IDF 2019 Selected Speaker: Deasy Pane Revealed the Positive Impact of Imports on Exports

Deasy Damayanti Putri Pane.

Nominated Speaker of the Indonesia Development Forum (IDF) 2019, Deasy Damayanti Putri Pane through her research proved that the role of imported inputs is very significant to increase productivity and exports. Imported inputs constitute goods and services, other than fixed assets, which are imported and used as inputs in the production process. Deasy’s study was entitled "The Role of Imported Intermediate Inputs in Firms' Productivity and Exports: Evidence from Indonesia.”  

"The role of imported inputs on productivity has been proven by various studies in various countries. As for the impact on exports, there are not many empirical studies that have a strong methodology to provide proof of it," explained Deasy explaining the reasons for his research. 

Deasy has a Ph.D. in economics from Australian National University, Australia. The title of the thesis is "Firms in International Trade: Evidence from Indonesia". Deasy also works as a staff in the Directorate of Trade, Investment, and International Economic Cooperation at the National Development Planning Agency (Bappenas).

Measuring the Contribution of Imports to Exports

Deasy explained that the decision to manage inputs, both domestic and imported from various countries, affected the company's production costs. The company, said Deasy, will choose the best products at the lowest prices to increase efficiency. These options in the decision-making process are very important in order to be able to boost production and exports in a cost-efficient manner.

In this case, the impact of imported inputs on exports is not only a matter of how much their value in rupiah (or USD) will affect the increase in the value of exports.

"Based on my research, the number of combination options of input variations plays a significant impact on how much the value of exports will increase," continued Deasy.  

The input variations referred to by Deasy include the role of technology and quality in increasing company revenue. Open access to various input choices will make it easier for companies to choose the highest quality inputs.

"In addition, in order to access certain export markets, there may be certain quality and technology standards that must be met, and access to various inputs with different quality and technology variations will help companies to access certain export markets," said Deasy again. 

That is, technology transfer through imported inputs used in the production process can promote company performance.

In the era of globalization, more and more companies have become increasingly specialized and have joined the global production chain. This condition makes access to various inputs and the ability to manage inputs even more crucial to affect the company's performance in the international trade arena. This company's performance caused a negative stigma against imports so that it was used as a reason for trade war. A country is considered to be at a loss if it imports. Policies to limit imports are often used as an excuse if the country faces a trade deficit issue or in order to protect certain sectors.

Deasy gave an example, the case of restrictions on imported inputs which was detrimental to the industry in the United States. President Donald Trump reduced imports to protect the steel and aluminum sectors. 

"President Trump limited imports of steel and aluminum into the United States. A few months after that, many industries started losing money and reducing their production because they could not access input materials or the price of inputs kept on increasing," Deasy mentions.

In the end, it was the industry that suffered. Workers within the industry and end consumers who were forced to buy finished goods at higher prices also suffered.

Needed Review on Non-tariff Policies’ Impact on Imported Inputs

The Indonesian government, said Deasy, is seeking to increase the productivity of the industrial sector, which is currently quite low, and at the same time wants to boost exports in the industrial sector.

"If access to imported inputs is restricted, it will be difficult to achieve that goal. Indeed, import tariffs are already quite low, but the non-tariff measures are still very many and hampering," Deasy explained.

One of the issues is the trade and import deficit is seen as a threat to the economy. According to Deasy, the issue is indeed important, but the policy to reduce imported inputs is not adequate because imported inputs become the "fuel" for production for many industries.

"Limiting access would be the same as reducing output and exports, and thus has the potential to increase the trade deficit," she added.

Deasy hoped that her research would encourage the development of policies that support imported inputs to increase productivity and exports of the industrial sector in Indonesia. In addition, access to imported inputs will become a ticket to join the global production network. GPN is a network that connects regional and national economic actors who are geographically dispersed, competing and cooperating for a larger part of the economy.

"Therefore, obstacles, especially those related to the non-tariffs, need to be reviewed and removed," she stressed. 

Regarding these non-tariff barriers, General Chairperson of the Indonesian Employers' Association (Apindo), Hariyadi Sukamdani emphasized that the government really needs to be more stringent in protecting the domestic market from imported consumer goods. But about the raw material for production, Haryadi's opinion is in line with Deasy's research. As quoted from Bisnis.com, he reminded the government should not make it difficult for the inflow of industrial raw materials that cannot be met domestically.

Deasy explained the results of this study in IDF 2019 Accelerating Structural Transformation session on July 22.  This research was part of the discussion of sub-theme 1: Accelerating Structural Transformation, which among other reviews strategies to support manufacturing growth to accelerate structural transformation and create jobs. This discussion summarizes the main theme of IDF 2019, "Mission Possible: Seizing the Opportunities of Future Work to Drive Inclusive Growth".