The impact of Industry 4.0 on the Indonesian economy: A general equilibrium assessment

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Arief Anshory Yusuf

Abstract

Using a recursive-dynamic multiregional computable general equilibrium (CGE) modelling approach, we introduced a set of sector-specific labour productivity shocks representing the effect of Industry 4.0 on the Indonesian economy. The results suggest that Indonesia’s long-term economic growth will increase from 5.2% per year to 5.7% per year. In terms of output expansion, the top gainer would be the machinery and motor vehicles sector, and to a lesser extent, finance, whereas low gainers include extractive and agricultural sectors and food processing industries. Region-wise, Java, the already advanced region, will be the primary beneficiary of the growth, while other islands will not benefit as much. There is not much risk of unfavourable distributional effect. However, agriculture workers will lose out compared with workers in other sectors, particularly those with intermediate skill levels.

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