trade liberalisation, povery and equality in indonesia
DESCRIPTION
Crawford PhD Conference 2014TRANSCRIPT
Introduction Data and empirical approach
Results Conclusion
Trade liberalization, poverty and inequality in Indonesia
Yessi Vadila
Arndt-Corden Department of Economics Crawford School of Public Policy
College of Asia and Pacific
Crawford PhD Conference 2014: Big Data, Big Opportunity 19 November 2014
Trade liberalization, poverty and inequality in Indonesia
Introduction Data and empirical approach
Results Conclusion
Research question
How did regional exposure to trade liberalization affect poverty and inequality in Indonesia?
Trade liberalization, poverty and inequality in Indonesia
Introduction Data and empirical approach
Results Conclusion
Source: Indonesian Tariff Books and UNCTAD/TRAINS
Trade liberalization in Indonesia, 1977- 2012 Reduction in MFN tariff rates
Trade liberalization, poverty and inequality in Indonesia
Introduction Data and empirical approach
Results Conclusion
Source: BPS
Poverty rate in Indonesia
Trade liberalization, poverty and inequality in Indonesia
Introduction Data and empirical approach
Results Conclusion
Source: Alatas, World Bank 2013
Inequality in Indonesia
Trade liberalization, poverty and inequality in Indonesia
Introduction Data and empirical approach
Results Conclusion
Source: Alatas, World Bank 2013 Gini: 2012, Povrate 2011
Inequality in Indonesia
Trade liberalization, poverty and inequality in Indonesia
Introduction Data and empirical approach
Results Conclusion
Theory and global evidence Trade liberalization and poverty Labor Markets Channel Trade policy and unemployment Economy-wide changes in the wages of unskilled labor Industry Wages Trade policy and compliance with labor market standards Child Labor Household Consumption and Production Relative price changes: as buyer vs seller Evidence on poverty effects
.., Mixed for Latin American countries (Goldberg and Pavcnik 2007)
.., Potentially harmful poverty effects in India (Topalova 2010)
.., Market access beneficial in Vietnam (McCaig 2011)
Trade liberalization, poverty and inequality in Indonesia
Introduction Data and empirical approach
Results Conclusion
Theory and global evidence Trade liberalization and Inequality Increase of the Skill Premium Changes in the Returns to Skill-Intensive Occupations Stolper-Samuelson Effects
Relocation of Intermediate-Goods Production Skill-Biased Technological Change
Changes in Industry Wage Premiums Changes in the size of the informal sector
Evidence on inequality effects - No significant effects, mixed countries (Berg & Nilson 2010) - Reduced poverty, but higher inequality in India (Jha, 2000) - Lower rate of poverty reduction & no effects on inequality in India (Topalova, 2005) - Higher inequality in Argentina (Galiani & Sanguinetti 2003) - Differ effects for different country groups (Celik & Basdas 2010)
Trade liberalization, poverty and inequality in Indonesia
Introduction Data and empirical approach
Results Conclusion
Empirical evidence for Indonesia
... Equalise wage (Suryahadi 2003)
... Productivity gains for firms that import inputs (Amiti and Konings 2007)
... Improved working conditiond (Robertson et al. 2009)
... Reduced industrial skill premia (Amiti and Cameron 2012)
... Child labor decreased (Kis-Katos and Sparrow 2011)
... Poverty reduced more in exposed districts (Kis-Katos and Sparrow 2011)
Trade liberalization, poverty and inequality in Indonesia
Introduction Data and empirical approach
Results Conclusion
Our main findings
Regions that were exposed more to trade liberalization experienced
a larger reduction in absolute poverty a larger decrease in average real income of bottom 20% a larger reduction in absolute and relative inequality
Trade liberalization, poverty and inequality in Indonesia
Introduction Data and empirical approach
Results Conclusion
Data Measuring regional trade liberalization Estimation approach
Sample and data sources
... Sample: .., 26 provinces (out of 33 currently), crosswalk for initial period...
Regional trade data: .., Tariff measures: Indonesian Customs Tariff Book & UNCTAD-TRAINS .., Initial regional labour market structure (Census 1976) .., National Input Output (IO) table, 1975 (BPS)
... Outcome variables: .., Poverty rates (poverty headcount poverty gap, (Susenas) .., Average real income of the bottom 20%, (Susenas) .., Gini coefficients, (BPS, various publication) .., Share of the top and bottom 10% and 20%, (Susenas)
Trade liberalization, poverty and inequality in Indonesia
Trade liberalization, poverty and inequality in Indonesia
Change in Tariffs, 1977-2012 Relative to initial levels
Introduction Data and empirical approach
Results Conclusion
Data Measuring regional trade liberalization Estimation approach
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-10
-50
Chan
ge in
tariff
1977
-201
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0 5 10 151976 tariff
Introduction Data and empirical approach
Results Conclusion
Data Measuring regional trade liberalization Estimation approach
Province level tariff exposure
... Captures province level exposure to import tariffs
... . . . for province p, year t, sector s (S = 16)
Trade liberalization, poverty and inequality in Indonesia
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 = �𝐿𝐿𝐿𝑇𝑇, 1980𝐿𝐿𝑇𝑇, 1980
𝑥𝑥 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝐿𝑇𝑇
𝐻𝐻
𝐿=1
Introduction Data and empirical approach
Results Conclusion
Data Measuring regional trade liberalization Estimation approach
Distinguishing between output and input tariffs
... . . . for province p, year t, sector s and j (S , J = 50)
Trade liberalization, poverty and inequality in Indonesia
𝑂𝑂𝑂𝑂𝑇𝑇𝑇𝑇𝑂𝑂𝑇𝑇 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 = �𝑄𝑄𝑄𝑄𝑇𝑇, 1980𝑄𝑄𝑇𝑇, 1980
𝑥𝑥 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝐿𝑇𝑇
𝑆𝑆
𝑄𝑄=1
𝐼𝐼𝐼𝐼𝑇𝑇𝑂𝑂𝑇𝑇 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑇𝑇𝑇𝑇� �𝑄𝑄𝑄𝑄𝑇𝑇,1980𝑄𝑄𝑇𝑇,1980
𝑆𝑆
𝑄𝑄=1 𝑥𝑥 � 𝑀𝑀𝑀𝑀𝑄𝑄,1980
𝑀𝑀𝑄𝑄,1980 𝑥𝑥 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑀𝑀𝑇𝑇
𝐽𝐽
𝑀𝑀=1�
Introduction Data and empirical approach
Results Conclusion
Data Measuring regional trade liberalization Estimation approach
Fixed effects panel regressions
... . . . for province p, year t , region r ... Xpt : GRDPp, agric., manu. & mining value added, years of schooling, infant mortality rate,
governmen expenditure, share of gov. quality, political diversion, participation rate in election.
... Ip : initial sectoral labor shares, initial rural share
... 36 years, 1977-2012
Trade liberalization, poverty and inequality in Indonesia
ypt = α + β · Δ Tariffpt + Δ X'pt + I'p θ + λrt + Δ εpt
Introduction Data and empirical approach
Results Conclusion
Poverty Inequality Robustness
Tariff reductions and poverty Tariff coefficients from regressions of poverty measures (P0)
Trade liberalization, poverty and inequality in Indonesia
(1) (2) (3) (4) Labour weighted tariff 1.626*** 1.388*** 1.214** 1.381** s.e. (0.358) (0.301) (0.496) (0.539)
Manufacturing Output Tariff 0.393*** 0.357*** 0.285*** 0.319*** s.e. (0.090) (0.076) (0.099) (0.104) Manufacturing Input Tariff 0.639*** 0.527*** 0.402** 0.513*** s.e. (0.120) (0.107) (0.166) (0.161)
N 910 876 876 823 Year-island dummies Yes Yes Yes Yes Time variant controls No Yes Yes Yes Initial labour force and rural population shares No No Yes Yes Dependent variable 1976 No No No Yes
Introduction Data and empirical approach
Results Conclusion
Tariff reductions and poverty Tariff coefficients from regressions of Average real expenditure of the bottom 20%
Trade liberalization, poverty and inequality in Indonesia
(1) (2) (3) (4) Labour weighted tariff -0.188 0.059 0.795*** 0.935*** s.e. (0.212) (0.149) (0.230) (0.217)
Manufacturing Output Tariff -0.037 -0.010 0.087* 0.108** s.e. (0.035) (0.037) (0.050) (0.048) Manufacturing Input Tariff -0.131*** -0.105** 0.061 0.143 s.e. (0.050) (0.047) (0.096) (0.090)
N 832 804 804 754 Year-island dummies Yes Yes Yes Yes Time variant controls No Yes Yes Yes Initial labour force and rural population shares No No Yes Yes Dependent variable 1976 No No No Yes
Poverty Inequality Robustness
Introduction Data and empirical approach
Results Conclusion
Tariff reductions and Inequality Tariff coefficients from regressions of Gini
Trade liberalization, poverty and inequality in Indonesia
(1) (2) (3) (4) Labour weighted tariff 0.101 0.375 1.217** 1.082** s.e. (0.446) (0.297) (0.490) (0.498)
Manufacturing Output Tariff 0.037 -0.003 0.153** 0.133* s.e. (0.063) (0.061) (0.074) (0.075)
Manufacturing Input Tariff -0.067 -0.116 0.108 0.101 s.e. (0.079) (0.079) (0.070) (0.076)
N 910 876 876 823 Year-island dummies Yes Yes Yes Yes Time variant controls No Yes Yes Yes Initial labour force and rural population shares No No Yes Yes Dependent variable 1976 No No No Yes
Poverty Inequality Robustness
Introduction Data and empirical approach
Results Conclusion
Tariff reductions and Inequality Tariff coefficients from regressions of Top 10% share of expenditure
Trade liberalization, poverty and inequality in Indonesia
(1) (2) (3) (4) Labour weighted tariff 0.406 0.740*** 1.226** 1.008** s.e. (0.399) (0.197) (0.499) (0.508)
Manufacturing Output Tariff -0.019 0.010 -0.040 -0.024 s.e. (0.144) (0.117) (0.137) (0.147)
Manufacturing Input Tariff -0.019 0.040 -0.039 0.015 s.e. (0.192) (0.179) (0.189) (0.193)
N 910 902 902 867 Year-island dummies Yes Yes Yes Yes Time variant controls No Yes Yes Yes Initial labour force and rural population shares No No Yes Yes Dependent variable 1976 No No No Yes
Poverty Inequality Robustness
Introduction Data and empirical approach
Results Conclusion
Tariff reductions and Inequality Tariff coefficients from regressions of Top 20% share of expenditure
Trade liberalization, poverty and inequality in Indonesia
(1) (2) (3) (4) Labour weighted tariff 0.429 0.700*** 1.373** 1.109** s.e. (0.411) (0.199) (0.538) (0.548)
Manufacturing Output Tariff -0.006 0.011 -0.054 -0.046 s.e. (0.141) (0.116) (0.138) (0.151)
Manufacturing Input Tariff 0.008 0.050 -0.050 0.011 s.e. (0.191) (0.179) (0.196) (0.204)
N 910 902 902 867 Year-island dummies Yes Yes Yes Yes Time variant controls No Yes Yes Yes Initial labour force and rural population shares No No Yes Yes Dependent variable 1976 No No No Yes
Poverty Inequality Robustness
Introduction Data and empirical approach
Results Conclusion
Tariff reductions and Inequality Tariff coefficients from regressions of Least 10% share of expenditure
Trade liberalization, poverty and inequality in Indonesia
(1) (2) (3) (4) Labour weighted tariff -0.012 -0.040 -0.158** -0.127* s.e. (0.049) (0.029) (0.070) (0.070)
Manufacturing Output Tariff -0.002 -0.000 0.009 0.012 s.e. (0.010) (0.008) (0.012) (0.012)
Manufacturing Input Tariff -0.009 -0.007 0.011 0.007 s.e. (0.016) (0.011) (0.023) (0.023)
N 910 902 902 867 R2 0.360 0.312 0.325 0.372 Year-island dummies Yes Yes Yes Yes Time variant controls No Yes Yes Yes Initial labour force and rural population shares No No Yes Yes Dependent variable 1976 No No No Yes
Poverty Inequality Robustness
Introduction Data and empirical approach
Results Conclusion
Tariff reductions and Inequality Tariff coefficients from regressions of Least 20% share of expenditure
Trade liberalization, poverty and inequality in Indonesia
(1) (2) (3) (4) Labour weighted tariff -0.063 -0.115** -0.414*** -0.327** s.e. (0.096) (0.056) (0.145) (0.145)
Manufacturing Output Tariff -0.010 -0.005 0.011 0.015 s.e. (0.020) (0.019) (0.026) (0.027)
Manufacturing Input Tariff -0.017 -0.010 0.019 0.007 s.e. (0.031) (0.022) (0.045) (0.045)
N 910 902 902 867 R2 0.333 0.270 0.290 0.340
Year-island dummies Yes Yes Yes Yes Time variant controls No Yes Yes Yes Initial labour force and rural population shares No No Yes Yes Dependent variable 1976 No No No Yes
Poverty Inequality Robustness
Introduction Data and empirical approach
Results Conclusion
Further robustness checks
Different lags Controlling for crisis effects Divide sample including dummy crisis Placebo test : recent changes of dependents regressed on future tariff
changes
The results are robust..
Trade liberalization, poverty and inequality in Indonesia
Poverty Inequality Robustness
Introduction Data and empirical approach
Results Conclusion
Poverty Inequality Robustness
Potential problem - Endogeneity of Tariff
In progress.. Preliminary findings: Tariff76, rubber price, oil price and political power as instruments using 2SLS method Same effects, larger size Pass first & post-est. tests
The key message remains..
Trade liberalization, poverty and inequality in Indonesia
Introduction Data and empirical approach
Results Conclusion
Conclusion
... Poverty and inequality reduced by more in province with larger exposure to tariff reductions
... Bottom quintile average real expenditure reduced by more in province with larger exposure to tariff reductions
Need to examine the channels..
Trade liberalization, poverty and inequality in Indonesia