Structural Changes in a Reforming World Economy: Implications for Indonesia

Abstract

How will rapid East Asian industrialisation and international trade policy reforms affect Indonesia's economy? Taking an economy-wide perspective and drawing on projections to 2005, based on a global applied general equilibrium model (GTAP), we show the impact of Uruguay Round implementation, and explore other international influences on Indonesia's and neighbouring economies. Trade reforms likely to accompany China's (and Taiwan's) membership of the WTO are projected to boost the competitiveness of Indonesia's primary sectors at the expense of light manufacturing and the overall economy, while failure by OECD countries to honour Uruguay Round obligations to open their textile and clothing markets would reduce industrialisation in the region, slowing growth in its net food imports. The benefits to Indonesia of APEC liberalisations are also reported. All projections were completed in 1997 before the enormity of the financial crisis became clear; follow-on research should quantify the growth slowdown's impact on these results.

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Mari Pangestu

Revised version of a paper prepared for the Second Workshop of the ACIAR Indonesia Research Project on Agriculture, Trade and the Environment, CASER, Bogor, 7–8 July 1997. Thanks are due to Betina Dimaranan of Purdue University for providing our unpublished results for Indonesia that are reported in some of the tables, to the Project/workshop participants, to the anonymous referees for helpful comments, and to ACIAR for funding the Indonesia Research Project.