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GTAP Resource #54

"Indonesia’s Economic Crisis: Can Agriculture be the Engifor Recovery?"
by Anderson, Kym and Anna Strutt

A common feature of long-term economic growth and structural change as capital accumulates is the relative decline of the agriculture sector. The Asian crisis of 1997-99, which involved capital flight and currency devaluation, had the opposite effect, namely that of increasing the relative importance of agriculture. Given that, to what extent could agriculture be an engine for recovery in the case of Indonesia? This paper suggests the answer depends to a considerable extent on the policy responses of the government (which in turn depends in part on the degree of political stability and restoration of investor confidence leading up to and following the 1999 elections).

To illustrate the point, the paper uses the global, economy-wide GTAP model to project the Indonesian (and global) economy to 2005 without and then with the Asian crisis, and then shows how it would be affected by different policy responses. The decline in the GDP share of agriculture and processed food is shown to slow considerably over the projections period because of Indonesia's growth interruption in 1997-99. True, the Uruguay Round's implementation globally adds to that share decline, but from a higher base because of the crisis. The estimated benefits to Indonesia from embracing further unilateral reform, as a way of catching up, are contrasted with the growth-reducing strategy of reneging on Uruguay Round commitments to liberalize trade. Of the two growth-enhancing reforms considered, across-the-board unilateral trade reform hastens agriculture's relative decline whereas agriculture-specific policy reform would cause the farm sector to increase its contribution to GDP and employment.

Keywords: Asian crisis, farm and trade policy reform, Indonesia, structural change

JEL codes: D58, F13, F17, Q17

Resource Details (Export Citation) GTAP Keywords
Category: GTAP Application
Status: Published
By/In: ACIAR Indonesia Research Project Working Paper No. 99.04. Indonesia's Economic Crisis: Effects on Agriculture and Policy Responses, edited by R. Stringer, S. Bahri, M.S. Pasaribu, and P. Simatungors
Date: 1999
Created: Bacou, M. (9/27/2000)
Updated: Anderson, K. (1/3/2002)
Visits: 3,596
- Agricultural policies

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