A tale of two liberalization episodes with China: impact on poverty in a developing nation1

Abstract We investigate the impact of increased trade with China on poverty in Indonesia, focusing on two key liberalization phases: China's WTO entry in 2001 and the ASEAN-China Free Trade Agreement (ACFTA) implementation in 2010. Using district-level trade exposure and an instrumental variable approach, we find that regions facing greater import competition post-ACFTA experienced faster poverty reduction, particularly driven by increased imports of raw materials and intermediate goods. However, expanded market access to China had limited poverty impact. Regional disparities, shaped by urbanization, education, and literacy, underscore the need for targeted policies to ensure equitable distribution of trade benefits.