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Key Determinants of Export Competitiveness of the Indonesian Palm Oil and Tea Agro-industries
Dissertation Abstract:
The study aimed to investigate the export competitiveness of palm oil (CPO) and tea agro-industrial products in Indonesia. It was hypothesized that the key determinants of the export competitiveness of palm oil and tea industries were (a) factor conditions relating to productivity and price of raw material; (b) policies on trade and liberalization, exchange rate, interest rate wage rate, and inflation; (c) technology and innovation (R&D investment); and (d) consumption behavior factors such as product differentiation, per capita income and prices of related goods.
Secondary data covering the period from 1979 to 1999 were analyzed. Results of the study revealed that CPO and tea were among the most important agro-industrial products in Indonesia because they contribute significant foreign exchange to the country. These products were also used in increasing amounts in the domestic market.
For the period 1979-1999, the CPO and tea agro-industries were generally export competitive with RCA values averaging 10.94 for CPO and 8.23 for tea. Results of the regression analysis showed that the key determinants of export competitiveness of CPO were factor productivity, degree of trade liberalization, interest rate, exchange rate, wage rate, research and development investment of two-year lag, foreign per capita income, and prices of soybean oil, rapeseed oil, and coconut oil. Except for interest rate, degree of trade liberalization, and prices of soybean oil and coconut oil, which had negative relationship with export competitiveness, an increase in the value of each of these variables was expected to improve CPO export competitiveness.
For tea, the key determinants were degree of trade liberalization, inflation, exchange rate, wage rate, research and development investment of three-year lag, product differentiation of one-year lag, domestic per capita income, and soft drink price. Except for inflation, wage rate, and domestic per capita income, these variables were positively related to export competitiveness of tea.
The study recommended the following: (1) more promotion and R&D with focus on product development; (2) policy reforms to include appropriate exchange rate adjustment, and more controlled and affordable interest rate; (3) close collaboration of the government and private sectors in decisions relating to appropriate wage level consistent with providing incentives for increased productivity of workers; and (4) strong policy advocacy program to ensure favorable policies for CPO and tea-agro industries.