The Impact of Trade Liberalization on Agriculture in Indonesia

Darmawan, Agung (2014). The Impact of Trade Liberalization on Agriculture in Indonesia Master's Thesis, School of Economics, The University of Queensland.

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Author Darmawan, Agung
Thesis Title The Impact of Trade Liberalization on Agriculture in Indonesia
School, Centre or Institute School of Economics
Institution The University of Queensland
Publication date 2014-11-11
Thesis type Master's Thesis
Supervisor Temesgen Kifle
Total pages 90
Language eng
Subjects 14 Economics
Formatted abstract
There have been many debates regarding the impact of trade liberalization on a country’s agriculture. Some literatures signified that trade liberalization might lead to deterioration of developing countries’ agriculture as they are relatively less competitive than the developed countries in many aspects. Due to the fact that Indonesia is one of the notable agricultural producers in the world, presumably Indonesia has benefitted from trade liberalization because Indonesian agricultural commodities are assumed to have more comparative advantage relative to the other countries. However, some empirical findings in developing countries, including in Indonesia, indicated contradictory results. This study aims to investigate the impact of trade liberalization on agriculture in Indonesia covering a study period from 1961-2013. Ordinary Least Squares (OLS) method with Newey-West heteroskedasticity-consistent standard errors is used to estimate the models, Cointegration and Error Correction Mechanism (ECM) approach are utilized to ascertain the long term and short term relationship between dependent variables and explanatory variables. The findings suggest that trade liberalization brings unfavorable impact to Indonesian agriculture in the long run since it has caused more dependency on the import of the most-consumed agricultural commodities in Indonesia. Rapid population growth that is not balanced with the growth of agricultural production might also have contributed to the high demand for these agricultural products. As a consequence of this import dependency, it is likely that Indonesian agriculture will be affected by various trickle-down effects such as domestic agricultural production debility, stagnant agricultural technology development, deterioration of domestic farmers’ welfare and incentives, and more exposure to commodities’ price volatility in the international market.
Keyword Trade liberalization
agricultural sector
Uruguay Round
Indonesia, OLS

Document type: Thesis
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