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Export expansion in Indonesia, spurred by China’s WTO accession, improved formal employment opportunities by 2014, especially for lower- and middle-income individuals, but its impact on earnings growth was limited and mainly driven by manufacturing exports rather than commodities.

Image courtesy of interviewee. October 31, 2024

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This video discusses the impact of export expansion on the labor market outcomes in Indonesia, particularly in the context of growing trade with China. It highlights that while developing economies have experienced significant growth over the past few decades, labor market outcomes remain uncertain, characterized by high informality and rising inequality. The study focuses on the period from 2000 to 2014, coinciding with China’s accession to the WTO, which created a demand shock resulting in increased exports from Indonesia to China.

Key findings of the study reveal that export expansion positively affects formal employment, leading to higher probabilities of workers transitioning from the informal to the formal sector. The research employs an instrumental variable approach to ensure accurate predictions of export trends, considering external demand factors rather than domestic conditions.

The results indicate that while export growth enhanced job quality, particularly for those already in the labor market, its benefits were more pronounced among lower and middle-income workers and individuals with lower education levels. The positive effects on employment were notably strong in non-commodity reliant districts, underscoring the crucial role of the manufacturing sector.

This video concludes by emphasizing the need for policy makers to focus on promoting export growth in sectors like manufacturing and investing in infrastructure and skills development to maximize the benefits of this growth, ultimately aiming to reduce labor market informality and income inequality.

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Here are five key points derived from the video:

1. **Impact of Export Expansion on Labor Market**: The study analyzes the effects of export expansion from Indonesia to China between 2000 and 2014, focusing on its impact on labor market outcomes, specifically formality and earnings. The findings suggest that export expansion has led to an increase in formal employment and earnings for those already employed, although employment creation was not significantly observed.

2. **Heterogeneity of Effects**: The impacts of export expansion were found to be heterogeneous. Individuals in lower-income and less-educated sectors, particularly in non-Javanese regions, experienced more pronounced benefits. Workers in the agricultural sector and those with primary school or lower education benefitted significantly from the shift to formal employment due to export growth.

3. **Role of the Manufacturing Sector**: The research highlights the crucial role of the manufacturing sector in driving positive outcomes in the labor market as a result of export expansion. The analysis indicates that districts not reliant on commodities but rather engaged in manufacturing benefited more significantly.

4. **Progressive Impact on Income Levels**: The effects of export expansion were relatively progressive, favoring low to middle-income groups. The research showed that while most benefits were evident for those within middle-income brackets, there was limited evidence of significant benefits for the lowest and highest income groups.

5. **Policy Implications for Export Growth**: The findings suggest that policymakers should focus on promoting growth in the manufacturing sector to enhance formal employment opportunities. Additionally, investment in infrastructure and skill development is recommended to maximize the benefits of export growth, addressing present concerns about labor market informality and income inequality, particularly for lower-income workers.

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Here are key quotes and paraphrased summaries of the main ideas from the video :

1. **Growth in Developing Economies**:
- "There are significant growth in developing economies and the global trade."
- Over the past few decades, there has been notable growth in developing economies, yet the labor market outcomes remain uncertain.

2. **Labor Market Outcomes**:
- "Despite this expansion, the labor market outcomes remain uncertain with persistently high informality and rising inequality."
- The concerns raised revolve around the labor market being characterized by high levels of informality and increasing inequality.

3. **Impact of Export on Labor Market**:
- "Does export lead to improvement in labor market outcome?"
- The study focuses on how export expansion from Indonesia, particularly to China, affects the labor market outcomes.

4. **Commodity Dependence of Indonesia**:
- "We reference this issue by mining Indonesia as a major commodity depend Indonesia."
- Indonesia's economy is heavily reliant on commodity exports, which raises questions about their impact on manufacturing and labor opportunities.

5. **Trade Theory Expectations**:
- "Developing countries with an abundance of unskilled labor are expected by specializing in labor-intensive industries."
- According to trade theory, this specialization should lead to increased employment and reduced inequality, yet outcomes vary.

6. **Positive and Negative Impacts**:
- "There are positive effects of export expansion on formal employment and earnings in certain countries."
- While some evidence indicates improvements in employment, other regions face negative impacts due to import competition.

7. **Heterogeneity in Impacts**:
- "We also looking the heterogeneity impacts."
- The study delves into varying impacts of export expansion across different sectors and groups within Indonesia.

8. **Methodology**:
- "We run our model using OLS to SLS and the IV regression."
- The research applies various statistical methods to analyze the relationship between export trends and labor market outcomes.

9. **China's Demand Shock**:
- "The China's accession to the WTO in 2001 triggered a dramatic shift in global trade."
- The increase in demand from China significantly impacted developing economies, especially Indonesia.

10. **Transition to Formal Employment**:
- "There are positive impacts on formal employment; the export expansion experience higher probability of workers to move to the formal sector."
- Export growth has facilitated transitions from informal to formal employment in Indonesia.

11. **Earnings Growth**:
- "Increased earning growth, but it's more nuanced."
- While there is an observed growth in earnings due to export expansion, this effect is more pronounced for those already employed and varies among income groups.

12. **Progressive Impact of Export Expansion**:
- "The effects of export expansion were more pronounced for those in the middle-income groups."
- The benefits of export growth tend to favor low to middle-income workers more than those at the extremes.

13. **Policy Implications**:
- "Policy makers should focus on promoting export growth in sectors like manufacturing to enhance formal employment opportunities."
- There is a need for government action to leverage export expansion for reducing labor market informality and income inequality.

14. **Inclusivity of Benefits**:
- "Government needs to ensure that the benefits of this export growth are inclusive and widely shared."
- It is crucial to ensure that the advantages gained from export growth reach all segments of the labor market, particularly lower-income workers.

These key points encapsulate the primary themes and findings of the video related to the impact of export expansion on labor market outcomes in Indonesia, emphasizing the complexities and varying effects across different demographics and sectors.

X-TIMESTAMP-MAP=LOCAL:00:00:00.000,MPEGTS:90000

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There are significant growth in developing economies

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and, and the global trade.

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So over, probably over the,

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since the last two or three decades, right?

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But despite this expansion,

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the labor market outcomes remain, uncertain

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with persistently, high informality

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and rising inequality.

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So many questions, many concern also.

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And additionally, some people, some, some also argue

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that the concern on the export

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of commodity growth may induce the Dutch dishes.

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So I mean, like, does export lead

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to improvement in labor market outcome?

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That's not necessarily clear, based on the literature.

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We reference this issue by mining Indonesia

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as a major commodity, depend Indonesia.

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So we focus not only on commodity, basically,

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but we include all tradable sectors in Indonesia.

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So we assess the impact of export expansion, from chi,

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to China, from Indonesia, in the period

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of 2000, 2014.

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So, this period, if we see on the paper,

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we have graph there, we can see how Indonesia has,

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spike export to China,

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because it coincides with the session of China

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to the WTO, right?

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So, so it created demand, demand shock

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that impacted Indonesia and other developing economies.

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And we really want to see,

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what is the impact on Indonesia,

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especially in the labor market, due to

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that export expansion

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because of the boom export boom to China.

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From the trade theory expectation that developing countries

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with an abundance of unskilled labor are expected

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to benefit from the trade openness

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by specializing in labor intensive industries, right?

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And it will lead to increase in employment

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and reducing inequality.

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There are positive effects

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of export expansion on formal employment

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and earnings in certain countries, for instance, in Vietnam

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by Medicaid and in 2018,

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but also negative impacts of regions that exposed

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to import competition such as reduced employment

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and earnings that, study, based on study from

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Topalo in 2010.

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And also inform employment of tan Act as a fallback

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for workers, that is placed by the trade shocks,

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especially in developing academies from studies from the ary

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and COFA in 2019.

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So there are debate on the commodity export itself.

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So some due commodity booms can, we can do manufacturing

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and reduce formal job opportunity,

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reduce formal job opportunities and do this, and,

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and thus extra, extra carboning the inequality.

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For instance, this, this is based on a study by Cox Hat

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and Sheta in 2016, and it's on Indonesia also,

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but it on commodity, only on a commodity.

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And other suggest commodity booms don't always lead

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to increase in quality, for instance, cost,

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2016

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In Brazil.

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So for this study, for our study

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for Indonesia's export expansion, it, first

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our contribution is for to study,

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of course on Indonesia, case.

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Also, the trigger is the export one to China.

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It's, ex extra shock, the demand demand from China.

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Uh, also, we add all tradable sectors,

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not only the commodity that done by Shasta

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and, Cox had.

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And then we also, we also,

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looking the heterogeneity impacts, we go deeper

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to see the heterogeneity impact on,

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the export expansion.

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So we believe that, we contribute to the debate

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as we add new evidence to the ongoing discourse

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as whether export growth in developing countries reduces

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inequality or debt,

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or whether it brings good to the labor market or not.

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To analyze the impact on labor market

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of the export expansion.

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In Indonesia, we see the impact on two labor market

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outcomes, namely the formality and earning growth.

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So we use data from IFLS, it's Indonesia family life survey.

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The study, we, we compare the formal employment years

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and earnings, between 2000, 2014 Indonesia,

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between districts, between districts with the very exposure

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to the export expansions.

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That's, that's, that's what we do.

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So we, we run, our model using OLS to SLS

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and the iv, the instrumental variable.

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We employ the in instrumental variable

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or the IV regression using the, as an export to the,

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China as the instrument

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to predict the Indonesians export trends, ensuring

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that we address the endogen androgenetic concerns.

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We use the two SLS as our preferred estimation.

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Uh, so we also control for the selection bias.

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We also try for the, matching,

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the matching, from the data.

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And we do some also, other, robustness checks such

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as we alternate the iv instead of using Asan countries.

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We also use the all countries except Indonesia, as,

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and we have the same results.

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The China's recession to the WTO in 2001,

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it's trigger it,

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it triggered a dramatic shift in global trade

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with China's import from the world is rapidly,

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was rapidly increasing.

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So the stretch shock

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of aging at 25% annual growth post the recession

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had significant impacts in, development economists,

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including Indonesia.

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So not only to, from Indonesia,

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but only from other development economies.

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That's why we can use other countries

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as the IV for Indonesia.

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And that's also why we can claim that

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This is based on the China, not based on Indonesia.

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So this an exogenous, shop, that

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that's what we, we mean with that.

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So, it's, it's more on external demand rather than,

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rather than the econom domestic factors

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that drove this dynamics.

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This context justifies the use

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of export growth from other developing countries to China

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as the ivy for analyzing indonesia's labor market outcomes.

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There are positive impacts on formal employment

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that is district with greater exposure

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to the export expansion experience, higher probability,

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of the worker to move to the formal sector

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or stay in the formal sector.

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So it increased the formality in Indonesia,

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in Indonesia labor market.

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That's the first one. And also, increase earning growth,

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but not, it's, it's, it's more nuance in,

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for the earning growth that, that as robust as the,

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formality one.

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And we also find, we also found that formal employment,

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also mainly occurred for individuals that,

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we call it the pre shock period in 2000, that those who are

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employed in 2000.

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So the impact is more pronounced on those who,

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who already work in 2000.

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So we, we found,

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we found no impact on like employment creation,

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something like we don't, we don't, we don't see that,

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but we see on those who work they stay in for, we, they,

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they stay formal or those who informal, they move to formal.

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That's, that's what, our, main findings.

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And we, that's why we review that based on our results.

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The export expansion, improved job quality

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through the intensive margins.

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So those favoring those who already in the job markets.

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Interestingly, interestingly,

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we found like a relatively progressive impact,

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that the export of, the effects

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of export expansion were more pronounced for those in the,

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who are in the lower to middle income groups.

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So to be, to be specific, from the third

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to the seventh desire of the, earning groups.

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So, but we found no significant

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for the lowest and the highest group.

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That's the first interesting finding, I think.

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And the second one, we also have, different

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or heterogeneous heterogeneous impact that is,

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the impacts is more, we have greater effect on the workers

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that initially in agriculture, agricultural sector,

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the low productive sector like the, in agriculture,

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and also particularly for those,

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with Le Hollow level of educations, yeah,

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primary school or below.

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And also those who resided

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outside the Java in the year 2000.

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So we,

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We, we, this is what interesting that we think

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because it more

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ha the impact is more pronounced on those

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who were in agriculture sector with lower,

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lower education levels and recite out Java.

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So I think this is important fi findings,

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although that for female workers, we don't, we don't have,

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we don't have, interesting findings.

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We, we don't have, expected findings on female.

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It's not, it's not, it's not

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leverage female workers other than the male, unfortunately

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for not for the gender bias.

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We see that export expansion,

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particularly towards the China, has significantly boost,

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boosted the formal employment in Indonesia.

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Uh, it helps transition workers, from informal

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to more secure job to the formal, to the formal one.

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So this is also, benefit.

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Uh, we also find that the impact is

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relatively progressive, yeah, relatively progressive

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that it, favor the low to middle income groups.

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And also our main message is our main fa main findings

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that the manufacturing sector plays a crucial role in

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driving these positive results.

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When we see, we define the districts

204
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by the commodity reliant district

205
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and the non-commodity reliant district,

206
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we found the the impact is,

207
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we have greater impacts on the, district status,

208
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not reliant to the commodity.

209
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So if it's basically on manufacturing side.

210
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So that's, that's why we, we are view

211
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that the manufacturing sector played a crucial role in

212
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driving,

213
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this positive impacts on the labor market in Indonesia.

214
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Uh, it suggests that, sector focus is key

215
00:10:46.495 --> 00:10:48.535
to maximizing the benefits of,

216
00:10:48.535 --> 00:10:49.655
the export growth, actually.

217
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So these findings can have, I think,

218
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many important policy implications.

219
00:10:56.835 --> 00:11:00.735
Uh, policy makers should focus on promoting export growth in

220
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sectors like manufacturing

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to enhance formal employment opportunities, while also

222
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investing in infrastructure,

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and skill, skill development to support this growth.

224
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As I mentioned from the result,

225
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the impact is more on those who already on job market,

226
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but how about people that's unemployed at that, at the per,

227
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at 2000 or the pre shops period.

228
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So that's, homework for the government.

229
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Uh, how, how to leverage that.

230
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So, export expansion can also be used as a tool

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to reduce the labor market informality

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and income inequality, particularly

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by improving job prospect for the lower income workers

234
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and government need to ensure that the benefits

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of the this export growth are inclusive and widely shared.

236
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Will, this is for the long term

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and equitable economic growth.

Export Expansion and Labor Market Dynamics in Developing Economies

00:00:00 - There are significant growth in developing economies and, and the global trade. So over, probably over the, since the last two or three decades, right? But despite this expansion, the labor market outcomes remain, uncertain with persistently, high informality and rising inequality. So many questions, many concern also. And additionally, some people, some, some also argue that the concern on the export of commodity growth may induce the Dutch dishes. So I mean, like, does export lead to improvement in labor market outcome?

00:00:38 - We reference this issue by mining Indonesia as a major commodity, depend Indonesia. So we focus not only on commodity, basically, but we include all tradable sectors in Indonesia. So we assess the impact of export expansion, from chi, to China, from Indonesia, in the period of 2000, 2014. So, this period, if we see on the paper, we have graph there, we can see how Indonesia has,

00:01:09 - because it coincides with the session of China to the WTO, right? So, so it created demand, demand shock that impacted Indonesia and other developing economies. And we really want to see, what is the impact on Indonesia, especially in the labor market, due to that export expansion because of the boom export boom to China. From the trade theory expectation that developing countries with an abundance of unskilled labor are expected

Export Expansion: Impacts on Employment and Inequality

00:01:41 - by specializing in labor intensive industries, right? And it will lead to increase in employment and reducing inequality. There are positive effects of export expansion on formal employment and earnings in certain countries, for instance, in Vietnam by Medicaid and in 2018, but also negative impacts of regions that exposed to import competition such as reduced employment and earnings that, study, based on study from Topalo in 2010.

00:02:14 - for workers, that is placed by the trade shocks, especially in developing academies from studies from the ary and COFA in 2019. So there are debate on the commodity export itself. So some due commodity booms can, we can do manufacturing and reduce formal job opportunity, reduce formal job opportunities and do this, and, and thus extra, extra carboning the inequality. For instance, this, this is based on a study by Cox Hat

00:02:46 - but it on commodity, only on a commodity. And other suggest commodity booms don't always lead to increase in quality, for instance, cost, 2016 In Brazil. So for this study, for our study for Indonesia's export expansion, it, first our contribution is for to study, of course on Indonesia, case.

Analyzing Export Expansion and Labor Market Impact in Indonesia

00:03:18 - It's, ex extra shock, the demand demand from China. also, we add all tradable sectors, not only the commodity that done by Shasta and, Cox had. And then we also, we also, looking the heterogeneity impacts, we go deeper to see the heterogeneity impact on, the export expansion.

00:03:49 - as we add new evidence to the ongoing discourse as whether export growth in developing countries reduces inequality or debt, or whether it brings good to the labor market or not. To analyze the impact on labor market of the export expansion. In Indonesia, we see the impact on two labor market outcomes, namely the formality and earning growth. So we use data from IFLS, it's Indonesia family life survey.

00:04:22 - and earnings, between 2000, 2014 Indonesia, between districts, between districts with the very exposure to the export expansions. That's, that's, that's what we do. So we, we run, our model using OLS to SLS and the iv, the instrumental variable. We employ the in instrumental variable or the IV regression using the, as an export to the,

Analyzing Export Trends and Labor Market Impact in Indonesia

00:04:50 - to predict the Indonesians export trends, ensuring that we address the endogen androgenetic concerns. We use the two SLS as our preferred estimation. so we also control for the selection bias. We also try for the, matching, the matching, from the data. And we do some also, other, robustness checks such as we alternate the iv instead of using Asan countries. We also use the all countries except Indonesia, as,

00:05:22 - The China's recession to the WTO in 2001, it's trigger it, it triggered a dramatic shift in global trade with China's import from the world is rapidly, was rapidly increasing. So the stretch shock of aging at 25% annual growth post the recession had significant impacts in, development economists, including Indonesia. So not only to, from Indonesia, but only from other development economies. That's why we can use other countries

00:05:54 - And that's also why we can claim that This is based on the China, not based on Indonesia. So this an exogenous, shop, that that's what we, we mean with that. So, it's, it's more on external demand rather than, rather than the econom domestic factors that drove this dynamics. This context justifies the use of export growth from other developing countries to China as the ivy for analyzing indonesia's labor market outcomes. There are positive impacts on formal employment

Impact of Export Expansion on Labor Market Formality in Indonesia

00:06:27 - to the export expansion experience, higher probability, of the worker to move to the formal sector or stay in the formal sector. So it increased the formality in Indonesia, in Indonesia labor market. That's the first one. And also, increase earning growth, but not, it's, it's, it's more nuance in, for the earning growth that, that as robust as the, formality one.

00:06:59 - also mainly occurred for individuals that, we call it the pre shock period in 2000, that those who are employed in 2000. So the impact is more pronounced on those who, who already work in 2000. So we, we found, we found no impact on like employment creation, something like we don't, we don't, we don't see that, but we see on those who work they stay in for, we, they,

00:07:32 - That's, that's what, our, main findings. And we, that's why we review that based on our results. The export expansion, improved job quality through the intensive margins. So those favoring those who already in the job markets. Interestingly, interestingly, we found like a relatively progressive impact, that the export of, the effects of export expansion were more pronounced for those in the,

Impact of Export Expansion on Income Groups and Labor Sectors

00:08:06 - So to be, to be specific, from the third to the seventh desire of the, earning groups. So, but we found no significant for the lowest and the highest group. That's the first interesting finding, I think. And the second one, we also have, different or heterogeneous heterogeneous impact that is, the impacts is more, we have greater effect on the workers

00:08:36 - the low productive sector like the, in agriculture, and also particularly for those, with Le Hollow level of educations, yeah, primary school or below. And also those who resided outside the Java in the year 2000. So we, We, we, this is what interesting that we think because it more ha the impact is more pronounced on those

00:09:08 - lower education levels and recite out Java. So I think this is important fi findings, although that for female workers, we don't, we don't have, we don't have, interesting findings. We, we don't have, expected findings on female. It's not, it's not, it's not leverage female workers other than the male, unfortunately for not for the gender bias. We see that export expansion, particularly towards the China, has significantly boost,

Transitioning to Formal Employment: The Impact of Manufacturing on Labor Markets

00:09:41 - it helps transition workers, from informal to more secure job to the formal, to the formal one. So this is also, benefit. we also find that the impact is relatively progressive, yeah, relatively progressive that it, favor the low to middle income groups. And also our main message is our main fa main findings that the manufacturing sector plays a crucial role in

00:10:14 - When we see, we define the districts by the commodity reliant district and the non-commodity reliant district, we found the the impact is, we have greater impacts on the, district status, not reliant to the commodity. So if it's basically on manufacturing side. So that's, that's why we, we are view that the manufacturing sector played a crucial role in driving, this positive impacts on the labor market in Indonesia.

00:10:46 - to maximizing the benefits of, the export growth, actually. So these findings can have, I think, many important policy implications. policy makers should focus on promoting export growth in sectors like manufacturing to enhance formal employment opportunities, while also investing in infrastructure, and skill, skill development to support this growth. As I mentioned from the result,

Ensuring Inclusive Growth Through Export Expansion

00:11:19 - but how about people that's unemployed at that, at the per, at 2000 or the pre shops period. So that's, homework for the government. how, how to leverage that. So, export expansion can also be used as a tool to reduce the labor market informality and income inequality, particularly by improving job prospect for the lower income workers and government need to ensure that the benefits of the this export growth are inclusive and widely shared.

00:11:49 - and equitable economic growth.

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