The Socio-Economic, Environmental, and Health Impacts of Tariff Reforms in Indonesia

Abstract

How does trade liberalization affect the welfare of the people? This paper attempts to answer the issue in the context of Indonesia by examining the socio-economics, environmental, and health impacts of trade liberalization in Indonesia. In this study, we focus on the consequences of tariff reform as the main instrument of trade liberalization on three specific measures: income inequality, air pollution, and child mortality rates.

In all three empirical studies, we define tariff reform as reductions in the national average nominal (unweighted) import tariffs of tradable goods. The national tariff data are sourced from several Indonesian Customs Tariff Books series and the UNCTAD-TRAIN database.

The first paper estimates the socio-economic impacts of tariff reform on provincial income inequality and poverty in Indonesia, using a panel dataset of 26 provinces for the period of 1977-2012. Our study provides evidence from a long period of trade liberalisation analysis and offers some valuable insights into the nexus between trade liberalisation and income distribution. We find that relative inequality reduced more in regions that were exposed more to input tariff liberalisation. The results also suggest that tariff cuts still play an important part in poverty reduction

The second study investigates the effects of tariff reforms on air pollution across 232 Indonesian districts from 1993 to 2002. Air pollution data is derived from satellite data for air quality applications which are primarily collected by National Aeronautics and Space Administration (NASA). We find that air pollution increased less in districts with greater exposure to input tariff reduction. The potential channels analysis supports the positive impact of tariff reform on air pollution through composition and technical effects.

The third paper aims to contribute to the debate over the nexus between trade liberalization and health by examining the effects of tariff reform on regional health outcomes in Indonesia. The focus is on infant and under-five mortality rates as specific measures of health. Exploiting the Indonesian Basic Health Survey 2007, we link tariff reform exposures and regional child mortality rates in 282 districts in Indonesia. We find that infant and under-five mortality rates were higher in districts with greater exposure to input tariff reform. Examining potential mechanisms behind this result, we find that higher exposures to input tariff cuts were associated with a lower average food expenditure per capita and a lower share of agricultural workers.