Analysis of determinants of Indonesian agricultural exports

Abstract

This paper analyses determinants of agricultural exports and imports from Indonesia, including a set of demand and supply factors capturing effects of income, market size, prices, tariffs, exchange rates and variables related to logistics, competitiveness, trade policy, and innovation. A specific focus is on trade creation and diversion effects possibly arising as Indonesia experienced a deep liberalization of markets through the implementation of multiple Free Trade Agreements (FTAs). A gravity model helps to analyze the determinants of trade and the impacts of the various trade agreements, applied to two categories of agricultural exports: raw goods and food. The dataset comprises 50 countries with data on exports and imports from 2007 until 2017. The results find trade creation effects for both categories, with larger effects in exports within agricultural raw goods, and higher trade creation effects through imports in food. Indonesia also experienced trade expansion with non-free trade partners, suggesting that demand variables (e.g., income, market size, sophistication) are a more critical driver of growth rather than agreements. Price factors affect agricultural goods, with food products experiencing elastic price demand, while raw goods are affected by prices and exchange rate. Gains in competitiveness, logistics performance, and innovation is supporting agricultural exports (imports as well), although Indonesia is behind most of its trade partners. The current implementation of the FTA should be critically evaluated concerning food products as imports have expanded more rapidly than exports, and domestic goods may have experienced pressure from liberalization.

Trade Liberalization and Comparative Advantage: Evidence from Indonesia and Asian Trade Partners

“…Contrary to other studies where the gravity model is applied to highly aggregated data, we provide empirical evidence for more homogenous groupings of products to avoid aggregation bias of unrelated goods (Okabe and Urata 2014). Previous studies carrying out gravity models supported the positive effect of ASEAN regional partners, as for China (Yang and Martinez-Zarzoso 2014), India (Khurana and Nauriyal 2017), ASEAN in agricultural goods (Sugiharti et al 2020b), or other Asian partners (Handoyo et al 2021;Taguchi 2015). We explore a broader scope of regional country members (ASEAN plus China, Japan, India, Australia, New Zealand, and South Korea) and offer empirical evidence of trade agreements for different groups of products that are rarely covered.…”

“…This begs the question as to whether broadening agreements results in larger trade and easier access to markets for Indonesia or whether it makes the competition fiercer. Third, Indonesia produces plenty of naturally sourced goods and has a lot of labor-intensive manufacturing (Sugiharti et al 2020b) but lags in advanced manufacturing (Purwono et al 2020). Therefore, it is worth exploring whether integration leads to trade creation or trade diversion that impacts Indonesia's regional value chains.…”

Dynamics of Malaysia’s Bilateral Export Post Covid-19: A Gravity Model Analysis

“…This helps to increase the overall welfare in the economy. International trade, however, subject to market demands and supply factors such as income (Morland et al 2020;Zainuddin & Zaidi 2020), prices (Tee et al 2018;Sugiharti et al 2020), exchange rate (Ghani & Sofyan 2014;Baek & Choi 2020), and trade policies (Boysen-Urban et al 2019;Zainuddin et al 2019). In addition, international trade also affected by several external factors such as natural disasters (Nguyen & Pham 2020;Chang & Zhang 2020), economic and financial crisis (Pattnaik et al 2020;Nasrullah et al 2020), and also health crisis such as the severe acute respiratory syndrome (SARS) outbreak in 2003 (Lee & McKibbin 2004;Fernandes & Tang 2020).…”

The Impact of Trade War toward Against Indonesian Agriculture Export Products Product

“…Export products that have competitiveness in the Chinese market include HS 03, HS 07, HS 09, HS 14, and HS 18. The high competitiveness of Indonesian agricultural products to the Chinese market is one of the factors caused by the existence of trade cooperation between Indonesia and China[16][17][18][19].…”