When did Indonesia de-industrialise? Long-term trends in industrialisation

This paper tests the thesis that colonised, less-developed countries in Asia experienced ‘de-industrialisation’ and that this perceived outcome of colonisation long persisted after independence. It does this on the basis of new long-term annual estimates of value added in Indonesian manufacturing during 1870-2018.

Manufacturing output grew on average by 4 per cent per year during 1870-1929, which compares to 2 per cent in India and 6 per cent in Japan. Manufacturing output stagnated during 1929-68, before accelerating to 11 per cent per year during 1968-97 and slowing to 5 per cent during 1999-2018. There were three episodes of ‘de-industrialisation’ when the manufacturing share of GDP decreased: the economic crisis 1929-35, the Japanese occupation and war of independence 1942-47, and the recent period 2004-18.

The paper explains long-term trends in industrialisation on the basis of sustained volatility in the terms-of-trade and real effective exchange rate, and the consequences of trade and industry policies that fostered import-substituting industrialisation during the 1930s-80s and export-oriented industrialisation since.