Trade policy and exporters’ resilience: Evidence from Indonesia

Abstract

How does trade policy affect exporters’ ability to source intermediate inputs and adjust exports in response to foreign shocks? The analysis exploits new disaggregated, time-varying data on non-tariff measures (NTMs) faced by Indonesian firms. In response to a depreciation of the Yuan, which makes Chinese exports more competitive in third markets, Indonesian firms facing NTMs on their inputs see a much larger drop in their export values compared to firms that do not face any NTMs, with the magnitude of this effect varying depending on the type of NTM. We show that this difference can be explained by the inability of firms facing NTMs to take advantage of cheaper intermediate inputs from China in the face of depreciations of the Yuan, consistent with a model where NTMs impose fixed costs of import. These findings suggest that reforming some types of import NTMs can positively affect exporters’ resilience.