Linking Global CGE Models and Sectoral Analysis to Evaluate the Impact of Trade Openness in Service Sector Towards Indonesia Agricultural and Agroindustry

Comments 1: I had a hard time navigating through the first chapter since the authors com- bined the introduction and the literature review section. I recommend the authors to separate these two sections for better understanding by the reader. In the introduction section of the study the authors should include a separate paragraph that specifically states the novelty of their work, its contribution to the literature, and why this work differs from the others.

Response 1: Thank you for your valuable feedback. We acknowledge your concern regarding the structure of the introductory chapter. However, we would like to clarify that the integration of the introduction and the literature review was intentionally designed to provide a comprehensive and coherent narrative, particularly given the interconnected nature of the background, theoretical foundations, and research gaps in this study. Based on the editorial policy of the journal and the nature of the study, separating these sections would lead to unnecessary redundancy and reduce the efficiency and readability of the overall discussion.

Nevertheless, we have enhanced the structure and clarity of the section by distinctly marking the transition from contextual background to the theoretical basis and existing literature, thus ensuring that readers can follow the arguments more intuitively.

In addition, we have added a dedicated paragraph highlighting the novelty and contributions of this study to the literature. These aspects are now explicitly stated in paragraphs 11 to 13 of the revised introduction. The novelty includes:

1.      Analyzing the impact of services trade openness on the agricultural sector, which remains understudied in the Indonesian context.

2.      Employing a computable general equilibrium (CGE) model integrated with the GTAP framework, in contrast to previous studies that primarily used partial equilibrium methods.

Utilizing the OECD STRI Simulator to quantify the degree of trade restrictiveness, which is a relatively novel approach for emerging economies like Indonesia.

Comments 2: Specifically in section “2.2 Technique Analysis” the authors should put more effort into explaining the methodology used in the study as there is no methodological model structuring in their study. The authors should include the model structure and how it works in a separate paragraph, even if it is brief. Similarly, the authors should provide detailed explanations of the scenar- ios/simulations used in the study. More specifically, to explain why they chose these three scenarios, what they expect from each, and how the scenarios relate to the Indonesian economy

Response 2: Thank you for your valuable feedback.

In response, we have updated section 2.2 to provide a more detailed explanation of the methodology and the model structure used. We have added a new paragraph that explains how the GTAP and CGE models are linked and how this approach is used to analyze the impacts of trade liberalization and servicification on Indonesia’s agricultural sector.

Furthermore, we have added a detailed explanation of the three simulation scenarios used in our study. We have clarified why each scenario was chosen, what we expect from each simulation, and how they relate to the current economic conditions in Indonesia. Specifically:

1. Simulation 1: Focuses on Indonesia's trade openness in services and its direct impacts on agricultural productivity.
2. Simulation 2: Includes trade openness in services combined with increased productivity in the services sector.
3. Simulation 3: Examines a combination of trade openness, increased productivity in services, and enhanced services sector involvement in agriculture.

These updates, found in paragraph 2.2, should provide a clearer understanding of our approach and the relevance of the simulations to the Indonesian economy.

Comments 3: I am having trouble understanding the shock to the model in results tables 1, 2, and 3. Thus, I recommend that the authors clarify how they shock the model. This could be done as a footnote in each table. The authors should elaborate on the study’s findings for each table separately.

Response 3: We understand the confusion regarding how the shocks to the model were applied in Tables 1, 2, and 3. To address this, we have added footnotes to each table that clearly explain how the model was shocked. Specifically, the shock refers to the reduction of trade barriers in services using the OECD STRI Simulator. This reflects changes in trade policy in the services sector, which then affect macroeconomic and sectoral variables in the model. We have further clarified in the footnotes that the results shown represent percentage changes relative to the baseline scenario (without policy interventions), ensuring transparency in the shock application. These clarifications can now be found in the footnotes of Tables 1, 2, and 3.

Comments 4: If we separate the results from the discussion and the discussion is not developed at all in its current form. The revised version should structure and develop this section in the following ways:

Reflection on literature or theoretical gap and theory development along with related research propositions

Theory must be developed adequately, and research propositions should be developed corresponding to all new additions to theory

Each research proposition should be supported by adequate supporting discussion

Response 4: Thank you for your constructive feedback.

We acknowledge that the discussion section needed further development. In the revised manuscript, we have restructured the discussion section as follows:

1.      Reflection on Literature and Theoretical Gap (Paragraph 4.1): We expanded the literature review and identified the theoretical gaps related to the impacts of trade liberalization and servicification on the agricultural and agro-industry sectors. Specifically, we focused on the Global Value Chain (GVC) and servicification theories and connected these with our findings. Additionally, we included relevant research propositions that align with the new theoretical developments introduced by our study.

2.      Theory Development (Paragraph 4.2): In this section, we developed the servicification theory, showing how the service sector, particularly services like R&D, logistics, and telecommunications, contributes to the agricultural sector’s productivity and competitiveness. We introduced research propositions that correlate with the findings on how services (such as R&D, distribution, and logistics) affect agricultural productivity.

Support for Research Propositions (Paragraph 4.3): Each research proposition has been elaborated with detailed supporting discussions. These discussions are grounded in both the theoretical framework and the empirical findings of our study. We also linked the research propositions to existing literature, providing a solid foundation for the theoretical contributions of the study.

Comments 5: This chapter is very brief and should be expanded and rewritten. The authors should make a greater effort to establish the policy implications, limitations of their work, and future research directions. CGE models and input-output analysis are ideal for policy analysis, which is not covered in this study. The study should include policy implications on how policymakers will use the study’s findings to draw conclusions about Indonesia’s economy.

Response 5: Thank you for your constructive feedback. In response, we have substantially expanded the conclusion chapter to clearly articulate the policy implications of our findings, as well as to justify the relevance of the CGE and input-output approach in the context of Indonesian policymaking.

Specifically, the revised conclusion now includes the following key additions:

1.   Policy implications for macroeconomic growth are clearly drawn from Simulation 1, 2, and 3, which demonstrate that the combination of services trade liberalization, productivity improvement, and deeper service-agriculture integration significantly boosts Indonesia’s GDP, consumption, and investment (paragraphs 2–3).

2.   We elaborate on how these results can inform Indonesia’s policy direction, particularly by enhancing the effectiveness of existing trade cooperation frameworks and increasing access to productivity-enhancing services in the agriculture sector (paragraphs 5–6).

3.   We affirm that CGE modeling and input-output simulation are not only central to the analytical framework but also highly applicable for simulating complex, multi-sectoral policy interventions, making them ideal for real-world policy formulation (paragraph 4).

Moreover, the limitations and potential areas for future research are outlined in the final part of the conclusion (paragraph 7), including the need for regional disaggregation, firm-level service access analysis, and environmental impact considerations.

Comments 1: Relevance and justification. The authors have justified the relevance of the agricultural sector to the Indonesian economy, but they should also to provide sufficient justification on the contribution of this study to the literature. The literature on the implications of trade liberalization on agriculture is not well discussed in the current version of the manuscript

Response 1: Thank you for this insightful suggestion. We have revised the manuscript to further strengthen the justification for this study’s contribution to the literature. This includes:

1.     Presenting updated and evidence-based arguments on the critical role of agriculture in Indonesia, particularly in paragraphs 1 to 3, supported by data from BPS (2023, 2025) and the Ministry of Agriculture (2022).

2.     Clarifying the research gap in paragraph 11, where we explain that existing literature has largely concentrated on the effects of services trade liberalization on manufacturing and economic growth, with insufficient attention paid to the agricultural and agroindustry sector.

3.     Expanding the discussion on the link between services, agricultural and agroindustry performance in paragraphs 5 to 10, to better contextualize the theoretical rationale for the study.

These revisions aim to more clearly articulate how this research contributes to and extends the current body of knowledge.

Comments 2: It is interesting that the authors chose the GTAP global CGE approach for the analysis of trade openness. However, the block structure of a CGE model is missing, which prevents understanding the transmission channels of the policy scenario simulated in this paper.

Response 2: Thank you for highlighting this issue. In response, we have revised section 2.2 to include a more detailed description of the block structure of the CGE model. Specifically, we have outlined how the GTAP model, with its multi-country and multi-sectoral structure, captures the interactions between economic agents within and between regions. We have also explained how the model simulates trade flows, prices, and production structures, particularly in relation to the agricultural sector.

This additional explanation, found in paragraph 2.2, should provide greater clarity regarding how the model functions and how the simulated policies are transmitted through the global economy and into the agricultural sector in Indonesia.

Comments 3: The authors should clarify how the results in Tables 1-3 are calculated. They are percentage changes relative to the baseline scenario (no policy interventions). This should be clarified for the reader unfamiliar with CGE models

Response 3: Thank you for your observation. We completely agree that the methodology behind the results in Tables 1-3 needed further clarification. To address this, we have updated the footnotes in Tables 1, 2, and 3 to clearly state that the results represent percentage changes relative to the baseline scenario (no policy interventions). This means the baseline scenario serves as a reference point, and the results show the change in macroeconomic and sectoral variables due to trade openness and servicification policies. We believe that this clarification will help readers who are unfamiliar with CGE models better understand the calculations presented in the tables.

Comments 4: The conclusion of the paper is very shy. The authors should derive conclusions from what was found in this study, and provide strong policy recommendations for the development of the agricultural sector in Indonesia.

Response 4: We appreciate your feedback and have addressed it by strengthening the conclusion with bolder and more explicit inferences drawn directly from the empirical simulations and analysis.

The revised version now includes:

1. A detailed explanation of the key outcomes from Simulations 1, 2, and 3, highlighting the causal relationship between increased services sector performance and agricultural output (paragraphs 2–3).
2. A clear demonstration that the services sector acts as a strategic enabler of agricultural transformation and macroeconomic growth (paragraph 4).
3. Well-defined policy recommendations, especially the call to capitalize on Indonesia’s existing trade cooperation in services, and to prioritize investment in services that are critical to agriculture such as transport, financial access, digital infrastructure, and R&D (paragraphs 5–6).

These additions ensure that the conclusion not only summarizes but also assertively translates findings into actionable recommendations for national policymakers.

Comments 1: The manuscript reviews prior studies in the literature but lacks in - depth comparative analysis. It is suggested to meticulously compare the research methods, data selection, and conclusions of previous studies with those of this work. This will help clarify the positioning and advantages of this study within the existing research framework and better highlight its research value

Response 1: Thank you for highlighting this important point. In response, we have undertaken several improvements:

We have provided a direct comparative discussion between our approach and previous studies, particularly in paragraphs 11 to 13, where we emphasize:

1.     Prior research mainly employed partial equilibrium models, whereas our study utilizes a general equilibrium approach (GTAP and CGE), allowing for a more holistic analysis.

Existing studies focus predominantly on the manufacturing sector, while our work addresses the agricultural sector, filling a significant gap in the literature.

Comments 2: While the manuscript identifies links between multiple service sub - sectors and the agricultural and agro - industrial sectors, it fails to deeply explore how varying degrees of service trade openness specifically impacts agricultural production processes through different service sub - sectors. For instance, financial service liberalization may enhance agricultural fund - raising and risk management, whereas logistics service liberalization could boost agricultural product transport efficiency and reduce costs. It is recommended to add an analysis of the distinct impact pathways of each service sub - sector to improve the study's depth and innovation

Response 2: To enhance the theoretical depth and originality, we elaborated on how specific service sub-sectors (logistics, finance, and R&D) contribute to agricultural development. These impact channels are discussed in paragraphs 7 to 9, including:

1.      The role of logistics liberalization in reducing transportation costs.

2.      Financial services in improving access to capital and risk management.

3.      R&D services in enhancing decision-making through precision agriculture technologies (soil and weather sensors).

Comments 3: The manuscript relies on a CGE model for simulations but lacks adequate sensitivity analysis of the model's key parameters. Given that different parameter settings can significantly influence simulation results (e.g., minor parameter changes might alter agricultural sector responses to service trade barrier variations), a sensitivity analysis of model parameters is suggested to strengthen the robustness and persuasiveness of the conclusions.

Response 3: Thank you for your valuable comment. We fully understand the importance of sensitivity analysis to test the robustness of the simulation results against parameter variations. However, after further consideration and discussion with experts in the field, we have decided that sensitivity analysis is not necessary in the context of this study. Below is a detailed explanation of the reasoning:

1.     Limited Variations in Key Parameters:

In this study, the GTAP and CGE models used focus on trade liberalization and the servicification role in the agricultural sector of Indonesia through a well-established approach with highly relevant data. We use the OECD STRI Simulator to measure trade barrier reductions in services and the GTAP model widely acknowledged for assessing international trade impacts. The parameters used in the simulations are based on comprehensive data and prior studies that are sufficient to describe the policy impacts on trade. Therefore, sensitivity testing of minor parameter variations is not necessary to maintain the validity of our main findings.

2.     Nature of Trade-offs in Parameters:

The model we use is already sensitive to large changes in trade barriers, which directly impact the agricultural and agroindustry sector. More granular sensitivity, such as small changes in substitution elasticity parameters, would not significantly alter the results, because the main policy effects we analyse focus on major changes in services trade barriers. Adding sensitivity analysis at a finer level will provide minimal differences in the context of the major policies we are discussing, which focus on analyzing the impact of large-scale changes in the Indonesian economy.

3.     Relevance to the Focus of the Study:

This study aims to provide broader insights into trade liberalization and the servicification role in the agricultural sector of Indonesia, which are highly relevant to ongoing global trade policies such as RCEP and IA-CEPA. Our focus is on substantial policy changes and their impact on the agricultural sector, not on very small parameter variations. Therefore, conducting a sensitivity analysis on model parameters that have minimal impact is not relevant to the main objective of this study.

4.     Relevance and Validation of the Model Used:

The GTAP and CGE models used in this study are well-established and recognized as standards in international trade analysis. We employ validated and widely accepted data (such as STRI and the Indonesia 2016 IO data), which provides a solid foundation for the simulations. Additionally, prior studies that have used the same model, such as Zhan and Diao (2020) and Delzeit et al. (2020), have demonstrated the reliability of the model in capturing the impacts of major trade policy changes without requiring sensitivity analysis of minor parameter variations.

Based on the explanation above, we believe that sensitivity analysis is not necessary in this context. The models we use are robust enough to identify the effects of major trade policy changes on Indonesia’s agricultural sector. We are confident that adding sensitivity analysis to minor parameter variations will not provide a significant contribution to the quality or accuracy of our conclusions. Therefore, we have decided to retain the existing methodology without adding the sensitivity analysis.

Comments 4: The research is solely based on the 2016 input - output table and lacks a longitudinal comparison of data from different periods. As trade policies, market demands, and the service and agricultural sectors are in constant flux, relying on data from a single year may be insufficient to fully capture the long - term trends of service trade openness impacts. Including data from earlier or more recent years for comparison would better assess the evolving policy effects

Response 4: Thank you for raising this critical point. We agree that a longitudinal analysis could provide valuable insights into long-term trends in service trade openness and its impact on the agricultural sector. However, we decided to base our study on the 2016 Input-Output (IO) table from BPS because it provides the most comprehensive and up-to-date data available for Indonesia at the time of the study. Additionally, using the 2016 data allowed us to focus on the current policy context and economic environment in Indonesia, which is essential for the timeliness of our findings.

That being said, we recognize the value of including a longitudinal comparison to better capture the evolving effects of trade openness over time. While we were unable to incorporate data from different years in this study due to data limitations, we see this as an important direction for future research. We have noted this suggestion in the future research section (Section 4.3), recommending that future studies should incorporate data from multiple years to assess the dynamic and evolving effects of service trade liberalization on Indonesia's agricultural sector. This would allow for a more comprehensive understanding of the long-term impacts and trends in service sector openness.

Comments 5: The manuscript notes that service trade openness can negatively affect the trade balance by increasing imports but does not elaborate on how this impact varies across different agricultural product categories and trade partners. For example, Indonesia may have a comparative advantage in certain agricultural products, making their trade balance less affected by openness, while disadvantaged products may be more impacted. A more detailed breakdown of the trade balance conclusions is recommended to enhance the precision of the findings

Response 5: Thank you for your valuable feedback. We completely agree that a more detailed breakdown of the trade balance, particularly across different agricultural product categories and trade partners, would improve the precision and clarity of our findings. In response to your suggestion, we have revised the Results and Discussion sections to provide a more nuanced analysis of how service trade openness affects the trade balance in various agricultural sectors and with different trade partners.

The following revisions have been made to address your comment:

1.     Breakdown of the Trade Balance by Agricultural Product Categories (Section 3.1):
We now provide a detailed analysis of how service trade openness affects the trade balance for different agricultural sectors. We differentiate between agricultural products in which Indonesia has a comparative advantage (such as seafood and horticultural products) and those where Indonesia faces challenges (such as dairy and processed food products). For products where Indonesia has a comparative advantage, the trade balance is less affected by openness, as these products remain competitive in the global market despite the increase in imports from other products. On the other hand, for sectors where Indonesia is disadvantaged, such as dairy and meat, service trade openness tends to result in greater trade balance deterioration due to increased imports. This breakdown is now presented in Section 3.1, where we discuss the impacts of service trade openness on specific agricultural product categories.

2.     Impact by Trade Partners (Section 3.2):

We have also introduced a more detailed analysis of how the impact of service trade openness on the trade balance varies by trade partner. For example, Indonesia’s trade balance with countries such as China and Thailand, where the country enjoys a competitive advantage in products like seafood and rice, is less affected by trade openness. However, trade with countries like Japan and South Korea, where Indonesia faces more competition, sees a greater negative impact on the trade balance due to increased imports as a result of reduced service trade barriers. This analysis is now found in Section 3.2, where we discuss the effects of service trade liberalization in the context of Indonesia's trade agreements, such as RCEP and IA-CEPA.

Enhanced Precision in Trade Balance Conclusions (Section Discussion):
We have restructured the trade balance conclusions to provide a clearer and more detailed understanding of how service trade openness affects Indonesia’s agricultural trade balance. This includes a distinction between sectors with a comparative advantage and those without, as well as a more nuanced understanding of how trade partners influence the effects of trade openness on the agricultural trade balance. These changes have been incorporated into Sections 3.1 and 3.2.

Comments 6: The manuscript suggests using inclusive policies to address regional service access inequalities but lacks specifics on these policies. More concrete and feasible recommendations, such as improving service infrastructure in remote areas or offering service cost subsidies based on regional characteristics, would strengthen the practicality of the policy suggestions.

Response 6: Thank you for pointing this out. We agree that specific and actionable recommendations are essential to improve the practicality of our policy conclusions.

To address this, we have included the following concrete policy recommendations in paragraph 6 of the revised conclusion:

1.      The government should prioritize infrastructure investment in underserved regions, particularly in logistics, telecommunications, and digital platforms, to reduce structural gaps in service access across regions.

2.      Targeted subsidies for critical services (input financing, certification, transport) should be designed based on regional commodity specialization and service dependency intensity.

3.      National and subnational policy coordination should be strengthened to ensure that inclusive service liberalization translates into balanced regional growth in the agriculture sector.

These revisions directly address regional disparities and enhance the policy relevance and implementability of our study’s recommendations.