Export Promotion Policies and the Performance of Firms: Evidence from Bonded Zones In Indonesia

Abstract

This study examines the impact of Indonesia’s bonded zone policies on the performance of firms. We use a difference-in-differences approach and exploit differences in the timing of bonded zone approvals as our identification strategy. As administrative data on firms in bonded zones are not publicly available, we construct a new dataset based on bonded zone approvals during the period 1986–2005. We find that bonded zones have only modest effects on output per worker, number of products and exports. They do, however, appear to stimulate employment growth in the short run. We also find that bonded zones increase both the extensive and intensive export margins of firms connected to international networks, as measured by foreign ownership. The evidence suggests that without favourable investment policies to encourage more foreign investment, fiscal and place-based incentives are not enough to facilitate the growth of exports.