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Economic and environmental impacts of trade liberalization: The case of Indonesia ☆ Howard Gumilang, Kakali Mukhopadhyay ⁎, Paul J. Thomassin Department of Agricultural Economics, McGill University, Macdonald Stewart Building, 21111 Lakeshore Rd, St Anne-de-Bellevue, Québec, Canada H9X3V9 a b s t r a c t a r t i c l e i n f o Article history: Accepted 26 November 2010 JEL classi cations: Q53 F15 F18 C68 Keywords: IJEPA AFTA GTAP Indonesia Environment In recent years, there has been a growing interest in the environmental impacts of trade liberalization. This paper provides further discourse in this area with a study on Indonesia and its trade agreements with Japan (I JEP A) andASEAN(AFTA).A sta ticglobal CGEmode l, kno wn as theGloba l Tra de Ana lys is Pro jec t, wasused to proj ect the Indonesian econ omy to the year 2022, with and without tariff reforms agreed under the agreements. Environmental impacts are assessed using different pollution indicators—air, water and waste. Thestudy sug ges ts tha t Indone siawouldgrowrapid ly ove r theperi od considered wit h a lar ge deterior ati on in its environment. Followi ng these , howe ver, the agreements only have a marg inal positive impact on Indonesia's ou tput but with a noticeable increase in trade ows and signs of trade diversio n. Overall AFTA has a greater impact on the Indonesian economy compared to IJEPA. Similarly, the impact of trade liberalization on the environment is marginal. On the whole, tariff reform is inducing air pollution and reducing water pollution. In conclusion, the study sugge sts that Indonesia' s participation in the AFTA and IJEPA ag reements is not likely to bring drastic changes to her economic and environmental performance. © 2010 Elsevier B.V. All rights reserved. 1. Introduction In 1994, aft er man y yea rs of neg oti ati ons and set backs , the Uruguay Round (UR) of the General Agreement on Trade and Tariffs (GATT) was nally concluded and signed by more than a hundred countries. The conclusion of the UR of GATT and the formation of two powerful trading blocs, the EU (European Union) and NAFTA (North American Free Trade Agreement), provide an interesting situation for countries in East Asia. On one hand, they are encouraged to trade in a newly liberalized world and yet are facing the risk of being sidelined from the EU and/or NAFTA economic concentration. The latter posts a signicant concern as much of East Asian exports are destined to developed economies in these blocs. Initially, countries in East Asia are hes itant to embrace ec onomic regionalism and it was onl y towards the late 1990s, that they became more serious in pursuing a regional trading bloc and FTAs (Free Trade Agreements). Since then numerous FTA agre ements have been sign ed by coun tries in the region. Tab le 1 sho ws a bri ef ove rvi ew of some of the FTA neg oti ati ons done by a few major countries in the region. Despi te the fac t tha t the re has been gre at pro gre ss in the dev elo pme nt of FTA s in theEast Asi an reg ion, the re is a cle ar div erg enc e in free trade policies adopted by each country. As the leading economy in the region, Japan has been quite aggressive in pursuing free trade agr ee men ts wit h two mai n goa ls, to ens ure a secure d sup ply of res ourc es for her eco nomy and to counter the ris ing geop oli tic al inuence of Chi na.On theotherhand,China 's obje cti ve of sig nin g an FTA wit h herSouth Eas t Asi an nei ghb ors hasbeento reduce theanxie ty ove r hergrowi ng power.Koreaand Tha ilan d hav e als o bee n act ive ly inv olv ed in establishing bilateral FTA in an effort to gain better market access to bot h exi sti ng and pro mis ing mar ket s. As the nat ion wit h the mos t FTA s, the city-stat e of Singa pore believes that their econo mic future and strength will lie in being a FTA hub in the region. Yet, other countries such as Indonesia, Malaysia and the Philippines are more reluctant to pur sueFTAsas the y wor ry thatthesemay diminish the ir inuence in the region . They pr efer to work throug h the AS EAN framework where they may have a stronger negotiating leverage while avoiding undermining the regional grouping inuence. Therefore, they are not engaged in many bilateral trade agreements. Only recently did Indonesia start to consider several bilateral/multilateral FTAs with other countries in the reg ion that lead to the signi ng of the Indon esi a– Japan Economic Par tner shi p Agr eement (IJEPA ) wit h Japa n on top of her ongoin g engagement in ASEAN Free Trade Agreement (AFTA). Overall, these factors contribute to the interesting dynamics of trade liberalization in the East Asian reg ion and hig hli ght the hurdles in ach iev ing a comprehensive regional trade agreement in East Asia. As cou ntr iesin East Asi a mov ed for war d in pur sui ng FTAs, muc h of the discussion has been focused on traditional issues such as their Economic Modelling 28 (2011) 1030–1041 ☆ An earlier version of the paper was presented at 17th International Input-Output Confe rence at SAO- PAULO Universit y, 13–17t h Jul y 2009 Bra zil. Thanks to the anonymou s referees and the editor of the journal for their valuable comments. Authors are responsible for the errors, if any. ⁎ Corresponding author. Tel.: +1 514 398 8651; fax: +1 514 398 7990. E-mail addresses: howard.gumilan [email protected] (H. Gumilang), [email protected] (K. Mukhopadhy ay), paul.thomassin@mcgill.ca (P.J. Thomassin). 0264-9993/$ – see front matter © 2010 Elsevier B.V. All rights reserved. doi:10.1016/j.econmod.2010.11.015 Contents lists available at ScienceDirect Economic Modelling j o u r nal h o me p a g e: www. e l s ev i e r. c om/ lo c ate / e cmod

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