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This paper examines the impact of local firms' participation in global value chains (GVCs) on productivity by considering three different patterns of GVC participation. We conducted a DID‐PSM estimation involving three countries, Indonesia, the Philippines, and Vietnam, and 17 manufacturing sectors in 2009 and 2015 in a panel framework. We found an endogenous relationship between firm productivity and GVC participation: firms that enter GVCs have high productivity before participating in the GVCs (selection effect), and only Indonesian firms that entered GVCs had high productivity growth after joining GVCs (learning effect). These two effects were only found for firms that both import intermediate goods and export output and not for firms that only either import or export. We also found that indirect exporting does not improve a local firm's productivity. Several recommendations are made to help firms and governments facilitate the participation of firms in GVCs. [ABSTRACT FROM AUTHOR]

The 27 May 2006 Yogyakarta earthquake caused the death of more than 5700 people; more than 60 000 people were injured and hundreds of thousands lost their homes. Bantul District was most severely affected by the earthquake. This paper is an attempt to understand the determinants of livelihood recovery after this natural disaster and, in particular, the role of aid in that recovery process. A panel firm-level survey was conducted by visiting approximately 500 mostly small and micro enterprises in Bantul District on two occasions: 6 and 12 months after the earthquake. This paper argues that: (i) smaller enterprises are more resilient and so are able to recover faster; (ii) an industrial cluster system within a sub-district provides the necessary support for firms to recover; (iii) the quality of village infrastructure could be important; (iv) it is important to distribute aid as early as possible (the faster it is distributed, the better the impact on enterprises affected by the earthquake); and (v) donors should not give too much assurance of financial support to enterprises in cases where the delivery date is uncertain, but rather just provide support when it is actually available. [ABSTRACT FROM AUTHOR]

Previous studies have cited inequality as a major factor relating to conflicts in Indonesia, while consideration of polarization and fractionalization as drivers of conflict is limited. The current paper examined the roles of three indices (polarization, inequality and fractionalization) in explaining the incidence of conflicts in Indonesian provinces over 2002–2012. This study used income (proxied by expenditure) differences to measure polarization and inequality, with subnational data as the unit of analysis. In addition, to complete the analysis, the present study used a variety of socioeconomic indicators as additional control variables. This paper verified that the high degrees of income polarization, ethnic fractionalization and income inequality are associated with the high probability of conflicts in Indonesian provinces. It also found that socioeconomic factors such as poverty, unemployment, population and natural resources, as well as some types of local government spending are significantly associated with conflicts. [ABSTRACT FROM AUTHOR]

Many household choices in developing economies are correlated with choices of nearby households, because nearby locations have unobserved factors in common and households and their neighbors interact. However, models recognizing these spatial correlations are rarely used because few surveys give exact household locations. In the present paper, we use unusual data from rural Indonesia, where distances between households can be measured, to examine spatial effects in equations for non-farm enterprises' share of household incomes and food's share of total household budgets. Our results indicate that ignoring spatial correlations in household choices might cause bias and inferential errors and could distort recommended policy interventions aiming to raise living standards in rural Asia. [ABSTRACT FROM AUTHOR]

This paper examines what makes us feel richer or poorer than others. It investigates cross-sectional and longitudinal determinants of individuals’ subjective economic status in Indonesia. Using two waves of Indonesian Family Life Surveys, 1997 and 2000, I show that individuals’ perceptions of where they are on the economic scale are more dependent on a number of socioeconomic characteristics, as well as their attitudes towards their future economic status, than their current spending capacities would suggest. I also find significant, albeit weaker, expenditure and income effects on individuals’ subjective economic status once individual fixed effects are controlled for in the regression. [ABSTRACT FROM AUTHOR]

As a result of Indonesia's decentralization program, local governments have gained significantly more responsibility for service delivery, considerably larger fiscal resources, and much greater authority over the use of those resources than before. The present paper develops a simple budget model to describe and explain the substantial differences in pre- and post-decentralization local government fiscal behavior related to spending, taxing and saving. During the post-decentralization period special attention is paid to the fiscal behavior of natural resource rich regions. Among other things, the evidence suggests that: post-decentralization local government spending is partly responsive to increasing needs and partly the subject of elite capture; local government taxation has become more aggressive under decentralization and appears to be mostly driven by local bureaucratic expectations related to routine overhead budgets; and the increased savings of local governments during the post-decentralization period is determined to a large degree by delayed central government transfer payments. [ABSTRACT FROM AUTHOR]

This paper examines the spatial dimension of welfare and poverty in Indonesia and explores the effective policy interventions to remedy the regional economic disparity which was most vividly shown during the recent economic crisis. The econometric estimations confirm the existence of a spatial poverty trap, where poverty persists for generations. The inclusion of the placement of Impres Desa Tertingal (IDT) implemented during 1994–96 suggests that the regional targeting programme could fail to achieve its policy goal when the empowerment of local communities is insufficient. It is suggested that full–scale decentralization could remedy the targeting policy failure. JEL classification : O 15; O 18; R 15. [ABSTRACT FROM AUTHOR]

Assessments to date of the consequences of implementing the Uruguay Round of multilateral trade negotiations have assumed medium-term rates of economic growth in East Asia that now seem unsustainable. This paper compares an earlier assessment with a new set of estimates involving an interruption to East Asian economic growth in the late 1990s, using the global, economy-wide GTAP model. Attention focuses on results for Indonesia, the worst-affected country in the region. An important consequence of the crisis is that Indonesia is likely to become more agrarian for a time than it otherwise would have been. The estimated benefits to Indonesia from embracing further unilateral reform, as a way of catching up, are contrasted with the alternative strategy of reneging on Uruguay Round commitments to liberalize trade. [ABSTRACT FROM AUTHOR]

This paper investigates the relationship between industrial concentration and price rigidity in the Indonesian food and beverages industry. A Cournot model of firm behavior is used in which prices adjust according to a partial adjustment mechanism. The model is applied to panel data of the Indonesian food and beverages industry over the period 1995-2006. The results suggest that industrial concentration has a positive effect on percentage price changes. Furthermore, the speed of price adjustment is higher when the per unit cost of production rises. [ABSTRACT FROM AUTHOR]

There is a continuing debate on the measurement of living standards, especially in developing countries. The proliferation of social indicators in recent decades, motivated by both philosophical and pragmatic empirical considerations, has been illuminating. However, it has also led to some confusion: which indicator or set of indicators should be used? The most widely used indicator continues to be headcount poverty, or some refined variant of it. However, what of the many other indicators and, importantly, do they portray a similar picture? We illustrate these issues with reference to the Indonesian experience over several decades. Indonesia has experienced moderately fast economic growth since the late 1960s and, as a consequence, headcount poverty has fallen rapidly. Most other social indicators have also improved. However, the rate of progress has varied, from similarly rapid improvement to stagnation and in one instance, environmental amenities, to regression. [ABSTRACT FROM AUTHOR]

Using the bidimensional decomposition method of a population-weighted coefficient of variation, this paper analyzes the changes in the determinants of interprovincial income inequality associated with structural changes in Indonesia from 1983 to 2004. The method unifies two inequality decompositions by regional groups and gross regional product components (industrial sectors) and, therefore, enables us to assess the contributions of gross regional product components to within-region and between-region inequalities, as well as to overall inequality. As the share of mining has decreased, the spatial distribution of manufacturing has played a more important role in the inequality of Sumatra and Kalimantan, while the primacy of Jakarta, with strong urbanization economies, facilitated by globalization and trade and financial liberalization, has determined much of the Java-Bali region's inequality and, therefore, overall inequality in Indonesia. [ABSTRACT FROM AUTHOR]

What happens to firms during periods of deep economic crisis? Depending on the nature of the crisis, the general effects are well known. However, owing to data availability, there are relatively few detailed firm-level studies. With the aid of an unusually rich database, the present paper investigates the effects of Indonesia's 1997–1998 crisis on manufacturing establishments. Consistent with studies of other crisis episodes, foreign ownership and prior export orientation are found to be highly significant determinants of survival and recovery. The effects of firm size are ambiguous. The industry in which firms are located, in particular its factor proportions, is also found to be significant. [ABSTRACT FROM AUTHOR]

The economic crisis caused a clear deterioration in the welfare of the Indonesian people. In this paper, we examine the appropriate method to compare the change in poverty rates over time. We then piece together a consistent series of estimates of poverty rates during the crisis from various sources, covering a period from February 1996 to February 2002. The reconciliation of these various estimates paints a very reasonable picture and neatly tracks events. The poverty rate increased from the lowest point of approximately 15% at the onset of the crisis in the middle of 1997 to the highest point of approximately 33% nearing the end of 1998. This maximum increase in poverty rate during the crisis of 18 percentage points implies that approximately 36 million additional people were pushed into absolute poverty due to the crisis. After the peak point, the poverty rate started to decline again and reached the pre-crisis level of approximately 15% at the end of 1999, implying that the lost time in poverty reduction due to the crisis was approximately 2.5years. However, the poverty rate after this point appears to have fluctuated. During 2001 and early 2002, poverty was on the rise again. [ABSTRACT FROM AUTHOR]

This paper examines the impact of export orientation, import competition, foreign ownership and the rate of capital accumulation on the relative demand for skilled and unskilled labour in pre-crisis Indonesia. Estimates from an interrelated factor demand analysis indicate that openness and foreign ownership, by themselves, acted to raise the relative demand for unskilled workers in the pre-crisis period, while the newness of capital was associated with increased relative demand for skilled workers. Overall, the relative demand for unskilled workers increased yet their relative wage position weakened. These contrasting relative employment and wage changes are consistent with the examined demand shocks and the greater elasticity of supply of Indonesian unskilled relative to skilled labour. [ABSTRACT FROM AUTHOR]

Our exploratory spatial data analysis covered Indonesia's district‐level per capita incomes for 2004–2018 and found statistical evidence of a weak but monotonically increasing positive spatial association. The spatial income clusters/outliers were scattered nationwide and expanded geographically. Applying the filtering method, we found that regional cyclical shocks significantly influenced spatial association, largely in resource‐rich districts, and identified the locations of persistent spatial association that were immune to shocks. We also specified new development targets, showing the adjacent coexistence of low‐income agrarian clusters with high‐income mining clusters in the undeveloped Papuan provinces. The overall national average is moving toward the narrowing of inter‐district income disparities. However, nearly half of all districts have widened the income disparities with their neighbors; shocks increased income gaps rather than narrowing them. [ABSTRACT FROM AUTHOR]

It is well known that the economic crisis in Indonesia has caused the poverty rate to increase significantly. The present study finds, not only that the poverty rate increased significantly, but also that much of the increase was due to a large increase in the chronic poor category (i.e. the poor who have expected consumption below the poverty line and most likely will stay poor in the near future). Furthermore, the present study also finds that the proportion of households that have high vulnerability to poverty has more than doubled since the economic crisis. As a result, the proportion of the total vulnerable group (the current poor plus the high vulnerability group) has jumped from less than one-fifth of the population before the crisis to more than one-third after the crisis. [ABSTRACT FROM AUTHOR]

Features a study which examined the effects of the 1994 to 1996 Inpres Desa Tertinggal (IDT) program in Indonesia, on the change in intra-provincial economic inequality between 1993 and 1996. Details on Indonesian regional inequality; Concept of the IDT program; Data set and methodology; Results; Implications of the study.

The dominant role of commercial banks as a source of finance and the considerable asymmetry of information in financial markets in developing countries have raised an argument that the bank lending channel of monetary transmission mechanism would be very important in such countries. This study addresses the issue by investigating empirically whether there are differential effects of monetary policy on banks' balance sheets, and its implications to the existence of the bank lending channel of monetary policy in Indonesia, especially since the early 1980s when the government adopted a policy of financial deveculation. We find significant differences of balance sheet behaviour across bank classes in response to a change in monetary policy, consistent with the predictions of the bank lending view. We also found that because of access to foreign funds and the existence of bank loan commitment, the monetary policy was unable to constrain loan supply by the large (state) banks, indicating that the bank lending channel operates through smaller (non-state) banks. [ABSTRACT FROM AUTHOR]

Examines the causes of deforestation and the development of agroforests in customary land tenure areas of Sumatra, Indonesia. Decrease in inherited land per household; Increase in the number of male workers and the clearance of primary forests; Relationship between the inheritance system and deforestation; Tendencies of households to develop agroforests.