Chapter 6: Indonesia: beyond shallow, export-led industrialization
6. Indonesia: beyond shallow, exportled industrialization Shaﬁq Dhanani and Syed Asif Hasnain1 INTRODUCTION Export orientation can lead to rapid industrialization and higher living standards, as forcefully demonstrated by the experience of the newly industrialized countries (NICs) of Southeast Asia in the past three decades. Among the usual advantages of export-orientation are foreign exchange earnings (provided manufacturing is not overly dependent on imported inputs and foreign capital), exposure of domestic ﬁrms to international competition and consequent increase in their eﬃciency, transfer of technology, the fuller utilization of resources in which the country has comparative advantage, particularly natural resources and labour, and employment generation. There are nevertheless several disadvantages, as well as inherent limitations, which have to be addressed in the course of export-led industrialization. First, an open economy highly dependent on a few markets for its exports is likely to be quite vulnerable to external shocks such as price changes in imported inputs and exports, and movement in exchange rates, largely outside its control. Second, other lower-cost producers can rapidly erode the comparative advantage of low-wage production. Third, the more successful a country is in the export of manufactured goods, the more likely it is going to face import barriers or to reach its quota limits. Fourth, changes in technology such as robotization and computer-controlled manufacturing can signiﬁcantly reduce the competitive advantage of labour-intensive methods of production, while computer-aided inventory systems and lean production processes often require component manufacturers to be located nearby. Finally, a growing balance of...
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