INTERREGIONAL TRADE – PATTERN

AND FUTURE CHALLENGES

“ If each region can grow, inter-regional trade will also grow” -- SBY (2009) --

Definition and Theories of IRT

Current Situation of IRT in Indonesia

Factors Affect the IRT in Indonesia

IRT Development Policy

Future Challenges

Policy Recommendation

Theories around the Interregional Trade:

Inter-regional Trade :

Trade that takes place between two or more regions

Locational TheoryIndustrial locational choice that is beneficial close to input or market

Economic Base Theory

Regional economic growth directly related to demand of goods and services outside the region

Competitive Advantage Theory

Trade interactions will be higher with high competitiveness region

Regional Dependency on Production input

Demand = Supply

Lack of Processing Industry (to process raw materials)

Tendency of Lower Global Demand and higher domestic market

Competitiveness Specialization

Food Security Agriculture region vs Non-Agriculture

Trade Flows between Regions in Indonesia

Source : Solihin, Dadang (2010)

>> Higher Intra-regional and Lower Inter-regional Trade

Sumatera

GDP share : 23 %

Kalimantan

GDP share : 9.1%

Sulawesi

GDP share : 4.6%

Java & Bali

GDP share : 59.4%

Nusa Tenggara

GDP share : 1.5%

Maluku & Papua

GDP share : 2.4%

Source : BPS ( 2010)

REGIONAL GAP “Success breeds Success”

>> Concentration of Economic Activities Java & Sumatera

>> Lower Connectivity/ Accessibility for region outside Java & Sumatera High Cost Transportation

>> Concentration of high scale industry and investment in java

>> Regional income disparity

>> Low level of productivity Low investment

attractiveness

>> Excessive Migration from low regional economichigher regional economic

Effect

The numbers of industries that have high competitiveness

• Major industries and supporting industries

Opennes of region to interregional trade

• Economic expansion will give spread effect to other regions

Regional infrastructure

• Transportation networks, ports, airport, telecommunications and energy

The distribution chain Different Price Among Regions

• Distribution/ transportation cost

The size of domestic market demand and supply capabilities

Role of local Government...

Industrial Area

Integrated Economic Development Zone (KAPET)

Special Economic Zone (KEK)

The increasing economic activity encourage equality and convergence distribution of income per capita across regions

To spread of economic development outside Java and Sumatera (12)

The development of special zone to perform the functions of economy and acquire certain facilities (68)

Agglomeration of industry in particular area (22)

Integrated Economic Development Zone (KAPET)

1 : Agricultural Sector; 2 : Plantation Sector; 3 : Fishery Sector; 4 : Forestry Sector; 5 : Mining Sector; 6 : Tourism and Industrial Sector

MP3EI

Public Service

Competitiveness

Public Welfare

Purpose

Law Number 32/2004

AcceleratorPERPRES 32/2011

- Development of economic potential through 6 economic corridors- Strenghtening of national connectivity

the Master Plan for Acceleration and Expansion on Indonesia’s Economic Development

Expand Domestic Trade

1 Corridors RG increases 3.4 times to $473 billion by 2030

2 Corridors RG increases 4.2 times to $1,282 billion by 2030

3 Corridors RG increases 2.6 times to $152 billion by 2030

4 Corridors RG increases 4.4 times to $94 billion by 2030

5 Corridors RG increases 4.3 times to $76 billion by 2030

6 Corridors RG increases 6.3 times to $83 billion by 2030

The Development of Large Islands Regional Zoning

Regional Development Specialization

Sumatera Center of industrial production and processing of agricultural, plantations, fisheries, national energy, trade center and tourism

Java-Bali Agriculture, manufacturing, services and tourism

Kalimantan Plantation, animal husbandry, fisheries, processing of forest products, and mining

Sulawesi Agriculture, plantation, fisheries, trade, services and tourism

Nusa Tenggara, Maluku, and Papua Plantation, Fisheries, and animal husbandry

Interregional trade among regions becomes interregional trade among countries

Consistency of the Implementation of MP3EI

Regional economic zone Improve Productivity Local Government support

Regulation of domestic competition (betweenregions)

Improve the product’s quality to be superior to similar products from other regions

Penetrate new markets or increasing domestic market share

Create new investment that is more productive and more competitive

(1) Regional Cooperation and development of business networks

(2) Optimize the Development of Economic Zone

(3) Politicall Will of Local Government to Encourage IRT

(4) Improve interregional linkages through the strengthening of regional infrastructure

(5) Enhance regional competitiveness through the development of leading sector in each region

(6) Encourage more investments outside of java and Sumatera

>> the end <<