The Social Impact of a WTO Agreement in Indonesia

Indonesia experienced rapid growth and the expansion of the formal financial sector during the last quarter of the 20th century. Although this tendency was reversed by the shock of the financial crisis that spread throughout Asia in 1997 and 1998, macroeconomic stability has since then been restored, and poverty has been reduced to pre-crisis levels. Poverty reduction remains nevertheless a critical challenge for Indonesia with over 110 million people (53 percent of the population) living on less than $2 a day. The objective of this study is to help identify ways in which the Doha Development Agenda might contribute to further poverty reduction in Indonesia. To provide a good technical basis for answering this question, the authors use an approach that combines a computable general equilibrium (CGE) model with a microsimulation model. This framework is designed to capture important channels through which macroeconomic shocks affect household incomes. It allows making recommendations on specific trade reform options as well as on complementary development policy reforms. The framework presented in this study generates detailed poverty outcomes of trade shocks. Given the magnitude of the shocks examined here and the structural features of the Indonesian economy, only the full liberalization scenario generates significant poverty changes. The authors examine their impact under alternative specifications of the functioning of labor markets. These alternative assumptions generate different results, all of which confirm that the impact of full liberalization on poverty would be beneficial, with wage and employment gains dominating the adverse food price changes that could hurt the poorest households. Two alternative tax replacement schemes are examined. While direct tax replacement appears to be more desirable in terms of efficiency gains and translates into higher poverty reduction, political and practical considerations could lead the Government of Indonesia to choose a replacement scheme through the adjustment of value-added tax rates across nonexempt sectors.

Bibliographic Details

Main Authors:	Robilliard, Anne-Sophie, Robinson, Sherman
Format:	Policy Research Working Paper biblioteca
Language:	English
Published:	World Bank, Washington, DC 2005-10
Subjects:	ADVERSE IMPACT, AGGREGATE EMPLOYMENT, AGRICULTURAL PRODUCTS, AGRICULTURAL SUPPORT, AGRICULTURE, BASE YEAR, BENCHMARK, CAPITAL MARKETS, CONSUMER PRICE INDEX, CONSUMERS, CONSUMPTION INCREASES, DEMAND SIDE, DEVELOPING COUNTRIES, DEVELOPMENT POLICY, DISAGGREGATED LEVEL, ECONOMETRICS, ECONOMIC GROWTH, ECONOMIC SYSTEMS, ELASTICITY, EMPLOYMENT INCOME, EMPLOYMENT INCOMES, EMPLOYMENT STATUS, EQUILIBRIUM, ERROR TERM, ESTIMATION METHOD, EVALUATING POVERTY, EXCHANGE RATE, EXPORT DIVERSIFICATION, EXPORTS, EXTERNAL TRADE, FARMERS, FINANCIAL CRISIS, FINANCIAL SECTOR, FOOD CROPS, FOOD PRICE, FOOD PRICES, FOOD PRODUCTS, FOREIGN EXCHANGE, FOREIGN TRADE, FREE TRADE, FULL EMPLOYMENT, GDP, GINI INDEX, GROWTH IMPACT, GROWTH RATE, HEADCOUNT POVERTY, HOUSEHOLD HEAD, HOUSEHOLD HEADS, HOUSEHOLD INCOME, HOUSEHOLD INCOMES, HOUSEHOLD LEVEL, HOUSEHOLD SURVEY, HOUSEHOLD SURVEYS, IMPACT ON POVERTY, IMPERFECT SUBSTITUTES, IMPORT TARIFFS, INCIDENCE OF POVERTY, INCOME, INCOME DISTRIBUTION, INCOME GAINS, INCOME GENERATION, INCOME INCREASE, INCREASE, INDIVIDUAL LEVEL, INEQUALITY, INEQUALITY INDICATORS, INFORMAL ACTIVITIES, INFORMAL SECTORS, INSURANCE, INTERNATIONAL TRADE, LABOR FORCE, LABOR MARKET, LABOR MARKETS, LIVESTOCK PRODUCTS, LOW TARIFFS, MACROECONOMIC SHOCKS, MACROECONOMIC STABILITY, MARGINAL VALUE, MICRO MODEL, NATIONAL ACCOUNTS, NATIONAL LEVEL, NATIONAL POVERTY, NATIONAL POVERTY LINES, NON-POOR HOUSEHOLDS, OBSERVED CHANGES, PER CAPITA CONSUMPTION, PER CAPITA INCOME, POLICY ENVIRONMENT, POLICY REFORMS, POLICY RESEARCH, POLICY REVIEW, POOR, POOR HOUSEHOLD, POOR HOUSEHOLDS, POVERTY, POVERTY CHANGES, POVERTY GAP, POVERTY HEADCOUNT, POVERTY IMPACT, POVERTY INCIDENCE, POVERTY INDICATORS, POVERTY LINE, POVERTY LINES, POVERTY OUTCOMES, POVERTY REDUCING, POVERTY REDUCTION, POVERTY REDUCTION POLICIES, POVERTY REDUCTIONS, PRICE CHANGES, PRIVATE CONSUMPTION, PRODUCTIVITY GROWTH, PUBLIC CAPITAL, PUBLIC POLICY, QUOTA RENTS, RAPID GROWTH, REAL GDP, REPRESENTATIVE SAMPLES, RURAL, RURAL AREA, RURAL AREAS, RURAL FEMALE, RURAL SECTOR, RURAL SECTORS, SAVINGS, SIMULATION TECHNIQUES, SKILLED WAGE, SOCIAL IMPACTS, SQUARED POVERTY GAP, STANDARD DEVIATION, TEMPORARY UNEMPLOYMENT, TRADE BALANCE, TRADE LIBERALIZATION, TRADE POLICY, TRADE REFORMS, TRADE SHOCKS, UNEMPLOYMENT, UNEMPLOYMENT BENEFITS, UNSKILLED LABOR, URBAN AREA, URBAN AREAS, URBAN HOUSEHOLDS, VALUE ADDED, WAGE INCOME, WAGES, WEALTH, WORLD TRADE ORGANIZATION, WTO,
Online Access:	http://documents.worldbank.org/curated/en/2005/10/6329515/social-impact-wto-agreement-indonesia http://hdl.handle.net/10986/8520
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