Trade liberalization effects on the development of small and medium-sized enterprises in Indonesia: a case study

The impact of international trade policy reform on the Indonesian economy, particularly in the areas of economic growth and development of the domestic manufacturing industry, has been studied extensively. However, the implications of such reform on the growth of small and medium-sized enterprises (SMEs) in Indonesia remain under-researched. This paper thus contributes to filling the gap by examining the impact of international trade policy reform, particularly following the 1997 crisis, on the growth of SMEs in Indonesia. Two main questions are posited: (a) how does international trade policy reform affect local SMEs?; and (b) has the growth of SME exports accelerated since the reform? The study does not find evidence that the reform has affected SMEs negatively. On the contrary, with the exception of a slight decline in 1998 due to the economic crisis, the number of SMEs has been growing. The paper suggests that such enterprises have not only managed to survive, but they have also been able to increase their output. Their exports also increased annually.Trade liberalization, SME, Indonesia, export, LEs

Development of Rural Manufacturing SME Clusters in a Developing Country: The Indonesian Case

Development of manufacturing small and medium enterprises (SMEs) is a key engine to promote development of rural economy in developing countries. A common industrial organization among manufacturing SMEs, especially in rural areas, in Indonesia as in many other developing countries is clustering, where firms producing similar products concentrate in a certain area. This has led the Indonesian government to adopt a clustering approach as an important element in its rural development strategy to promote the development of rural industry, which consists mainly of SMEs. The main aim of this study is to identify critical success factors of development of rural manufacturing SME clusters in Indonesia. From a number of cases, it reveals that direct government supports are not the main successful factor, or the role is minimal. Instead, the most critical ones are strong inter-firms linkages in clusters and external networks between the clusters and institutions outside the clusters, especially large enterprises (LEs), through subcontracting and traders/trading companies in urban areas. Through such external linkages, firms in clusters secure their access to a wider market.SME, SME Cluster, rural economy, soccess factors, Tegal metalworking industry, Indonesia, Agribusiness, Agricultural and Food Policy, Community/Rural/Urban Development,

Indonesia during two big economic crises 1997/98 and 2008/09: How was the impact and what was the main difference between the two crises?

This paper aims to examine the Indonesian experiences with the 1997/98 Asian financial crisis and the 2008/09 global economic crisis. It has three main parts. The first part gives a theoretical explanation of the main transmission channels through which the two crises have affected the Indonesian economy. It also provides a list of key indicators of these types of economic crises. The second part is the empirical part about the impacts of the crises on economic growth, employment, remittances and poverty in Indonesia. One important finding from this study is that the Indonesian economy was much more resilient to the last crisis as compared to the first crisis. During the first crisis, Indonesian economic growth was negative and poverty increased significantly; whereas during the second one, Indonesia managed to keep a positive economic growth rate (though declined), and poverty kept declining. The third part provides a list of main reasons for the difference, and sound banking sector after the first crisis is among the list.2008/09 crisis, 1997/98 crisis, economic growth, remittance, poverty, unemployment JEL Classification: E24, F24, F43, I32

Smes Development In Indonesia: Do Economic Growth And Government Support Matter?

There is an ongoing debate in the literature on development of small and medium enterprises (SMEs) in less developed countries (LDCs) on two issues: The survival of SMEs in the course of economic development and the importance of government promotion programs for SMEs development. This research aims to examine those issues with Indonesian data. As a means to address those issues, it uses a simple regression model. It shows that both real gross domestic product (GDP) per capita and government development expenditure (in which part of it is used to finance SMEs development promotion programs) have positive correlations with SMEs share in GDP. With this finding, the research argues that SMEs in LDCs have a chance to survive and even to grow in the long-run for three main reasons: (a) they have a niche market for themselves; (b) these enterprises act as a 'last resort' for the poor; and (c) the production linkages between SMEs and large-enterprises (LEs) in the form of subcontracting have become increasingly important, and thus, they will grow along with the growth of LEs

The Importance of Microfinance for Development of MSMEs in ASEAN: Evidence from Indonesia

Despite studies on microfinance (MF) or development of microfinance institutions (MFIs) in Asia developing countries, including countries as member states of the Association of Southeast Asian Nation (ASEAN), are growing, not so much attention have been given to the role of MF in financing micro, small and medium enterprises (MSMEs). Based on a key literature study and analysis of secondary/national data, the main aim of this study is to fill this gap. It shows that in many ASEAN member states (AMS) MF has developed to some significant degree, although the rate of growth (e.g. number of MFIs, number of depositors and debtors, total loans allocated, etc.) as well as the market structure of MF vary across member states. From the Indonesian case this study comes with two most interesting facts. First, majority of MSMEs do not have access to credit from banks and/or other formal non-bank financial institutions. Second, MF services or MFIs are growing fast, and the most popular MF program so far is Kredit Usaha Rakyat (KUR), or people business credit (i.e. a credit scheme without collateral), introduced during the SBY period

The Importance of Microfinance for Development of MSMEs in ASEAN: Evidence From Indonesia

Despite studies on microfinance (MF) or development of microfinance institutions (MFIs) in Asia developing countries, including countries as member states of the Association of Southeast Asian Nation (ASEAN), are growing, not so much attention have been given to the role of MF in financing micro, small and medium enterprises (MSMEs). Based on a key literature study and analysis of secondary/national data, the main aim of this study is to fill this gap. It shows that in many ASEAN member states (AMS) MF has developed to some significant degree, although the rate of growth (e.g. number of MFIs, number of depositors and debtors, total loans allocated, etc.) as well as the market structure of MF vary across member states. From the Indonesian case this study comes with two most interesting facts. First, majority of MSMEs do not have access to credit from banks and/or other formal non-bank financial institutions. Second, MF services or MFIs are growing fast, and the most popular MF program so far is Kredit Usaha Rakyat (KUR), or people business credit (i.e. a credit scheme without collateral), introduced during the SBY period

Inward FDI in Indonesia and its policy context

Inward foreign direct investment (IFDI) in Indonesia has been an important element of the country's economic development process. Following the introduction of the first foreign direct investment (FDI) law early in the 'New Order' era (1966-1998), IFDI flows to Indonesia were relatively large. Indonesia was hit hard during the Asian financial crisis in 1997-1998, when net IFDI inflows fell sharply. In the first half of 2004, IFDI started to grow again. Indonesia still faces some uncertainties relating to the implementation of regional autonomy and to the high costs of running businesses caused by inadequate infrastructure, restrictive labor regulations and corruption. Nevertheless, the availability of vast reserves of highly diversified natural resources, a huge domestic market potential, a cheap labor force, and continued reforms in the direction of a market-based economy, including privatizations and open access to almost all sectors, are likely to boost IFDI

Inward FDI in Indonesia and its policy context

Inward foreign direct investment (IFDI) in Indonesia has been an important element of the country's economic development process. Following the introduction of the first foreign direct investment (FDI) law early in the 'New Order' era (1966-1998), IFDI flows to Indonesia were relatively large. Indonesia was hit hard during the Asian financial crisis in 1997-1998, when net IFDI inflows fell sharply. In the first half of 2004, IFDI started to grow again. Indonesia still faces some uncertainties relating to the implementation of regional autonomy and to the high costs of running businesses caused by inadequate infrastructure, restrictive labor regulations and corruption. Nevertheless, the availability of vast reserves of highly diversified natural resources, a huge domestic market potential, a cheap labor force, and continued reforms in the direction of a market-based economy, including privatizations and open access to almost all sectors, are likely to boost IFDI

Development of Micro, Small and Medium Enterprises and Their Constraints: A Story from Indonesia

Abstract: The main aim of this paper is to discuss recent development of micro, small and medium enterprises (MSMEs) and their current problems in Indonesia, based on analysis of secondary data on their performance focusing on their contribution to gross domestic product (GDP) and productivity, and their constraints. It shows that their GDP share is larger than that of large enterprises (LEs). But it is mainly because their number is huge, while their productivity is low. Their main constraints are mainly high cost of raw materials, marketing difficulties, and lack of capital. Abstrak: Tujuan utama tulisan ini adalah untuk membahas perkembangan terakhir dari usaha mikro, kecil dan menengah (UMKM) di Indonesia dan masalah-masalah saat ini yang dialami oleh kelompok usaha tersebut. Pembahasannya didasarkan pada analisis data sekunder mengenai kinerjanya dengan memfokuskan pada kontribusinya terhadap produk domestik bruto (PDB) dan produktivitas serta kendala-kendalanya. Tulisan ini menunjukkan bahwa pangsa PDB dari UMKM lebih besar dbandingkan dari usaha besar (UB), tetapi hal itu lebih disebabkan oleh jumlah UMKM yang sangat banyak, sedangkan produktivitasnya rendah. Kendala-kendala utamanya adalah mahalnya bahan baku, kesulitan pemasaran, dan keterbatasan modal