RI left behind in hi-tech exports<\/p>\n
By David Ray<\/p>\n
BANDUNG (JP): The maiden flight of the N-250 airplane here on
\nAug. 10 was indicative of Indonesia's rapid and successful
\ndevelopment of an aerospace industry. But despite the high-
\ntechnology nature of this kind of industry, Indonesia remains
\nfirmly behind its regional competitors in the race to develop
\nmedium- and high-tech exports.<\/p>\n
Evidence of Indonesia's comparative technological backwardness
\ncan be found using an index of technology composition of exports
\nas developed by researchers at the Center for Strategic Economic
\nStudies in Melbourne, Australia. The researchers have been able
\nto construct an index of technology composition for manufactured
\nexports which shows that over the past two decades Indonesia has
\nfailed to keep pace with regional competitors in the race to
\ndevelop medium- and high-tech exports.<\/p>\n
Their approach is to divide a country's exports into 22 main
\nindustry groups according to their degree of knowledge intensity
\nas measured by the average level of research and development
\n(R&D) expenditure per unit of production for those industry
\ngroups in the industrialized countries.<\/p>\n
The highest R&D-production ratios are found in industries such
\nas aerospace (20.0 percent), computers (12.4 percent) and
\nelectronics (10.8 percent), whilst the lowest are in the wood and
\nfurniture (0.1 percent), paper and printing (0.2 percent), and
\ntextiles and clothing (0.2 percent) industries.<\/p>\n
Export values are then weighted using these R&D ratios, summed
\nand re-based, to produce an index of technology composition
\nwhereby an index value greater than one indicates that a
\ncountry's exports are concentrated in industries with a high R&D
\nintensity whilst a value less than one indicates a concentration
\nin industries with low R&D intensities.<\/p>\n
Using index values for both 1970 and 1993 (see Table) the
\ncenter is able to provide an indication of technology composition
\nfor Asian exports over the past two-and-a-half decades. Clearly
\nevident in the above figures is the dramatic move into more
\nknowledge\/R&D-based export production by many Asian economies,
\nbut not by Indonesia. The most rapid improvers in this regard are
\nSingapore and Malaysia, both of whose technology composition
\nindex value for 1993 is in excess of 1.7.<\/p>\n
This compares extremely well with the same 1993 index values
\nfrom a number of advanced western economies such as the EEC7
\n(0.96), USA (1.52), Canada (0.86), Australia (0.57) and New
\nZealand (0.21).<\/p>\n
Unlike many of her immediate neighbors, Indonesia has yet to
\nmake any significant moves into more knowledge-intensive export
\nproduction. Even the Philippines, the least-successful developing
\neconomy in the Asian group, and China, Indonesia's most visible
\ncompetitor in the production and export of low-technology, labor-
\nintensive manufacturing, have been able to outperform Indonesia
\nin the drive toward higher-technology exports.<\/p>\n
Although starting from a lower base, Indonesia was able to
\nkeep pace with her Asian neighbors throughout the 1970s and early
\n1980s. However, beginning in 1982\/1983, Indonesia's drive toward
\nhigher-technology exports lost momentum to such an extent that,
\nby the early 1990s, Indonesia's index of technology composition
\nis dramatically lower than the Asian average and, furthermore, is
\nyet to regain the high attained a decade before.<\/p>\n
To explain this dramatic fall in the index of technology
\ncomposition for Indonesia's manufactured exports we need to
\nconsider the type of industrialization strategies that Indonesia
\nhas pursued over the past few decades.<\/p>\n
Throughout much of the 1970s and early 1980s Indonesia pursued
\na state-led industrialization strategy characterized by a
\ncomprehensive import-substitution program and large-scale
\ngovernment investment - both of which were made possible to a
\nlarge degree by the windfall in state revenue associated with the
\noil boom.<\/p>\n
Given the high degree of intervention by the government in the
\neconomy, market forces were unable to be the sole determinant of
\nprices or investment flows. Hence, Indonesia was able to develop
\na number of higher technology industries that would have
\notherwise not been possible had a free market or deregulation
\nstrategy been employed.<\/p>\n
However, all this changed in the early-to-mid 1980s when oil
\nprices collapsed, forcing the Indonesian government to deregulate
\nthe economy as a means of diversifying the export base. As a
\nconsequence, the type of industrialization strategy employed
\nmoved rapidly from one of import substitution to one of export
\npromotion.<\/p>\n
Given Indonesia's abundant raw materials and inexpensive, yet
\nlow-skilled labor it was not surprising that the successful
\nexport industries of the 1980s were those that were low-tech and
\nlabor-intensive.<\/p>\n
Hence we find that during the state-led industrialization
\nperiod of the 1970s and early 1980s Indonesia was able to
\nprogressively increase its index of export technology
\ncomposition, reaching a high in 1982, but that this soon
\ndecreased as the deregulation program initiated in the early-mid
\n1980s allowed market forces to steer the industrial export sector
\nmore in the direction of Indonesia's comparative advantage in
\nlow-tech, labor-intensive manufacturing.<\/p>\n
Given the likelihood of increased regional competition in the
\nproduction and export of low-tech labor intensive manufactures
\nfrom countries such as China, Vietnam and Bangladesh, the
\nempirical work associated with the above index provides strong
\nanalytical backing for assertions continually made by Indonesian
\npoliticians and economists that Indonesian industry must
\nintensify its efforts to "move up the technological ladder" if it
\nis to remain internationally competitive in the future.<\/p>\n
The writer is a researcher and doctoral candidate at the
\nCenter for Strategic Economic Studies, Victoria University. He is
\ncurrently in Bandung carrying out research towards his PhD.<\/p>",
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