Analysis of Japan's Import Demand for Indonesian Plywood by Almost Ideal Demand System Approach

Plywood is one of the most important commodities of Indonesian forest products. Plywood is included in the top eight products of Indonesian exports with the highest export value. Japan is Indonesia's main export destination. In the last 20 years, Indonesia has become one of the main plywood suppliers for Japan. However, it can be observed from the available data that Malaysia and China become Indonesian rivals. In addition, since 2008 Malaysia had become an exporter with the highest volume for plywood to Japan. This study was conducted to analyze Japan's import policy as well as Indonesia's export policy, along with its competitor countries namely Malaysia and China to obtain information on the decline of Japan's imports for Indonesian plywood. Analysis of the elasticity of demand for plywood in Japan was also performed to determine the elasticity of Indonesian plywood in Japan. The calculation of elasticity of demand was estimated using Almost Ideal Demand System (AIDS) by applying the Seemingly Unrelated Regression (SUR) method. The results of this study show that in general, Indonesia has lower elasticity compared to Malaysia and China from 2007 to 2015. This is indicated by Japan's expenditure elasticity for Indonesian products is lower than the elasticity of Japanese expenditure for Malaysian products. Plywood Indonesia also competes in Japan with Malaysian and Chinese products. This is allegedly due to the policy of increase in demand for Indonesian plywood in Japan issued by the Indonesian government that has not been able to compete with the policies implemented by Malaysia and China. Therefore, the Indonesian government should make more efforts than Malaysia and China to increase the demand for Indonesian plywood in Japan given that Japan's demand for Indonesian plywood is still lower than Malaysia.