Essays on International Trade

Abstract

This thesis is a collection of three independent papers using applied microeconomics and focusing on various international trade contexts in Indonesia. The first paper examines the impacts of import licensing procedures on imports at transaction level. Governments are increasingly imposing import licensing requirements. Our understanding of their impacts for domestic firms, both users and producers, are limited. Using Indonesian annual firm-level and monthly transaction-level data over 2006-2011, we find evidence that the licensing procedures of iron and steel imports reduced the extensive margins of imports but had no effect on the intensive margins. Domestic users import less frequently and source from less countries, but do not import less in value and quantity. Consistent with this, we also do not find long-term increase in sales for domestic producers of regulated products. This suggests that licensing comes with considerable adjustment costs. The second paper investigates the impacts of institutional distortions on exports at transaction level. Institutional distortions are prevalent in developing countries. One form of distortions are private-sector, industry-association membership fees, which act as de facto export-tax. Little is known about how these de facto export-tax affect international trade. Using the removal of an export-licensing requirement in 2011, I identify its positive effects on the intensive margins of instant coffee exports in Indonesia. This paper calls out government of emerging economies to revisit their outdated policies that might serve as institutional distortions. Drawing on the experience of Indonesian firms, the third paper analyses the relationship between importing and exporting activities in two years (2009 and 2015) to test whether this relationship changes following a reversal of trade liberalization. We hypothesize that reversal in trade liberalization affects the relationship between imports and exports in firms in developing countries because they experience a decreased access to market opportunities and technology that is already standard in developed countries. We validate the theoretical underpinnings of the claim that importing Indonesian firms export more, and we contribute to the literature by introducing a newly-identified underlying mechanism behind the positive relationship between imports and exports: when trade barriers are low, firms that import intermediates sourced from multiple-border-crossing foreign value added achieve significant increases in their exports. However, following a reversal of trade liberalization, value chains are disrupted and single-border-crossing foreign value added in importing becomes more relevant for firms’ exports. In such circumstances, emerging market firms’ participation in value chains becomes less global. Relevant policy implications can be made: in a world marked by growing scepticism surrounding globalization and openness to international trade and competition, policy makers should bear in mind that policies inhibiting access to global value chains have negative consequences for firms’ exports.