Trade Liberalization Impact on Economic Performance of Indonesian Palm Coconut Plantation

Abstract

The aim of this study was to analyze the impact of the elimination of trade restrictions as a consequence of trade liberalization on the economic performance of palm coconut plantations in Indonesia. The analysis was done based on time series data for 23 years (1990-2012). In this study, the framework of econometric model compiled with a classifying the economic system of palm coconut plantations in Indonesia into three blocks: production block, block of supply and demand, and block of trades. Each block consists of several structural equations and identities. The next steps were formulating the model, re-spesification and evaluating the results of parameter estimation, validating and simulating.The analysis showed that the palm coconut trade liberalization would increase the acreage of palm coconut, and the export prices, but the production, productivity and export would decrease. This policy had no impact on domestic demand of palm coconut although the domestic price would be decline. Production policy (i.e. raising the palm coconut plantation area and productivity) did not able to increase the production and productivity. As a result, exports of palm coconut would decline, although the domestic demand was relatively constant. The Indonesian economic policy (i.e. decreasing interest rate and price of urea) would increase the total area of palm coconut but their production and productivity would drop by a greater percentage. This impact must be addressed carefully by the Indonesian government.

Keywords: liberalization, trade, economic performance, palm coconut