And they found a servant from among Our servants to whom we had given mercy from us and had taught him from Us a [certain] knowledge. (Quran: Al-Kahf: 85)

This paper is published in StudentsxCEOs Summit 2012, Bandung.

Global competitiveness; it is significantly related to government trade policies, especially to Ministry of Trade. According to Prof. Steve Husted and Prof. Michael Melvin from University of Pittsburgh and Arizona State University respectively, Trade and Growth are strongly associated  each other. They together made theories on three large-scale development strategies for developing countries such as Indonesia to improve their economic circumstances. This essay is purposed to help Indonesia to implement these large-scale development strategies covering Primary-export-led, Import-Substitution, and Outward-Looking developments. 

Firstly, Indonesia will benefit from primary-export-led strategies which involve government programs designed to exploit natural comparative advantage by boosting production of a few export goods most closely related to the nation’s natural resource base and export them in return for manufactured goods produced elsewhere. It is a static gain which the standard of living will rise due to specialization along the lines of comparative advantage. Speaking about this strategic platform, Indonesia has strength in this position due to abundant level of base natural resources.

Besides Primary-export-led strategies, Import-Substitution development strategies played a significant role in certain market to enhance national economic development. This strategy followed by policies which seek to promote rapid industrialization by erecting high barriers to foreign goods to encourage local production. The purpose on it comes from protecting the infant industry until the industry is matured enough and internationally competitive. It has been proven to be an effective effort in several markets such as China in years ago and several steel markets. In Indonesia, it is so strategic to be implemented, such as giving subsidies to several industries. As an example, Indonesia SMK Auto Industry should be granted Research and Development subsidies for some period of time to have it grown and internationally competitive. Same goes for any other strategic promising local infant industry.

Besides these two strategies, Outward-Looking development strategies have been highly successful bringing developing countries into developed one. This sort of policies support certain targeted sectors which has potential comparative advantage. If a country is well endowed with low-skilled labor, the government should encourage labor-intensive industries to promote export of these goods. The internal price within the market will be reflecting world price by undervaluing exchange rate due to relatively open markets. So, the wages and rents will reflect true scarcity. The policies in practices could be giving specific player to get special privileges in utilizing ports, communication networks, low interest loan and taxes. In Japan and NCIs country of Asia such as Hong Kong, Taiwan, Singapore; this strategy has brought them into betterment in terms of international trade. In Indonesia, this kind of action should be implemented to specific market. Moreover, the GDP contributor of Indonesia, around 50% of it comes from industrial sector as indication middle class rising in Indonesia while agriculture contribution shows declining trend. Meaning, there are specific sector of Indonesia industries need to be boosted by multi-form of subsidies, such as forestry industry, mining industry, etc.

indonesia-terms-of-tradehttp://www.tradingeconomics.com/indonesia/terms-of-trade

In nutshell, Indonesia has numbers of alternative to improve from developing nation to be developed nation with high level of openness index. The policies require consistency and sensitivity of the government in viewing the recent global competitiveness.

  

References:

Department of Business and Innovation of Victoria State Government. Developing an Export Strategy. Retrived at 18 November 2012 from http://export.business.vic.gov.au/__data/assets/pdf_file/0006/338289/Developing-export-strategy.pdf . Melbourne: PDF Article.

Beals, Ralph E. 1987. Trade Patterns and Trends of Indonesia. Chicago: University of Chicago Press

This paper is published in StudentsxCEOs Summit 2012, Bandung.

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