When is import competition detrimental to workers? An application of TAR model

1 January 2010 was one major milestone in Indonesia´s trade liberalization process. On that date, Indonesia simultaneously put into practice several trade agreements which Indonesia had signed under ASEAN framework. They are ASEAN free trade agreements with Japan, India, China, Korea, Australia, and New Zealand. These agreements will enable Indonesia to gain many benefits from free trade. Nonetheless, these agreements also expose Indonesia´s economy to harsher foreign competition. In the beginning of 2010, workers of the manufacturing sector urged the government of Indonesia to renegotiate these free trade agreements, particularly ASEAN-China Free Trade Agreement. These workers, particularly those who work in the textile and apparel industries, felt threatened that cheap products, especially from China, would make them lose their job. The government of Indonesia needs to find the middle ground which allows Indonesia to acquire benefits of free trade without causing excessive detriment to workers. This study set forth to assist the government of Indonesia in discovering the limit of expanding import competition. So as to fulfill that intention, this study employed threshold autoregressive (TAR) model.