The benefits of free trade on welfare and prosperity are well-established, both theoretically and empirically, but as research shows that gains are not well-distributed among different economic agents — especially in richer countries — doubt about its impact is growing. There is a resurgence of industrial policy competing with the paradigm of free trade. Developing or Low- and Middle- Income Countries (LMICs), which often face weak institutions and domestic ‘government failures’, may be more reliant on free markets before they can turn to industrial policy to address any ‘market failures’. Indonesia offers a unique case study, as it followed an export-driven model of economic development similar to that of South Korea, Taiwan, Hong Kong, and Singapore in the late 20th century, but has since turned more protectionist and relied on tariffs and non-tariff measures to protect its domestic markets.

This research project, directed by Rainer Heufers of The Center for Indonesian Policy Studies (CIPS) with the co-direction of Arianto Arif Patunru, seeks to examine the impact of free trade on human flourishing in Indonesia. The aim is to produce studies analyzing the impact of free trade on the natural environment, gender inequalities, employment and wages, public health, and poverty and income inequality. Data from national socioeconomic surveys and trade data will be analyzed, as well as subnational regulations and tariffs and non-tariff measures. 

Key research questions to be addressed by the project are:

• How does trade affect human welfare indicators in the context of a LMIC?
• How are trade effects distributed among different socio-economic groups, and how do they affect public health and the natural environment?
• Does trade affect a variety of Indonesian regions differently and is this comparable to other LMICs?