Failure of an Export Promotion Policy? Evidence from Bonded Zones in Indonesia

Abstract

This study investigates the impact of the bonded-zone policy on firms’ performance, employment, and extensive and intensive margins of exports, using Indonesia’s medium–large manufacturing establishment database. We use modified difference-in-differences models to estimate the impact of the zones and exploit differences in the timing of zone approval as our identification strategy. Using a novel procedure to construct a data set of firms in bonded zones, we identified firms in bonded zones. We identified bonded-zone locations by using presidential, ministerial, and customs decrees that clearly lay out locations of the zones at the village level. We then linked this information with information from Statistik Industri. We consider the heterogeneity of factors that may bias the impact of the bonded-zone policy. Our research finds no consistent evidence that the zones promote exports either intensively or extensively. We do find, however, that bonded zones increase employment although not very robustly.