Beyond the Asian Crisis
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Beyond the Asian Crisis

Pathways to Sustainable Growth

Edited by Anis Chowdhury and Iyanatul Islam

As Southeast and Northeast Asia recover from the Asian crisis and return to a state of growth, the authors of this book assess the lessons to be learned from the crisis to achieve sustainable development in the future. While the importance of each factor contributing to the crisis varies from country to country, their collective experience has created unprecedented turmoil in current thinking on development policy.
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Chapter 6: Indonesia: beyond shallow, export-led industrialization

Shafiq Dhanani and Syed Asif Hasnain


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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