Results from main equations

Table 3.4 shows the results from the model in Equation 3.6. Columns 1–4 show that there is a significant evidence of LBE. The first column denotes that the average impact of exporting on productivity is 28 percent. The LBE effect varies across periods. Columns 2–3 show results for the MFA implementation periods; and Column 4 presents the result for the period after the abolition of the MFA. Columns 5–8 present results of the difference-in-difference model with various specifications, and the results are mixed. Columns 5–6 show results when we consider the adjustment effects after the announcement of the abolition of the MFA. The coefficient of interest, the one from the interaction between variable last year’s export and the MFA abolition dummy, are negative for both specifications but not significant after we include the firm-fixed effects. However, when we use different definitions of the MFA abolition variable, before and after 2005, the results are different. The LBE effect is positive and significant by about 11–13 percent (see Columns 7 and 8).

Coefficients for other control variables are consistent for all specifications. Firms with foreign ownership significantly have higher productivity by 13–17 percent, which is consistent with the literature. Larger firms are also more productive than smaller ones, confirming our expectations. The impact of employment size on productivity is about 3–5 percent. The variable of import share is negative and significant with a very small magnitude. Since we do not have detailed information about the types of firms’ inputs, we cannot ignore the possibility that domestic input may have a better quality in some types of material inputs. Firms that produce both garments and textiles have a negative sign for all specifications but the significance

varies. This may be evidence of the importance of specialisation that suggest firms have better productivity when they specialise and focus on their competitiveness.

Table 3.4. Results from Equation 3.6

1 2 3 4 5 6 7 8

Ln (TFP)

VARIABLES all years 1990–94 1990–2004 2005–14 1990–94 vs 2005–14 1990–2004 vs 2005–14

Export it-1 x MFA_abolition -0.0899*** -0.0187 0.106*** 0.128*** (0.0308) (0.0441) (0.0179) (0.0231) Export it-1 0.277*** 0.434*** 0.223*** 0.331*** 0.422*** 0.176*** 0.224*** 0.0419** (0.0109) (0.0346) (0.0145) (0.0162) (0.0289) (0.0411) (0.0135) (0.0186) MFA_abolition = 1 0.591*** 0.557*** 0.555*** 0.516*** (0.0299) (0.0374) (0.0299) (0.0328) FDI it-1 0.156*** 0.128* 0.141*** 0.171*** 0.170*** 0.0731 0.155*** 0.0293 (0.0184) (0.0682) (0.0232) (0.0284) (0.0262) (0.0514) (0.0183) (0.0393) Import_share it-1 -0.001*** 0.0003 -0.001*** -0.0009*** -0.0008*** -0.0004 -0.001*** -0.0003 (0.00012) (0.00058) (0.00018) (0.00017) (0.00016) (0.00032) (0.00012) (0.00025) Multiproduct i -0.129*** -0.127*** -0.130*** -0.131*** -0.131*** -0.109 -0.130*** -0.0892 (0.00656) (0.0258) (0.00973) (0.00889) (0.00839) (0.0888) (0.00655) (0.102) Ln_total_worker it-1 0.051*** 0.033*** 0.054*** 0.047*** 0.045*** 0.021 0.050*** 0.0046 (0.00358) (0.0121) (0.00474) (0.00543) (0.00496) (0.0150) (0.00358) (0.0142) Constant 3.390*** 3.422*** 3.391*** 3.674*** 3.388*** 3.552*** 3.403*** 3.645*** (0.0293) (0.0548) (0.0321) (0.0267) (0.0327) (0.0800) (0.0294) (0.0836)

Firm-fixed effects No No No No No Yes No Yes

Year dummy Yes Yes Yes Yes Yes Yes Yes Yes

Observations 22,079 1,582 9,673 12,406 13,988 13,988 22,079 22,079

R-squared 0.182 0.189 0.129 0.157 0.181 0.101 0.184 0.104

Number of firms 2,314 2,517

Note. Robust standard errors in parentheses, *** p<0.01, ** p<0.05, * p<0.1

Table 3.5 presents results from Equation 3.7 whereby I control for other non- MFA interventions by including footwear as a control. Columns 1–4 show the average differences between garments and footwear in various periods. These results can also be interpreted as the LBE effects of garments after controlling for other factors containing non-MFA interventions. Column 1 shows the impact of exports on productivity for all observations, Columns 2 and 3 provide results for observations during the MFA implementation period, and Column 4 gives results after the removal of the quota intervention. If we compare Tables 3.4 and 3.5, results from Columns 1, 3

and 4 from both tables may infer similar magnitudes; all are positive and significant, but slightly higher for results in Table 3.4 by 4–6 percent. The LBE effect is around 22– 28 percent for 25 years, 17–22 percent during 1990–2004 and 27–33 percent after the MFA abolition period. However, the results are significantly different for period 1990– 94 (see Column 2 in Tables 3.4 and 3.5). The magnitude of LBE in the period 1990–94 before controlling for other non-MFA interventions are much higher than those after including the control. It can also be seen in Figure 3.5b in which the TFP differences between exporters and matched non-exporters were much higher in the early observation years. The TFP difference is smaller and not significant after controlling for other variables containing non-MFA factors (Column 2 in Table 3.5).

Columns 5–8 in Table 3.5 provide results for the difference-in-difference-in- difference (DDD) estimates. All specifications indicate positive and significant impacts of exporting on productivity after the abolition of the MFA and after controlling for other variables containing non-MFA interventions. Columns 7 and 8 provide the results if we define the MFA implementation and abolition as before and after 2005. The LBE effect after the removal of the quota intervention and after controlling for non-MFA interventions is about 9–13 percent. These specifications also indicate similar results to those in Table 3.4.

To interpret the results, we focus on Columns 7 and 8 in Tables 3.4 and 3.5. During the MFA period, the channel of learning was mainly from the relationship with foreign buyers. About 60–80 percent of garment export from Indonesia went to the USA and the EU and most of these exports were under a quota arrangement. There could be a relatively small degree of competition during the MFA period but most of the LBE effects were from interactions with buyers. After the MFA abolition, it could be

argued that exporters could still learn from buyers as much as they did during the MFA implementation period. Therefore, we can interpret the LBE effects (without the interaction term) in Column 7 in Tables 3.4 and 3.5 as the effect of export on productivity through the buyers’ channel. The LBE effect from buyers was about 17–22 percent. The effect is still positive and significant but with smaller magnitudes (about 4 percent) after we include firm-fixed effects (see Column 8, Table 3.4). However, it becomes insignificant after controlling for other containing factors of the non-MFA interventions (see Column 8, Table 3.5). These results show mixed effects of LBE from the buyers’ channel.

Table 3.5. Results from Equation 3.7

1 2 3 4 5 6 7 8

Ln (TFP)

VARIABLES all years 1990–94 1990–2004 2005–14 1990–94 vs 2005–14 1990–2004 vs 2005–14 Export it-1 x Garment x MFA_abolition 0.244*** 0.281*** 0.0900* 0.125* (0.0841) (0.105) (0.0492) (0.0749) Export it-1 x Garment 0.221*** 0.0394 0.169*** 0.264*** 0.0216 -0.159* 0.171*** -0.0341 (0.0233) (0.0777) (0.0300) (0.0393) (0.0747) (0.0902) (0.0297) (0.0365) Constant 3.586*** 3.575*** 3.572*** 3.871*** 3.528*** 3.573*** 3.576*** 3.657*** (0.0289) (0.0652) (0.0334) (0.0269) (0.0475) (0.0976) (0.0310) (0.0942)

Other variables Yes Yes Yes Yes Yes Yes Yes Yes

Firm fixed

effects No No No No No Yes No Yes

Year dummy Yes Yes Yes Yes Yes Yes Yes Yes

Observations 25,027 1,787 11,000 14,027 15,814 15,814 25,027 25,027

R-squared 0.182 0.213 0.124 0.159 0.184 0.107 0.183 0.108

Number of firms 2,611 2,867

Note. Robust standard errors in parentheses, *** p<0.01, ** p<0.05, * p<0.1

Meanwhile, after the abolition of the MFA, competition effects have been much intensified because the market access facility from the quota intervention was removed. Cheap products from all over the world could access markets (that were previously constrained) without limitation. Producers from Indonesia have to compete

with those from Bangladesh, China or Vietnam to the previously specific country- products-volumes-timeframes markets. Therefore, we can interpret the LBE effect after the abolition of the MFA in Columns 7 and 8 in Tables 3.4 and 3.5 as competition effects. Exporters get additional LBE benefits from competition of about 9–13 percent.