The Role of Global Production Networks in Indonesian Exports

Abstract

This study looks into Indonesia’s participation in fragmented structures within the Global Value Chain. By using a global input-output dataset and splitting gross exports into distinctive elements of value-added, the study measures vertical specialization of Indonesia against its four largest trading partners (NAFTA, East Asia, European Union and ASEAN) covering 29 countries for three periods: 1997, 2004 and 2012. Value-added is computed according to the initial source country and in the last destination. The paper also compares Indonesia to its ASEAN partners. The results show that Indonesia moved from exporting 50% of its value-added through finished products in 1997 to being a supplier of intermediates goods in 2012 (nearly 60% of its value-added). Foreign inputs in Indonesian exports account for 12%, a lower share versus ASEAN regional partners (35%) who are more vertically integrated. A total of 21% of Indonesian goods will be further exported to third countries. The degree of vertical integration in Indonesia in 2012 is 32.3%, up from 26% in 1997. Indonesia advanced in integration with East Asia and ASEAN countries (region), while it lowered its share of value-added traded with the North America and the Europe. Indonesia gained more than any other ASEAN partner in intra-regional trade