The Effect of Tariffs on Imports : A Sector-Wise Analysis of Indonesia in 2001-2012

This paper examines the validity of the commonly accepted paradigm that tariffs discourage imports in Indonesia. Specifically, this paper investigates the effect of tariffs on imports by industry using six-digit sectoral trade data for the 2001-2012 period. We also measure the welfare cost of a marginal change in tariff rates in each industry using Harberger's approach. The results show that tariffs negatively affect only certain industries, such as chemical, stone/glass, and metals, but not other industries. The findings demonstrate that in these three industries, the welfare gain from a 1% decrease in the 2012 tariff rate amounts to approximately 3% of tariff revenue.