Author(s): Salendu
This study aims to examine the effect of trade liberalization on the welfare, directly or indirectly, through the productivity of the agricultural sector and the productivity of the industrial sector, which affects economic growth and the welfare of the community. This study is explanatory as it looks at causal relationships between one variable with another (causality relationship). The data used in this study is secondary data from various sources, such as the International Financial Statistics from IMF, World Bank, Bank Indonesia reports, Central Bureau of Statistics and several other sources. All data used in this study is annual data for each research variable from 1986 to 2016. Thus, the sample size is 31 observations (31 years). Data analysis method used is Structural Equation Modeling (SEM) with AMOS software. Based on the results of the analysis, there is a significant direct and negative influence of the agricultural sector productivity on economic growth, a significant direct and negative influence of the industrial sector productivity on economic growth, no significant direct influence of the agricultural and industrial sector productivity on community welfare and a significant direct influence of economic growth on community welfare. In addition, in the test of indirect influence, economic growth is a mediating variable in the relationship between the agricultural sector productivity and community welfare and the relationship between the industrial sector productivity and community welfare. Considering the diverse effects of trade liberalization both on economic growth and people’s welfare in developing countries, the researcher was interested to know how the effects of trade liberalization in Indonesia. This study tries to observe and analyze those relations.