resource depletion shock for gas. The remaining industries that expand output do so
simply because most of their sales are to households. Service industries tend to have
relatively income-elastic household demand, and do well when aggregate household
consumption increases. Among the losers, the pattern is that industries are reliant on
energy inputs, or are export-oriented. The simulation favours exports of energy products
at the expense of other exports.
IndoTERM also includes a top-down representation of the municipalities of West Java.
The local region that fares best in West Java is the kabupaten of Indramayu. This is
because it accounts for over 70% of crude oil and natural gas production in West Java.
Indramayu loses from the decline in crude oil productivity, and indeed the output loss
more than outweighs the increase in natural gas production for this effect. But it gains
substantially from the energy price hikes: the increase in nominal income has a
substantial positive effect on the municipality, with local industries, including trade and
motor repairs experiencing output increases in excess of 40%. Overall, the municipality
experiences a gain in factor income of 7.3%, whereas most other regions of West Java
lose income in the scenario.
6. Conclusion: future directions for TERM variants
The Centre of Policy Studies receives constant requests to undertake modelling using
TERM. In the Australian context, further theoretical modifications to the agricultural
sectors are currently being undertaken to better reflect the mobility of factors on
individual farms. This is part of project to improve the water accounts in TERM-water
and to introduce more hydrological detail to a CGE model. While it may have been
interesting to superimpose a series of drought shocks on the terms-of-trade shocks in this
paper, further development is being undertaken to distinguish dryland from irrigated
cropping. The extraordinary feature of the 2006 drought was that the entire Snowy
Mountains region suffered record rainfall deficits. Enhancements to TERM in 2007 will
better depict the impacts of this drought and of various policy simulations.
In the case of IndoTERM, the requirements of the funded project were for only two main
regions. The additional data and effort to depict all 33 of Indonesia’s provinces instead of
just two regions are not proportional to the increase in the number of regions. Particularly
with a highly disaggregated national database, it is not difficult to surmise that many
industries do not exist at all in a number of provinces. Agricultural and, to some extent,
mining data are usually available at the provincial level. Resource sectors tend to
contribute a relatively large proportion to the total economy of relatively remote
provinces. Consequently, the task of representing all provinces by sector is not as
daunting as it may first seem.
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