When Made in Indonesia No Longer Solely Means Made in Java: Invigorating Manufacturing Beyond Java as the New Engine of Growth in Bridging Indonesia’s Development Gap

Abstraksi

For decades Indonesia has endeavored to narrow down its regional disparity, however the gap intractably persists. In 2016, Java controlled almost 60% of Indonesia’s national GDP, largely unchanged since 2000. Aside from the inequality, another major challenge for Indonesian economy is to wean off its excessive dependence on raw commodities. Against such backdrop, this paper aims at examining the critical role that Indonesia’s Special Economic Zones (SEZs) can play. The author employs comparative analysis in examining the lessons learned from China’s SEZs and scrutinize their replicability to Indonesia. The paper found that one of the underlying problems with Indonesian SEZs is they are trapped into their basic comparative advantage, such as Sei Mangkei with its focus on palm oil industry. Consequently, with limited economic value addition and productivity booster, the SEZs out of Java have yet to demonstrate their “equalizer effect” in alleviating the regional disparity. Whereas China proactively utilized its SEZs as instruments for industrial upgrading which defied their initial comparative advantage. For instance, Shenzhen whose initial comparative advantage was fishery, was designated as a manufacturing hub and at one point produced more than half of all cellphones in China. Thus, the author recommends the Indonesian government to earnestly leverage its SEZs to go beyond their rudimentary comparative advantage and transform them into new manufacturing epicenters. Not only will it help to close the regional development gap but it will also revitalize Indonesia’s manufacturing edge to make the overall economy more competitive.