Domestic Value Added, Exports, and Employment: An Input–Output Analysis of Indonesian Manufacturing

Abstract

The paper is motivated by the current emphasis on the share of domestic value added in exports (SVEX) as a policy criterion for export development strategy in developing countries. Our hypothesis is that, the policy emphasis on SVAD, which harks back to the import substitution era, is not consistent with the objectives of achieving economic growth with employment generation in this era of economic globalisation. We test this hypothesis by examining relationship of SVEX with both export-induced employment and the total domestic value added (TVAD) or the contribution of exports to GDP by applying the standard input-output methodology to data from the Indonesian manufacturing. Our findings do not support the widely held view in policy circles that industries characterised by higher SVAD have the potential to make a greater contribution to employment generation and TVAD. The policy inference is that in this era of economic globalisation, in designing export development policy, policy makers should focus on the export potential of industries rather than on the share of domestic value added of exports