Sahminan:* This paper assesses possible costs and benefits of import substitution strategy (ISS) in Indonesia. For that purpose, the authors analyze the dynamics of the intermediate inputs industry in Indonesia using descriptive analysis and econometric analysis. The data used in their study cover the period from 1990 to 2013. In their econometric analysis, the authors use a fixed-effect panel data model to estimate the impacts of the import substitution strategy measures on the performance of industry, with a focus on the intermediate input industries.
The main findings of the paper are as follows. First, based on descriptive analysis, the import substitution policy on the intermediate input industries in Indonesia is not an optimal policy and was a “misguided decision.” Second, the intermediate input sector in Indonesia over the past several decades has developed quickly, even without government intervention to protect local industries. The authors argue that the development of...