Abstract
The gains of a country from participating in global value chains (GVCs) will depend on the productive activities taking place in its jurisdiction and their linkages to the domestic economy. Lead firms’ decision on where to locate and how to coordinate production activities is influenced, among others, by industrial policies. On the one side, policy space provides governments with some leverage in guiding economic activities and influencing development outcomes. On the other hand, policy risks have the potential to adversely affect the outcomes. This study focuses on industrial policies in Indonesia, using the mineral sector as a mini case study. The case study assesses the Indonesian Government’s recent effort to boost domestic value addition in the sector. This paper argues that the effectiveness of government policies in maximizing the gains from GVC participation depends not only on policy design, but also on policy consistency and coherence, effective implementation, and coordination.
Highlights
International production sharing means greater opportunity for country and firm participation in global value chains (GVCs)
The choice of sector is made in light of the explicit aspiration of the Government of Indonesia (GOI) to boost domestic value added by encouraging downstreaming in the sector
To meet the goal of the MP3EI, Indonesia needs to achieve a quantitative target of gross domestic product (GDP) per capita of $15,000 by 2025, a marked increase from its current $3,500
Summary
International production sharing means greater opportunity for country and firm participation in global value chains (GVCs). Governments’ concerns go beyond GVC participation and its immediate returns, and include broader and longer term public policy objectives, such as the number and quality of jobs created, the non-economic impact of industrial activities, the dynamic scope for upgrading, skills and knowledge development, and more generally, contributions to economic diversification and resilience. From a GVC perspective, industrial policy can be targeted at specific activities in a particular sector or industry that are deemed to deliver greater benefits to the economy. The choice of sector is made in light of the explicit aspiration of the Government of Indonesia (GOI) to boost domestic value added by encouraging downstreaming in the sector It is inspired by the shared aspiration of many other resource-rich economies to do the same. The study hopes to shed some light on the lessons and complexities that arise from the pursuit of this objective
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