The Impact of International Trade

Abstract

There can be no doubt that the last century of Dutch colonial rule in Indonesia witnessed a remarkable transformation of the economies first of Java, and then of many parts of Sumatra, Kalimantan and Sulawesi. Not only did the volume of production of traditional exports increase, but new export staples emerged, sometimes with dramatic speed, in response to growing markets in the industrialising countries of Europe and North America. The emergence of these new export crops in turn transformed the local economies of the producing regions through the provision of infrastructure and the growing demand for inputs and services. And yet, the transformation of Indonesia into an open export-oriented economy in the nineteenth and early twentieth centuries did not lead to rapid structural change, and sustained economic development. Indeed, it was precisely because of this failure that policy-makers after independence adopted less liberal, more inward-looking policy regimes. But they too failed to produce sustained economic growth, and after 1965 there was a partial return to a more open trading system. Even over the three decades from 1965, the commitment to trade liberalisation has been considerably less than whole-hearted, and many in the Indonesian policy-making establishment remain unconvinced of the benefits of closer integration with the global economy.