Firms ’ export-supply response: learning from the Indonesian experience during the 1997/98 economic crisis

Abstract: This study examines the export-supply response of plants in Indonesian manufacturing during the 1997/98 economic crisis. It is motivated by the findings of other studies which highlight the weak export performance of the crisis-affected countries, despite the increase in competitiveness from the sharp exchange rate depreciation during the crisis. It shows a picture of the response and investigates which characteristics determined the success of plants in responding to the crisis in terms of export. The empirical analysis points to the characteristics of firms and industry as the determinants of the firm success in their export response. The descriptive in particular shows a strong trend for plants that were non-exporters before the crisis to remain so during and after the crisis. The econometric analysis reveals the significant role of sunk-costs into exporting activities in determining the export response. Some variables which are related to sunk-costs- such as exporting history, an industry’s export intensity, and an industry’s prior export competitiveness- are positively related to the probability to export during and after the crisis. In addition to the sunk-costs, the ability to compete in international markets and foreign ownership are the other important determinants. In particular, non-exporters before the crisis found it easier to become exporters in the crisis period if they are more efficient, able to produce goods to international standards and have some foreign ownership share. Finally, the analysis reveals that access to credit is important for successful switching by non-exporters