Poverty, Labour Markets and Trade Liberalization in Indonesia

34 Pages Posted: 19 Oct 2013

See all articles by Krisztina Kis-Katos

Krisztina Kis-Katos

University of Freiburg - College of Economics and Behavioral Sciences

Robert A. Sparrow

Wageningen UR - Development Economics Group; Erasmus University Rotterdam (EUR) - Institute of Social Studies (ISS); IZA Institute of Labor Economics

Abstract

We measure the effects of trade liberalization over the period of 1993-2002 on regional poverty levels in 259 Indonesian regions, and investigate the labour market mechanisms behind these effects. The identification strategy relies on combining information on initial regional labour and product market structure with the exogenous tariff reduction schedule over four three-year periods. We find that poverty reduced more in regions that were more strongly exposed to import tariff liberalization. Among the potential channels behind this effect, we highlight the formalization of the unskilled labour force and structural reallocation of labour. We also show that job formation and increases in unskilled wages were related to reductions in import tariffs on intermediate goods and not to reductions in import tariffs on final outputs. These results point towards increasing firm competitiveness as a driving factor behind the beneficial poverty effects.

Keywords: trade liberalization, labour markets, poverty, Indonesia

JEL Classification: J13, O24, O15

Suggested Citation

Kis-Katos, Krisztina and Sparrow, Robert A., Poverty, Labour Markets and Trade Liberalization in Indonesia. IZA Discussion Paper No. 7645. Available at SSRN: https://ssrn.com/abstract=2342497

Krisztina Kis-Katos (Contact Author)

University of Freiburg - College of Economics and Behavioral Sciences ( email )

Freiburg, D-79085
Germany
+44 - (0)761 203 2344 (Phone)
+44 - (0)761 203 2414 (Fax)

HOME PAGE: http://www.vwl.uni-freiburg.de/fakultaet/sopo/team/kis-katos.htm

Robert A. Sparrow

Wageningen UR - Development Economics Group ( email )

Hollandseweg 1
WAGENINGEN, 6706 KN
Netherlands

Erasmus University Rotterdam (EUR) - Institute of Social Studies (ISS) ( email )

PO Box 29776
Den Haag, 2518 AX
Netherlands

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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