An input - output approach in analyzing Indonesia’s mineral export policy

Abstract

Indonesia is a country abundant with natural resources, mainly mineral ore commodities. As of 2017, the mining sector contributes an average of 10% towards Indonesia’s GDP and constitutes around 33.2% of the export value. Evidently, mining and mineral industries play a significant role in the economic growth of the country. The Indonesian government introduced an export ban policy as a subset of the current mining law in order to boost the country’s profits arising from its mineral wealth. The policy places a ban on raw mineral ore exports, except coal, copper, iron ore, lead, and zinc. It also states that such ores must be fully processed and refined before they can be exported. It becomes imperative to understand the responsiveness of the economy as a result of changes in the trade policy. Input-output analysis, a fundamental method of quantitative economics, is applied to determine the potential economic impact of the objectives set out by the export ban. The research assesses Indonesia’s input-output data for the year 2010, focusing on 13 mining-related sectors. Analysis of the input-output table of 26 sectors justifies the Government’s decision of placing a ban on export of raw mineral ore. Application of multipliers in the analysis indicates that exclusion of certain ores from the ban should perhaps be reconsidered. The results also suggest that metals will be a major component of mineral commodities, required for the sustainable economic growth of the country.