Deregulation and Development in Indonesia

By Farrukh Iqbal; William E. James | Go to book overview
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CHAPTER 6

The Impact of Deregulation on the Manufacturing Sector

Farrukh Iqbal1

Given the conventional association of trade and investment deregulation with exports of manufactured goods, one can assume that the regulatory regime shift that took place in Indonesia during the 1980s would have had a major impact on the country’s manufacturing sector. This is documented and assessed in this chapter through a comparison of changes in key manufacturing sector characteristics over two periods: 1980-85, which captures the before-deregulation situation and 1986–91, which provides a sense of the after-deregulation situation. Structural details of the sector can be assessed through annual industrial survey data put out by the Biro Pusat Statistik (BPS). For our present purposes, the cleaned and revised series to 1991 is analyzed so as to get a sense of the initial impact of the deregulation on the manufacturing sector. 2 In particular, we look at growth in output, employment and exports as well as changes in the structure of the manufacturing sector in terms of firm size and concentration.Deregulation and Development in Indonesia

As already noted in earlier chapters, the second half of the 1980s in Indonesia was characterized by a series of deregulatory measures that provided incentives at the microeconomic level for enhanced export activity. This was supported by a macroeconomic stance that was also consistent with export orientation. The results of this newly coherent combination of microeconomic and macroeconomic policies were both striking and quick. Four features stand out over the period 1986–1991: The Impact of Deregulation on the Manufacturing Sector

-91-

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