local company, and Multi National Enterprise’s (MNE’s) located at developing country. Indonesia is a case of country in which many global lead firms include local company in its value chains. This study aim to understand the value chain governance of Indonesian local company within footwear’s industry organized by a global brand and its contribution to development of the local company. This paper revealed that the involvement of local company within Indonesian footwear industry is driven by global lead firm. The first tier suppliers are mostly from Taiwan and only one Indonesia local company on the value chain. While the lead firm undertaking process of design, distribution and marketing, Indonesian local company performing mostly manufacturing activities. However, there is a dynamic transformation in which local company start involving in development stage of the footwear.
DOI: 10.5901/mjss.2015.v6n6s5p444
Industrial policies consist of a wide range of measures that seek to structurally guide an economy onto the next level of development. They can be formulated by the state or government to substantially transform the state of a non-existent, nascent or ailing industrial sector and, more broadly, an underdeveloped nation's economy towards a structure of production that offers better prospects for economic growth. Global value chains (GVCs) are coordinated by transnational corporations (TNCs), which constitute larger, internationalized firms, while small and medium-sized enterprises (SMEs) are generally scattered along the chain, filling in where they possess a comparative advantage. Though GVCs provide a landscape within which firms may thrive, the rewards are usually reaped by the larger firms at play. There is room, therefore, for industrial policies to address the status of SMEs in GVCs, facilitating their sustainable and profitable insertion without sufficiently interfering to negate the virtues of the free market.
Berdasarkan BP Statistical Review of World Energy (2022), pangsa konsumsi energi primer berasal dari teknologi terbarukan berupa kombinasi tenaga air, matahari, angin, panas bumi, gelombang, pasang surut, dan biofuel modern (biomassa tradisional – yang dapat menjadi sumber energi penting di negara berpenghasilan rendah). Pada tahun 2019, sekitar 11% energi primer global berasal dari teknologi terbarukan. Fakta tersebut menggambarkan bahwa potensi ekonomi renewable energy sangat besar.
Namun, potensi ekonomi yang tinggi tersebut menimbulkan potensi korupsi pada sektor renewable energy. Hal tersebut dibuktikan dengan kenyataan bahwa negara-negara di dunia baik negara maju maupun negara berkembang seperti Meksiko, Kenya, Malaysia, Italia dan Australia mengalami permasalahan korupsi pada sektor renewable energy.
Salah satu bentuk upaya mengantisipasi korupsi di sektor renewable energy adalah dengan membuat standar pembiayaan. Salah satu contoh yang digunakan dalam policy brief ini adalah The Global Energy Efficiency and Renewable Energy Fund (GEEREF). GEEREF adalah kemitraan publik-swasta (PPP) yang dirancang untuk memaksimalkan keuangan swasta yang dimanfaatkan melalui dana publik yang didanai oleh Komisi Eropa dan dikelola oleh European Investment Bank (EIB).
Akan tetapi GEEREF masih mempunyai berbagai kekurangan dari aspek regulasi, transparansi dan partisipasi. Policy Brief ini bertujuan untuk memberikan rekomendasi kebijakan anti korupsi di sektor renewable energy. Data yang digunakan dalam policy brief ini bersumber dari studi berbagai literatur dan wawancara mendalam terhadap Indonesia Corruption Watch (ICW), Tranparency International Indonesia (TII), dan Publish What You Pay (PWYP) Indonesia.
Berdasarkan hasil analisis terhadap berbagai literatur, hasil wawancara mendalam, dan kekurangan dari GEEREF sebagai best practice standar pembiayaan di sektor renewable energy, terdapat beberapa poin rekomendasi kebijakan anti korupsi di sektor renewable energy untuk negara G20 yang terbagi menjadi tiga aspek yaitu regulasi, transparansi, dan partisipasi masyarakat.
Keywords: Anti Korupsi, G20, Partisipasi Masyarakat, Regulasi, Renewable Energy, Transparansi
Karim examines the changes and continuity of Indonesia’s foreign policy in the post-authoritarian era, under presidents Susilo Bambang Yudhoyono and Joko Widodo.
Indonesia conceptualised and aimed to adopt four principle roles after 2004 – being a voice for developing countries; being a regional leader; being an advocate for democratic and human rights; and being a bridge-builder. These roles, however, were by no means stable and were constantly being negotiated and contested. Karim analyses the contested nature of Indonesian foreign policy and the limits this places on consistency in enacting these roles. He highlights two drivers for such limitations – conflicting role conceptions and state fragmentation. He develops this argument based on four case studies of Indonesia’s engagement in human rights governance and trade governance at both regional and global levels.
Essential reading for students and scholars of Indonesia’s foreign policy, that will also be of substantial value to those studying policy in Southeast Asia more broadly.
Keberlanjutan Kerjasama bidang kesehatan pada
skala global masih menjadi tantangan karena
beberapa negara masih terancam oleh berbagai
masalah kesehatan masyarakat. Oleh karena itu,
diperlukan insentif yang kuat bagi para tokoh
pemimpin dan politisi untuk berpartisipasi dalam
memastikan keberlanjutan jaminan kesehatan global
dan domestik termasuk dengan mencari sumber
pembiayaan alternatif untuk Cakupan Kesehatan
Universal (Universal Health Coverage/UHC).
Kami mengusulkan untuk mengalokasikan pajak
kesehatan untuk membiayai UHC bagi negaranegara
berkembang G20 mengingat tantangan
kesehatan masyarakat di negara berkembang
terutama dikaitkan dengan faktor risiko penyakit
tidak menular (PTM). Pajak kesehatan diharapkan
dapat menurunkan faktor risiko PTM sekaligus
meningkatkan pendapatan pemerintah untuk
mendanai agenda pembangunan.
Indonesian government aims for a manufacturing-based growth, according to its development plans. In this work, I provide an analysis of the importance to have an open trade and investment regulatory environment for the success of manufacturing-based growth, especially in the Global Value Chain era. I present a CGE analysis on how a better capital market reform can naturally help Indonesian manufacturing firms. In the short-run, the government must expect an increased Current Account Deficit (CAD) from net imported capital, which will be paid off in the long run. Not shying away from CAD is important in the early stage of the reform. Halting the CAD with import restriction will only reduce firms' competitiveness and prevent them from competing abroad and instead focusing on the domestic market where firms will require even more protection from import competition.
Starting in 2001 the Government of Indonesia employed the Regional Autonomy Law, providing larger fiscal role to the province and district governments. However, our understanding of its impacts on development in Indonesia is still limited. This paper seeks to find the relationship between increasing local governments’ capital expenditure and industrial development with focus in the non-oil and gas sector. Capital spending is thought to have moderation effect on investment, the main channel for industrialization, that should contribute to industrial growth. Our System GMM results suggest that there are positive and significant correlations between capital spending and industrial growth, presenting evidence of local governments’ role. However, we fail to find significant moderation effect between local capital spending and industrial investment towards the sector’s growth. This poses problem for industrialization at the local level. Decentralization progress in Indonesia has been institutionally anchored by the central government, particularly with the introduction of concurrent affairs in 2004 that allowed Jakarta to take a major developmental role in districts and provinces at the cost of lesser local governments’ role. Our study proposes a new institutional model that promote better central–local collaboration.
Discussions on the developing world's industrial policies have largely neglected the role of state-owned entities. This paper argues that the resurgence of state capitalism has been, in part, the response of developing countries to the recent pattern of structural transformation involving weak manufacturing. Using the case of Indonesia, this paper demonstrates that many middle-income countries have large and diverse state-owned entities in their development policy toolbox and have begun to experiment with these tools in order to change the pace and characteristics of structural transformation. Considering these trends, there is a need to reconsider or ‘normalize’ the debate on the positive role that state-owned entities can play in stimulating structural transformation and on the institutional and policy design that can foster that role.
JEL classification: G20, H70, L52, O14
To what extent has the regional exclusion list under the EPA shaped national industrial policy in countries within the ECOWAS region? The Economic Partnership Agreements (EPAs) are a series of bilateral free-trade systems between the EU and ECOWAS that, if ratified, will transform ECOWAS into a single trading bloc. Under ECOWAS’s completed EPA, the region is required to liberalise 75% of its imports from the EU, with a 25% exclusion list to protect existing local industries. However, local industries operate nationally rather than regionally. The regional exclusion list, which was arrived at through negotiation between the fifteen countries of ECOWAS with each country’s successful industry included in the regional protection policy, presents problems of ‘incoordination’. As trade policies such as protectionism are an essential part of industrial policy, the movement of trade policies from national to the regional space, creates the possibility of incoordination where several neighbouring countries pursue similar industrial policy on the basis of common regional protection.
This paper is a system analysis of STI policy and R&D governance for the attainment of SDGs. The objective was to articulate a holistic model of STI policies and R&D governance for meeting the SDGs’ agenda 2030’s. It was analysed by using the model of STI policy and R&D governance to attain SDGs. The model dealt with: i) STI policy direction by the function of STI policy council, which sets STI policy directions and resources allocation for national goals, ii) the instrument of STI policy by the function of integrating body for R&D governance, which executes the coordinated and synergized national R&D program and projects involving across sectoral ministries/institutions. The model implementation would contribute to: i) STI-based economy in the long run, where STI-based industrialization should be pursued by the application of industrial policy to promote innovative industries driven by R&D in strategic area focus; and ii) meeting the SDGs’ targets through STI, where STI policy, organizational coordination and R&D governance for economic prosperity should shift towards transformative innovation policy, which is inspired by social ecology and environmental protection. The leverage factor for effective STI policy and productive R&D governance in Indonesia is the availability of highly qualified researchers.
“This book is very timely. I endorse the book’s conclusion that Indonesia has to move on to a productivity driven growth path, and the key to successful job-rich reindustrialization for shared prosperity is integrated domestic markets based on stronger backward and forward linkages where regional minimum wages can be an important industry policy tool.'
–Armida Alisjahbana, Padjajaran University, Indonesia
“Tadjoeddin and Chowdhury have written an important new study of employment and industrialization in Indonesia. There is much food for thought in their clearly written and provocative analysis. The authors are to be congratulated for this timely and stimulating study.” –Hal Hill, Australian National University, Australia
This book studies the challenges for Indonesia, once a miracle economy, as it faces premature deindustrialization, rising inequality and domestic and external factors impacting its export-oriented industrialization. Since the fall of Soeharto, Indonesia has undergone a far-reaching systemic transition from centralised and autocratic governance to a highly decentralised and democratic system. Complicated by regional variations, the country is now being called upon to respect labour rights and, amidst slow global economic recovery, is facing increased competition from other low-labour-cost countries, especially within the ASEAN Economic Community. Tadjoeddin and Chowdhury posit that Indonesia cannot recreate its past miracle based on cheap labour and suppression of labour rights. It will need to move quickly to high value-added activities driven by productivity growth and to develop its domestic market.
Mohammad Zulfan Tadjoeddin is Senior Lecturer in Development Studies, Western Sydney University, Australia. He held visiting research appointments at the Queen Elizabeth House, Oxford University, England and at the International Institute of Social Studies, Erasmus University, the Netherlands.
Anis Chowdhury is Adjunct Professor, Western Sydney University and the University of New South Wales, Australia. He held several senior United Nations positions, including Director of the Macroeconomic Policy and Development Division, and Director of the Statistics Division of the UN Economic and Social Commission for Asia and the Pacific.
This chapter reviews government policies with regard to industrialisation, regional development, employment and minimum wages. While the focus is on the post-Soeharto period, it also briefly reviews the policy framework of the Soeharto regime. Given the systemic change that occurred following the fall of Soeharto, the policy approach has changed from a highly centralised to a radically decentralised decision-making process. The decentralised decision-making is also extended to industrial relations, especially with regard to minimum wages. This has essentially created an element of labour market flexibility in terms of regional variations. Thus, labour-intensive activities can potentially relocate to regions with lower minimum wages while industrially advanced regions with higher minimum wages can specialise in high value-added activities. The chapter argues that the ultimate aim should be to strengthen backward and forward linkages within the industrial sector and among regions, and thereby create internal dynamics within Indonesia’s development path.
This chapter econometrically investigates the determinants of real wage, productivity and employment in the manufacturing sector by firm size and factor intensity. This exercise is important to identify policy instruments in order to influence their trends at various levels to achieve the desired objective of guiding the economy towards a high-wage and high-productivity trajectory and to address socio-economic deprivation such as working poverty and earnings inequality. The chapter begins with an examination of wage and productivity functions, followed by employment functions. The chapter finds that the modern and dynamic LM section of manufacturing industry displays an ideal outcome where wages and employment increase when the overall economy (gross domestic product) expands. This finding across firm size and factor intensity should affirm the call for re-industrialisation to reverse the trend of premature de-industrialisation since the 1997–1998 Asian financial crisis.
This chapter examines the dynamics of wage inequality and productivity in the manufacturing sector, arguably the most dynamic sector in the economy. The manufacturing sector maintains its role as the largest contributor to the overall gross domestic product (GDP) and is the main engine of growth. However, in addition to experiencing a disjoint between productivity and earnings growth in the manufacturing sector, the Indonesian economy seems to have experienced negative de-industrialisation since the Asian financial crisis in the sense that its share in GDP has fallen prematurely. This has been a result of slower growth of manufacturing value added (MVA) compared to GDP. Furthermore, growth has been “jobless” as employment growth lagged behind albeit slower growth of both MVA and GDP. Despite these trends, this chapter still views the manufacturing sector as the mainstay for creating quality employment and, hence following other observers, advocates for its revitalisation.
This chapter provides a regional perspective on the broad trends in employment, wages and productivity. It begins with a brief discussion of the context and an overview of spatial inequalities in Indonesia. It also contains results of an empirical exercise relating formal employment, real wage, productivity and human development at the regional level. It finds rising inequality in all Indonesian provinces; however, the rates of increased inequality vary considerably. The decomposition analysis shows that within-province inequality is driving the overall increase in inequality in Indonesia, whereas there has been some reduction in between-province inequality. Furthermore, there are negative associations: (1) between increase in inequality and provinces’ initial conditions, such as the shares of manufacturing and mining in 2000 and mean years of schooling in 2002, and (2) between wage-productivity ratios and Gini indices across provinces. These findings have clear policy implications. For example, improving educational attainment and productivity-led re-industrialisation that creates decent jobs can contribute to reductions in inequality. The chapter also provides a snapshot of regional diversity of Indonesia’s manufacturing sector, highlighting the importance of regional dimensions in policymaking related to employment creation, inequality reduction and re-industrialisation in such a large and diverse country.
STRADE is an EU-funded research project focusing on the development of dialogue-based, innovative policy recommendations for a European strategy on future raw materials supplies. In a series of policy briefs and reports, the project will offer critical analysis and recommendations on EU raw materials policy.
This policy brief analyses European resources policies and minerals policies of important developing and emerging raw material suppliers to the EU in order to develop recommendations for future resource-related cooperation topics and instruments.
Classical international trade theory predicts if a country relatively rich in labor compared to capital will tend to specialize in labor-intensive industries to be exchanged with capital-intensive products produced by developed countries in the international market. This comparative advantage then regarded as a static character. The developments of new theory do relaxation on assumption of international capital flows, which in turn allows the changes in the industrial structure of a country. Countries that have a comparative advantage in labor-intensive industries can move into a country structured capital-intensive industry if the composition of the products produced in that country are more capital intensive, thus attract more international capital flows. Therefore, the nature of the comparative advantages of a country should be more dynamic, rather than static. As a country that has large populations, Indonesia will tends to specialize in products that are labor intensive. Indonesian industrial classification shows if the compositions of Indonesia’s industries are labor-intensive. There are about fifteen industries with high comparative advantage and all of them are labor intensive industries. Meanwhile all capital intensive industries are included in low comparative advantage products. However, some of capital intensive products indicate tend to have high comparative advantage. It shows if Indonesian industry specialization is unstable. This paper analyzes closer on Indonesian export products to determine whether there is a change in Indonesian industrial structure. Trend of the median value, standard deviation and skewness coefficient comparative advantage of Indonesia’s export products use to see the RSCA distribution. Some common patterns that appear from the chart are the difference between the comparative advantage of Indonesia’s industrial products tend to decline over time. If we observed specifically each industry, both labor-intensive and capital-intensive showed an increase in comparative advantage. Different condition is the trend of the two standard deviations. Standard deviation capital-intensive industrial products showed an upward trend. This indicates if the increased specialization in several industry groups, while other industry groups are relatively fixed or may even decrease. Estimation using Spearman’s rank correlation shows if there has been a shift in the pattern of comparative advantage of Indonesia’s export products. An industry which at the beginning has comparative advantage can be shifted into industries that do not have the advantage, and vice versa. When Indonesian industry divided into capital-intensive industry and labor intensive, it can be seen if the shift in capital-intensive industry is more dynamics than the labor-intensive one.
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