Econometric model of the Indonesian hardwood products industry: a policy simulation analysis
1989
Bonar, M.S.
Indonesian market intervention policies are intended to encourage domestic processing of logs and export of processed products. This study focuses on the Indonesian hardwood products industry and evaluates the impacts of relevant policy alternatives on domestic economy. Five policy alternatives set for period 1975-1982 are simulated with an econometric model of the Indonesian hardwood products industry. The model distinctly features endogenous government policy intervention in the sectoral markets of the Indonesian hardwood products industry. This study showed the applicability of modelling the Indonesian hardwood products industry, effectively utilizing the model in computer policy simulation experiments. Using income distribution and welfare criteria, the results indicate that log export restrictions policy objectives were not fully achieved. The growth in the processed products export was achieved at the expense of domestic consumption. Indonesia will lose in foreign exchange receipts. The income transfer effects resulted in a net welfare loss to Indonesian society as a whole. Lifting export tax on processed products or currency devaluation will improve the export picture and Indonesia would gain in foreign exchange receipts, but it is essentially achieved at the expense of domestic consumption. The net income transfer effect is a welfare gain to Indonesian society. This study suggests that the ASEAN log export embargo and the lifting of export tax on processed products could be an appropriate policy combination, if the vertical integration of production processes in the hardwood industry can be simultaneously implemented. However, to realize the objectives of log export restrictions to the economy, investment in infrastracture and development of financial and human resources are necessary.
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