Processing and exporting raw materials: An analysis of the Indonesian log and plywood industries

This thesis studies issues related to raw material production and export, and the processing activities that use these raw materials. It focuses on the tropical hardwood log and plywood industries in Indonesia.;First, a theoretical competitive general equilibrium trade model is built to examine trade policies under different constraints. The conclusions are: (1) If the home country (which exports both logs and plywood) is "small", the optimal export taxes are zero for both logs and plywood; however, if there is an export tax on logs, then there should be an export tax on plywood. (2) If the home country is "large" in the world log market and "small" in the world plywood market, the optimal export taxes on both goods are positive; however, if the log export tax is zero, the plywood export tax should also be zero. (3) If plywood is freely traded, the optimal log export tax is the inverse of the foreign import demand elasticity of logs. (4) The stronger the McKenzie effect, the smaller the optimal log export tax. (5) When facing an increased foreign import tariff on plywood, the optimal response from the home country may be to raise, to reduce, or to maintain unchanged its export tax on logs, depending on the export demand elasticity of logs and whether the change in the foreign tariff affects the slope of this demand curve.;Second, a computable general equilibrium (CGE) model is constructed for the Indonesian economy. The CGE model searches for the optimal export taxes, simulates resource allocation, log use in the plywood sector, and rate of returns of sectoral fixed factors of production under different combinations of export taxes. The welfare cost of reducing log production by 25% is estimated to be about US...