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Economic Effects of Trade Liberalization on the Indonesian Coffee, Coconut and Rubber industries
Dissertation Abstract:
The study assessed the economic effects of trade liberalization on the Indonesian coffee, coconut, and rubber industries using time series data from 1969 to 1999, and primary data to estimate price competitiveness. Specifically, it assessed the effects of trade liberalization on production, consumption, and export competitiveness of coffee, coconut and rubber. A multiple regression model was employed to determine the factors that influence the export volume of coffee, coconut, and rubber. The CM, RCA, a dummy variable, exchange rate, production, consumption, export price, producer price, NPC, and interest rate were included in the regression model.
Indonesia initiated trade reforms and reduced input subsidies after it incurred budgetary deficits when the world price of oil, a major export, fell in the 1980s. The export duty for all commodities covered in the study was the first to be abolished in 1981. The subsidies for pesticide and fertilizer were later abolished in 1990 and 1993, respectively. The Indonesian government also embarked on these trade reforms in line with its commitments under the GATT-WTO agreement.
The study revealed that Indonesian coffee, coconut and rubber industries benefited from trade liberalization. Trade liberalization had a positive effect on the production, consumption, volume of export, net trade, CM, and RCA of coffee, coconut, and rubber. The price competitiveness analyses showed that coffee and rubber were competitive but copra and coconut oil were not. This reflected the price control policy enforced by the Indonesian government on copra and coconut oil to protect the consumers.
The regression analysis identified the factors that influenced the export volumes of green coffee, coconut meal, coconut oil copra, and natural dry rubber. The analysis showed that CM, dummy, production, and exchange rate positively affected export volumes. Production was included only for copra while exchange rate was included for natural dry rubber. The dummy variable was excluded from copra due to the multicollinearity problem. Consumption negatively affected the export volume for green coffee, natural dry rubber, and coconut meal. The export price had a positive effect on natural dry rubber but was negatively related for copra. RCA negatively affected the export volume of coconut meal and copra while interest rate negatively affected coconut oil only. Producer price had a positive effect to the natural rubber and inversely for copra. On the other hand, NPC positively affected green coffee.
The relative export competitiveness of the commodities was not solely dependent on trade liberalization but also on other policies, i.e., exchange rate and interest rate. Productivity and quality should be prioritized in the development of coffee, coconut, and rubber industries.
