ABSTRACT
In Indonesia, it was only after the mid-1960s that industrial development took off as trade and investment liberalization boosted foreign and domestic investments in the manufacturing sectors. For more than three decades, Indonesia’s living standards have significantly improved, the incidence of poverty has significantly decreased and inequality has been maintained at a low level. This remarkable economic growth lasted until the Asian financial crisis hit Indonesia’s economy in 1997/98. However, in the aftermath of the Asian financial crisis, Indonesia began to deindustrialize even before industrialization had matured. What explains the successful and unsuccessful impacts of Indonesia’s industrial policies on poverty reduction? This chapter aims to investigate which of Indonesia’s industrial policies, or absence of particular policies, tend to be pro-poor or anti-poor, and which particular set of industrial policies should be adopted and implemented by Indonesia’s policymakers. The evolution of industrial policies that have been implemented in Indonesia is explored. This chapter will focus on trade orientation and protection, upstream-downstream linkages, minimum wage regulation, and transportation infrastructure. It will present a survey of past studies, stylized facts, and empirical evidence to provide insights as to whether these policies are truly pro-poor.
