Trade Liberalization Impact on the Indonesian Palm Oil Industry

The palm oil industry has been an important sector in the Indonesian economy for the past three decades. The important role of this industry to the Indonesian economy is not only due to the fact that Indonesia today depends substantially on oil palm for its foreign exchange earnings, but also bec...

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Main Author:	Ernawati
Format:	Thesis
Language:	English English
Published:	2004
Subjects:	Agriculture Palm oil industry - Indonesia
Online Access:	http://psasir.upm.edu.my/id/eprint/6048/1/FEP_2004_6.pdf
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id	my-upm-ir.6048
record_format	uketd_dc
spelling	my-upm-ir.60482023-01-05T07:37:21Z Trade Liberalization Impact on the Indonesian Palm Oil Industry 2004-07 Ernawati The palm oil industry has been an important sector in the Indonesian economy for the past three decades. The important role of this industry to the Indonesian economy is not only due to the fact that Indonesia today depends substantially on oil palm for its foreign exchange earnings, but also because Indonesia is the largest consumer of palm oil among developing countries. This study was conducted to analyze the implications of various trade liberalization policies (reduction of export duty and import tariff) on the Indonesian palm oil industry. An econometric approach, mainly the error correction model on a simultaneous equation model, was employed. The model incorporated specific equations for acreage, harvested area, yield, domestic demand, rest of the world excess supply, Indonesian excess demand to India, China, Europe, and rest of the world, rest of the world excess demand and export price. The model was estimated using error correction and simultaneous model technique. Then the model was estimated by the two stage least squared (2SLS) method. The structural equations were assessed based on the economic and statistical criteria. The economic criteria were evaluated based on the signs and magnitude of the hypotheses, while the statistical criteria used the coefficient of multiple determination (R~)t,h e F statistic, auto correlation (h statistic), and t ratios to assess the model. Validation of the model was undertaken using Theil's inequality coefficient and root mean percentage square error. The results show that the net social welfare effects of export duty reduction at 10% showed a net gain for $ 857.56 thousand, which can be explained by gains in Indonesian producer surplus as a result of higher prices and by transfemng the production resources from palm oil production to more efficient sectors. Indonesian consumers' surplus decreased by $12.89 million, while Indonesian producers' surplus gained $17.38 million. On the other hand, when import tariff was reduced by lo%, the estimation yielded a gain in Indonesian producers7 surplus of $ 5.42 million, a gain of $ 1.38 million in efficiency attributable to the transfers of production resources to more efficient sectors and a loss in consumer surplus of $4.04 million due to increased production at higher prices. These numbers increased along with the increase in the percentage reduction of export duty. Reduction in both export duty and import tariff has the same implication as individually reducing export duty and import duty. Producer surplus increased by $ 22.83 million and efficiency gain rose by $ 1.51 million, meanwhile the loss in consumer surplus was $16.54 million. Then, the calculations of the welfare effects showed that the Indonesian palm oil industry will be better off without any intervention. Agriculture Palm oil industry - Indonesia 2004-07 Thesis http://psasir.upm.edu.my/id/eprint/6048/ http://psasir.upm.edu.my/id/eprint/6048/1/FEP_2004_6.pdf text en public phd doctoral Universiti Putra Malaysia Agriculture Palm oil industry - Indonesia Faculty Economics and Management English
institution	Universiti Putra Malaysia
collection	PSAS Institutional Repository
language	English English
topic	Agriculture Palm oil industry - Indonesia
spellingShingle	Agriculture Palm oil industry - Indonesia Ernawati Trade Liberalization Impact on the Indonesian Palm Oil Industry
description	The palm oil industry has been an important sector in the Indonesian economy for the past three decades. The important role of this industry to the Indonesian economy is not only due to the fact that Indonesia today depends substantially on oil palm for its foreign exchange earnings, but also because Indonesia is the largest consumer of palm oil among developing countries. This study was conducted to analyze the implications of various trade liberalization policies (reduction of export duty and import tariff) on the Indonesian palm oil industry. An econometric approach, mainly the error correction model on a simultaneous equation model, was employed. The model incorporated specific equations for acreage, harvested area, yield, domestic demand, rest of the world excess supply, Indonesian excess demand to India, China, Europe, and rest of the world, rest of the world excess demand and export price. The model was estimated using error correction and simultaneous model technique. Then the model was estimated by the two stage least squared (2SLS) method. The structural equations were assessed based on the economic and statistical criteria. The economic criteria were evaluated based on the signs and magnitude of the hypotheses, while the statistical criteria used the coefficient of multiple determination (R~)t,h e F statistic, auto correlation (h statistic), and t ratios to assess the model. Validation of the model was undertaken using Theil's inequality coefficient and root mean percentage square error. The results show that the net social welfare effects of export duty reduction at 10% showed a net gain for $ 857.56 thousand, which can be explained by gains in Indonesian producer surplus as a result of higher prices and by transfemng the production resources from palm oil production to more efficient sectors. Indonesian consumers' surplus decreased by $12.89 million, while Indonesian producers' surplus gained $17.38 million. On the other hand, when import tariff was reduced by lo%, the estimation yielded a gain in Indonesian producers7 surplus of $ 5.42 million, a gain of $ 1.38 million in efficiency attributable to the transfers of production resources to more efficient sectors and a loss in consumer surplus of $4.04 million due to increased production at higher prices. These numbers increased along with the increase in the percentage reduction of export duty. Reduction in both export duty and import tariff has the same implication as individually reducing export duty and import duty. Producer surplus increased by $ 22.83 million and efficiency gain rose by $ 1.51 million, meanwhile the loss in consumer surplus was $16.54 million. Then, the calculations of the welfare effects showed that the Indonesian palm oil industry will be better off without any intervention.
format	Thesis
qualification_name	Doctor of Philosophy (PhD.)
qualification_level	Doctorate
author	Ernawati
author_facet	Ernawati
author_sort	Ernawati
title	Trade Liberalization Impact on the Indonesian Palm Oil Industry
title_short	Trade Liberalization Impact on the Indonesian Palm Oil Industry
title_full	Trade Liberalization Impact on the Indonesian Palm Oil Industry
title_fullStr	Trade Liberalization Impact on the Indonesian Palm Oil Industry
title_full_unstemmed	Trade Liberalization Impact on the Indonesian Palm Oil Industry
title_sort	trade liberalization impact on the indonesian palm oil industry
granting_institution	Universiti Putra Malaysia
granting_department	Faculty Economics and Management
publishDate	2004
url	http://psasir.upm.edu.my/id/eprint/6048/1/FEP_2004_6.pdf
_version_	1776100254121197568

Trade Liberalization Impact on the Indonesian Palm Oil Industry

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