Domestic Structural Transformation in a Critical Mineral Economy: A Multisectoral Assessment of Indonesia’s Nickel Downstreaming Strategy

Abstract

Critical minerals are central to industrial strategies in the Global South, but evidence on how such policies reshape domestic production is limited. This paper maps Indonesia’s nickel ecosystem before and after the 2014 export ban using input–output multipliers and labor intensity from the 2010, 2016, and 2020 input–output tables. We provide a descriptive account of nickel’s evolving economic trajectory during the downstreaming push. Three patterns stand out. Forward linkages declined from 16 to 8 and backward linkages moved from 75 to 73, suggesting a narrower structure with greater specialization in higher value, more capital-intensive activities. Output multipliers rose most in sectors that support the electric vehicle supply chain, including professional and technical services, machinery, fabricated metals, transport equipment, energy, and finance. In contrast, the labor multiplier fell from about 6514 to 3366 jobs per IDR 1 trillion of final demand, implying a higher value added alongside lower employment intensity. Overall, downstreaming appears to work through structural concentration and growth in complementary sectors rather than broad-based diversification. Complementary policies in skills, regional development, and energy infrastructure are therefore critical for inclusive industrial transformation.

1. Introduction

Critical minerals have moved to the center of industrial strategy as governments and firms race to secure inputs for electric vehicles (EVs), batteries, and clean energy infrastructure. This shift has intensified the use of export controls, local processing mandates, and investment incentives—often justified as ways to convert natural resource endowments into domestic capability building and structural transformation rather than enclave-style extraction (IEA, 2024; OECD, 2023).

Indonesia’s nickel strategy is one of the most prominent and contested cases in this new critical mineral landscape. Indonesia holds one of the world’s largest nickel resources and has pursued an explicitly developmental approach to mineral governance, anchored by an ore export ban introduced in 2014 and tightened in 2020. The stated objective is to redirect ore into domestic processing, attract refining and precursor investment, and position Indonesia within EV and battery value chains. At the same time, the strategy remains contested with debates around uneven domestic capability formation, distributional outcomes, labor conditions, environmental externalities, and the energy system constraints associated with capital-intensive processing (Guberman et al., 2024; CREA & CELIOS, 2024; Solidar Suisse, 2024).

Most assessments of downstreaming rely on trade and investment indicators, including export composition, installed smelter capacity, or foreign investment inflows. These indicators matter, but they provide only a partial view of transformation. A downstream push can generate broader spillovers if it stimulates supplier development, increases demand for specialized services, and supports complementary manufacturing. It can also produce a more concentrated structure if processing expands mainly through capital deepening and imported technology while domestic intersectoral linkages remain limited. Distinguishing between these pathways is crucial for policy design because it speaks to whether downstreaming can deliver broad-based capability formation and employment gains, or whether it primarily raises the value added within a narrower set of capital-intensive activities.

This paper shifts attention from external indicators to domestic production structure. Using Indonesia’s official input–output (IO) tables for 2010, 2016, and 2020, we map the nickel ecosystem across three benchmark years that bracket key policy and investment phases: 2010 as a pre-ban baseline, 2016 as an early downstreaming benchmark after the 2014 ban, and 2020 as a period of accelerated processing investment alongside renewed tightening of export restrictions (BPS, 2015, 2021, 2025). We combine linkage measures and multiplier analysis with sectoral labor intensity estimates to document how nickel’s domestic economic footprint evolved during the downstreaming era. The objective is descriptive rather than causal.

Guided by the structural transformation and resource-based industrialization literature, we organize the analysis around three questions: (1) How did the breadth and configuration of nickel’s backward and forward production linkages change across the benchmark years? (2) Which sectors experienced the largest changes in output multipliers associated with nickel’s evolving ecosystem, and do these sectors align with an EV-adjacent industrial cluster? (3) How did labor multipliers change, and what do these patterns imply for the employment content of downstreaming?

Our contributions are twofold. Empirically, we provide a multi-benchmark structural mapping of Indonesia’s nickel economy using consistent linkage measures, output multipliers, and labor multipliers across 2010–2020, bringing labor intensity explicitly into the downstreaming debate. Conceptually, we clarify a mechanism through which critical mineral strategies may operate: upgrading can proceed through structural narrowing and the strengthening of complementary sectors (e.g., machinery, technical services, energy, and finance) rather than immediate broad-based diversification. This perspective helps explain why downstreaming can deliver rapid gains in the value added and industrial capacity while producing more limited employment effects unless complemented by policies in skills, supplier development, regional development, and energy infrastructure.

The remainder of the paper is organized as follows. Section 2 reviews the literature on resource-based industrialization, critical mineral strategies, and IO approaches to structural change, with an emphasis on recent post-2022 debates. Section 3 describes the data, sector harmonization, and methods. Section 4 presents the results on linkages, multipliers, and labor intensity. Section 5 discusses implications for industrial policy, labor-market outcomes, regional development, and energy and environmental preparedness. Section 6 concludes.

2. Literature Review

The industrialization prospects of resource-rich economies have long been debated in development economics. Early scholarship emphasized the constraints of mineral dependence, highlighting volatility, horizontal and vertical enclave structures, and Dutch Disease effects that undermine manufacturing capability (Auty, 1993; Sachs & Warner, 1995). However, more recent work challenges this deterministic view, arguing that natural resources can serve as platforms for broader industrial capability formation when accompanied by deliberate policies supporting domestic linkages, supplier development, and technological learning (Morris et al., 2012; Andreoni, 2020). This shift in thinking aligns with empirical studies showing that resource rents, when strategically reinvested, can foster industrial clusters, strengthen domestic supply chains, and catalyze manufacturing upgrading.

2.1. Critical Minerals and Resource-Based Industrialization in Energy Transition

The global energy transition has renewed attention to the industrial policy potential of critical minerals, such as nickel, cobalt, lithium, and rare earths, due to their central role in electric vehicles, battery technologies, and renewable energy systems. Unlike traditional extractive commodities, critical minerals participate in long, technologically sophisticated global value chains that require specialized inputs, engineering capabilities, and advanced services (IEA, 2021). This creates the possibility of resource-based industrialization through strategic coordination between mineral policy, technology acquisition, and domestic capability building.

Yet scholarly assessments of such strategies remain mixed. Some studies emphasize the risks of “commodity policy myopia,” where governments focus on processing mandates without parallel investments in human capital, infrastructure, and technological learning (Goodman & Worth, 2022). Others argue that, under the right institutional and market conditions, critical mineral endowments can anchor the formation of new technology-intensive clusters (Navas-Alemán & Pietrobelli, 2021). Empirical evidence remains fragmented, especially regarding how domestic production structures respond to episodes of downstreaming or export restrictions.

2.2. Downstreaming, Export Controls, and Domestic Value Creation

Policies such as export bans and processing requirements aim to capture more value domestically by diverting raw material flows into refining and manufacturing. Theoretically, such interventions can stimulate learning-by-doing, increase local content, and attract foreign direct investment (Hausmann et al., 2011). However, they can also impose short-run adjustment costs, distort incentives, and generate political economy frictions (WTO, 2022a).

Empirically, assessments of Indonesia’s mineral processing mandates are mixed. Tani and Adachi (2019) document increased processing capacity but limited evidence of upstream supplier development. Fujita (2020) notes that investment surged after the ban, but domestic capability formation remains uneven. Existing analyses rely heavily on export and investment indicators; there is little work examining multisectoral structural effects.

2.3. Input–Output Approaches to Industrial Upgrading and Structural Changes

Input–output (IO) analysis provides established tools for assessing structural transformation, backward/forward linkages, and multiplier effects (Chenery & Watanabe, 1958; Hirschman, 1958). IO methods have been widely applied in studies of industrial clusters, regional development, and global production networks. Recent applications explore the domestic spillovers of energy transitions, high-tech industries, and mineral-processing sectors.

In the context of critical minerals, IO analysis is particularly relevant because it makes explicit the inter-industry linkages through which resource-based activities may generate domestic spillovers. Linkage measures capture whether upstream and downstream connections broaden or narrow; output multipliers reveal which sectors benefit directly and indirectly from demand associated with extraction and processing; labor multipliers clarify distributional implications by translating output propagation into employment requirements; and comparisons across benchmark IO tables provide a transparent way to document structural change even when causal identification is difficult.

Yet existing IO-based studies of Indonesia’s industrialization either pre-date the nickel downstreaming era or examine broader mining sectors without focusing specifically on nickel and without multi-year comparison.

2.4. Literature Gap

Across the resource-based industrialization, critical mineral, and IO analysis studies, three gaps are especially salient. First, there is little multi-year IO mapping of how nickel-centered production networks evolve across major policy episodes using benchmark IO tables. Second, most assessments of downstreaming focus on exports and investment rather than on the underlying reconfiguration of domestic intersectoral relationships. Third, the employment consequences of downstreaming, particularly changes in labor intensity, remain acknowledged in theory but are rarely documented empirically, and links between nickel upgrading and complementary EV-adjacent industries are often asserted rather than mapped.

2.5. Contribution of the Study

This research delivers two contributions to the literature on resource-based industrialization and critical minerals. First, it provides one of the first longitudinal, sector-resolved analyses of Indonesia’s nickel economy using three benchmark IO tables, allowing us to observe how the structure of domestic production linkages changed before and after the imposition of export bans. Previous research focuses on changes in exports and investment flows, but no study has mapped the evolution of domestic interdependencies or quantified the decline in labor intensity associated with downstreaming. Second, the paper contributes to emerging debates on critical mineral strategies by showing that downstreaming in the nickel sector generates structural change through specialization and the formation of complementary EV-related sectors, rather than through a broad diversification of upstream suppliers. This result introduces an important conceptual nuance into discussions of resource-based industrial upgrading: capability accumulation can occur through structural narrowing and capital deepening.

The combination of a multi-benchmark IO approach and explicit labor multipliers enables a more complete assessment of the developmental consequences of downstreaming than existing studies grounded in trade indicators alone. This places the paper within contemporary debates on critical mineral industrial policy, structural transformation, and the domestic spillover structure of extractive industries—extending prior IO work on mineral economies while contributing new empirical evidence to the rapidly growing post-2022 literature on EV-related development strategies, which is reviewed in the following subsection.

2.6. Recent Debates and Global Context (Post-2022)

Since 2022, critical mineral policy has become central to global industrial strategy debates, driven by the rapid expansion of electric vehicle (EV) production, battery manufacturing, and net-zero commitments. Nickel has emerged as a strategically sensitive input into high-energy-density lithium-ion batteries, prompting governments to reconsider trade regimes, subsidy frameworks, and domestic processing mandates. The EV industry is simultaneously undergoing a structural shift toward localized processing of intermediate inputs, driven by technology lock-in in cathode materials, growing demand for battery precursors, and geopolitical concerns over supply security (IEA, 2024). These dynamics have reshaped investment patterns in mineral-rich economies while raising concerns over energy demand, environmental performance, and technological dependence.

The growing empirical literature highlights a central tension in downstreaming strategies. Although domestic refining and smelting can increase the value added and industrial depth, these activities are typically capital- and energy-intensive, with limited direct employment effects and uneven spillovers to local supplier networks. Post-2022 studies increasingly document enclave-type industrial clusters around processing hubs, alongside persistent weaknesses in backward linkages to domestic manufacturing and services. At the same time, global assessments document a proliferation of critical mineral policies and the increasing emphasis on processing capacity, recycling, and standards as governments pursue supply chain security (OECD, 2023; IEA, 2024), while expanded clean energy subsidies and local content rules in major consuming economies have altered global value-chain governance, shaping the incentives faced by upstream mineral producers.

Recent work further emphasizes that downstreaming’s developmental outcomes depend critically on complementary capabilities and governance. Energy system constraints, environmental performance, and labor and distributional effects can shape both competitiveness and social legitimacy in EV-related industrialization (CREA & CELIOS, 2024; Solidar Suisse, 2024; LPEM FEB UI & NRGI, 2025). Without parallel investments in these areas, processing mandates risk generating capital-intensive enclaves rather than broad-based industrial upgrading.

Indonesia occupies a pivotal position within these transformations. As the world’s largest nickel producer, it has implemented export restrictions and processing requirements to secure greater domestic value capture and to position itself within emerging EV and battery supply chains. The rapid expansion of smelting capacity, however, has intensified debate over energy sourcing, carbon intensity, infrastructure constraints, and the distribution of gains across sectors and regions. This global context intersects directly with debates on the developmental rationale and legal sustainability of export controls, including the WTO dispute over Indonesia’s raw materials measures (WTO, 2022b) and related empirical assessments of the nickel export ban (Guberman et al., 2024), placing Indonesia at the center of contemporary discussions on whether resource-based industrial policy can generate broad-based structural upgrading rather than narrowly concentrated industrial enclaves.

This paper speaks directly to these post-2022 debates by providing an economy-wide assessment of how Indonesia’s nickel sector has been embedded in domestic production networks across multiple benchmark years. In contrast to firm-level or trade-flow analyses, we use harmonized national input–output tables to trace changes in inter-industry linkages, output propagation, and labor absorption. The combined use of linkage indicators and output and employment multipliers allows us to evaluate whether downstreaming has been associated with broader domestic integration or with increasingly selective, capital-intensive connections to the rest of the economy.

3. Materials and Methods

This section describes the data sources, sectoral harmonization procedures, and analytical methods used to map the evolution of Indonesia’s nickel sector across 2010, 2016, and 2020. Our approach intentionally avoids causal attribution. Instead, it provides a comparative, multisectoral structural analysis of how nickel’s domestic economic footprint changed during Indonesia’s downstreaming period.

3.1. Data Source

3.1.1. Input–Output Tables (2010, 2016, 2020)

The empirical foundation of the study consists of Indonesia’s official Input–Output (IO) tables for the years 2010, 2016, and 2020, published by Badan Pusat Statistik (BPS). These tables provide a consistent 185-sector classification, though with some redefinition of categories across years. These tables report:

• Sectoral intermediate transactions,
• Final demand by major components,
• Value-added components,
• Labor compensation,
• Import coefficients,
• Technology coefficients matrices.

The 2010 table represents the period before the nickel export ban, the 2016 table reflects the initial phase of downstream expansion, and the 2020 table coincides with rapid smelter investment and the strengthening of EV-related industrial capabilities. The 2020 IO table was published in 2025 by BPS, and it has become the latest snapshot of Indonesia’s sectoral inter-connectivity.

3.1.2. Labor Data (Sakernas)

Labor coefficients for each IO benchmark year are derived from Survei Angkatan Kerja Nasional (Sakernas), Indonesia’s main labor force survey. Using sectoral employment and gross output data, we compute the number of workers per billion rupiah of output for each sector and harmonize these coefficients to match IO sector categories.

3.2. Sector Harmonization and Identification of the Nickel Sector

Ensuring consistency across benchmark Input–Output (IO) tables is essential for interpreting changes in the nickel sector as genuine structural shifts rather than artifacts of statistical reclassification. Although Indonesia’s IO tables for 2010, 2016, and 2020 share a broadly similar sectoral structure, several mining and manufacturing categories underwent minor definitional adjustments across years. To maintain comparability, we harmonize the sectoral classifications using concordance mappings provided by the national statistical agency (BPS). This involves first identifying sectors that remain stable across all three tables, followed by carefully aligning those whose definitions shift over time. When a category appears in two tables but not the third, we aggregate or disaggregate sectors to match the most detailed common denominator, ensuring that all three benchmark years are ultimately expressed through an internally coherent classification scheme.

A central objective of the harmonization process is to identify the nickel sector consistently. In all three tables, nickel ore extraction appears as a distinct mining category covering the extraction, preliminary beneficiation, and on-site preparation of nickel ore. Because this category remains uniquely identifiable and stable across years, it provides a reliable basis for tracking the evolving structural position of nickel extraction within the domestic economy. We intentionally distinguish this upstream extraction sector from the downstream processing industries—such as smelting, refining, and the production of nickel pig iron, ferronickel, or matte—which are classified within manufacturing rather than mining. This distinction aligns with the logic of Indonesia’s downstreaming policy: extraction represents the entry point of the value chain, while processing is part of the higher-value industrial ecosystem whose expansion the policy seeks to stimulate.

Treating nickel extraction separately from processing has three analytical advantages. First, it allows us to measure backward and forward linkages in a conceptually clean way. The extraction sector’s input sourcing patterns and downstream connections capture the beginning of the structural changes triggered by downstreaming, offering a direct view of how domestic supply chains reorganize as ore is diverted from export to domestic use. Second, separating extraction from processing maintains clarity in the analysis of labor intensity. Because mining and metallurgical processing have markedly different labor coefficients, combining them would blur the sharp decline in labor intensity associated with technological upgrading. Third, this approach is consistent with theoretical perspectives that view extractive sectors as anchors whose domestic role evolves as broader industrial capabilities accumulate. Analyzing extraction alone therefore provides a clearer picture of the sector’s shifting embeddedness within the economy.

Although downstream nickel processing is not included in the definition of the nickel extraction sector, it nevertheless influences the extraction sector indirectly and materially. As smelters and refining facilities expand, they drive increased demand for capital goods, technical services, refined energy inputs, transportation, and financial services. These interactions manifest in the changes in multipliers and sectoral interdependencies observed in later sections of the paper. Rising output multipliers in machinery, fabricated metals, professional and technical services, transport equipment, and energy sectors reflect the growing density of nickel-related industrial activities, even though these activities fall outside the formal definition of the nickel extraction sector itself.

Despite careful harmonization, certain limitations remain unavoidable. Some downstream processing subsectors are nested within broader manufacturing categories, limiting the granularity with which we can isolate specific value chain segments. In addition, minor changes in industrial classifications may slightly alter sector boundaries. However, because nickel extraction is one of the most consistently classified mining activities across Indonesian IO tables, such limitations do not materially affect our interpretation of structural change. Through this harmonization procedure, we preserve comparability across years and ensure that the empirical patterns documented in subsequent sections—changing linkage breadth, multiplier behavior, and labor intensity trends—represent meaningful transformations in Indonesia’s nickel economy rather than artifacts of inconsistent classification.

3.3. Analytical Strategy

The analytical strategy of this study is designed to characterize structural change in Indonesia’s nickel economy across the benchmark years 2010, 2016, and 2020. Rather than attempting causal inference—which Input–Output (IO) methods do not support—our approach provides a detailed mapping of evolving production relationships, domestic value propagation, and employment intensity during a period in which nickel downstreaming became a central industrial policy priority. Three complementary components structure the analysis. First, we examine backward and forward linkages derived from the IO coefficient matrix in order to assess how the extraction sector’s position in the production network has shifted. Second, we compute output and labor multipliers using the Leontief inverse, enabling us to capture changes in the sector’s economy-wide effects. Third, we compare multiplier and linkage profiles across benchmark years to identify which sectors have become increasingly connected to nickel, which have weakened in their interdependence, and which have emerged as indirect beneficiaries of the shift toward domestic processing.

This strategy allows us to move beyond narrow indicators—such as investment flows or export composition—toward a more comprehensive depiction of the structural footprint of nickel. Because IO tables provide a simultaneous view of all intersectoral relationships, they are particularly suited for capturing the kinds of systemic transformations that are expected when a resource-based economy attempts downstream industrial upgrading. The goal is thus to characterize how nickel’s domestic interdependencies have evolved, which sectors form its emerging ecosystem, and how these changes relate to the broader transformation associated with Indonesia’s EV-oriented industrialization trajectory.

3.4. Backward and Forward Linkage Analysis

Backward and forward linkages are classical measures of structural connectedness within IO analysis and serve as the first lens through which we examine nickel’s domestic integration. The starting point is the input coefficient matrix A, where each element a_ij represents the value of input from sector i used to produce one unit of output in sector j. For the nickel extraction sector N, a backward linkage is present when an input coefficient a_iN is strictly positive, indicating that sector i supplies intermediate inputs to nickel. Similarly, a forward linkage exists when a_Nj > 0, meaning nickel extraction provides inputs to sector j.

Formally, the backward linkage breadth is defined as:

$$B{L}_N={\sum }_i\mathbb{1}(a_{iN}>0),$$

(1)

while the forward linkage breadth is:

$$F{L}_N={\sum }_j\mathbb{1}(a_{Nj}>0).$$

(2)

The use of binary indicators 1(⋅) reflects our interest in the presence or absence of interindustry relationships, rather than their intensity. Binary breadth measures are particularly valuable in longitudinal analyses because coefficient magnitudes can be influenced by price changes, shifts in intermediate input valuation, or changes in sector composition across years. By focusing on link counts, we capture whether the nickel sector’s production relationships have broadened, indicating diversification, or narrowed, indicating specialization and deeper integration into a smaller set of technologically intensive activities.

Interpreting changes in linkage breadth provides insight into the nature of structural transformation surrounding nickel. A decline in forward linkages, for example, may suggest that nickel extraction is increasingly tied to fewer but more technologically sophisticated downstream sectors, consistent with Indonesia’s shift from raw ore exports to refining and battery precursor production. Likewise, modest changes in backward linkages can signal a reorientation of input sourcing toward capital goods, energy, engineering services, or other advanced inputs required by downstream processing.

$$L={(I-A)}^{-1}$$

(3)

where I is the identity matrix and A is the matrix of technical input coefficients. The element l_jN in the Leontief inverse indicates the total output in sector j is required, directly and indirectly, to deliver one unit of final demand for the nickel extraction sector N. The output multiplier for the nickel extraction sector is therefore computed as:

$${OM}_N={\sum }_j{l}_{jN}$$

(4)

Changes in this multiplier across benchmark years provide an indication of how nickel’s broader economic footprint has evolved. A rising multiplier implies that the nickel sector has become more deeply embedded within the domestic production system, requiring additional inputs from a wider or more complex set of domestic industries. Sector-level multiplier comparisons also allow us to identify industries whose dependence on nickel has increased, such as professional and technical services, machinery manufacturing, transport equipment, energy, and finance sectors that align with Indonesia’s emerging EV-related industrial capabilities.

Output multipliers thus provide a quantitative basis for identifying “ecosystem winners” and for understanding whether downstreaming has resulted in more extensive domestic value propagation.

3.5. Labor Multiplier Analysis

Understanding the employment implications of downstreaming requires combining output multipliers with sectoral labor coefficients derived from Sakernas. For each sector i, the labor coefficient is calculated as:

$$e_i=E_i/X_i$$

(5)

This coefficient measures the number of workers required to generate one unit of sectoral output. When these coefficients are multiplied by the Leontief inverse, we obtain the labor multiplier for the nickel extraction sector:

$${LM}_N={\sum }_j{e}_j{1}_{jN}$$

(6)

This represents the total number of jobs, either direct, indirect, and induced, supported by one unit of final demand for nickel extraction. Because mining and metallurgical processing differ sharply in labor intensity, computing this multiplier for extraction alone allows us to isolate the extent to which extraction has become more capital-intensive over time. The steep decline in the labor multiplier between 2010 and 2016, which continues in 2020, provides empirical evidence that Indonesia’s nickel economy has shifted toward production processes that generate a higher value added but require fewer workers per unit of output. This reinforces recent findings in the development literature that upgrading from raw extraction to metallurgical processing often entails significant labor substitution.

3.6. Comparative Sectoral Analysis

To contextualize nickel within the broader economy, we compare multiplier profiles across all sectors in the IO tables. Such comparisons reveal which sectors experienced the largest increases in their output multipliers over the downstreaming period, and whether these sectors align with the industrial capabilities expected to emerge in an EV-oriented economy. By juxtaposing nickel’s multiplier evolution with those of manufacturing, services, and energy sectors, we identify shifts in Indonesia’s industrial structure that reflect deeper transformation beyond the mining sector itself.

This comparative approach is important for two reasons. First, it highlights whether downstreaming has catalyzed capability formation in industries such as machinery, fabricated metals, specialized engineering, and energy systems—consistent with theories of resource-based industrialization that emphasize the role of related capabilities. Second, it helps identify potential bottlenecks or weak points in the evolving production network, such as service sectors or upstream suppliers that may lag despite increasing demand from downstream nickel processing.

3.7. Scope, Interpretation, and Limitations

Finally, it is important to clarify the interpretive boundaries of IO-based structural analysis. IO tables reflect accounting relationships, not behavioral responses, and assume fixed technical coefficients within each benchmark year. As such, changes in multipliers and linkages should be interpreted as descriptive evidence of evolving production structures rather than causal outcomes of specific policy interventions. Moreover, while harmonization ensures consistent sector definitions across years, some downstream nickel processing subsectors remain embedded within broader manufacturing categories, limiting the granularity of the analysis. Labor multipliers capture employment intensity but cannot, without additional disaggregation, reveal shifts in skill composition or wage structure.

Despite these limitations, IO-based comparative structural analysis offers a uniquely comprehensive perspective on the architecture of Indonesia’s nickel economy. It reveals how downstreaming coincides with shifts in domestic interdependencies, how the sector’s economy-wide impact evolves, and how these changes contribute to the broader pattern of structural transformation underway.

3.8. Robustness and Sensitivity Analysis

To assess whether the observed patterns of structural change are sensitive to the choice of multiplier formulation and linkage metrics, we conduct three robustness checks. First, we compare gross and net output multipliers to address the potential overstatement of backward effects due to own-sector feedback (Oosterhaven & Stelder, 2002). Net multipliers remove the diagonal element of the Leontief inverse and therefore exclude direct self-requirements. Second, we compute domestic output multipliers based on a domestic-only technical coefficient matrix to evaluate whether the propagation of final demand operates primarily through domestic production rather than imported inputs. Third, we complement binary linkage breadth with the Hirschman–Rasmussen linkage intensity indices, which capture the strength of backward and forward interdependencies relative to the economy-wide average (Dietzenbacher & van der Linden, 1997). Detailed results are presented in Appendix A.

Across all three robustness checks, the qualitative findings reported in the main analysis remain unchanged. Net multipliers are uniformly smaller than gross multipliers, but the rank ordering and relative change over time of nickel’s multiplier effects are preserved. Domestic multipliers constitute a substantial share of total multipliers in all benchmark years, confirming that rising intersectoral effects are not solely driven by imported technology. Likewise, Hirschman–Rasmussen indices indicate that the downstreaming process has been accompanied by a deepening of linkages to capital-intensive sectors (machinery, fabricated metals, technical services, transport equipment, energy, and financial services) and a narrowing of downstream linkages toward nickel processing and EV-related industries. These robustness results support the interpretation that nickel downstreaming in Indonesia has generated a structural reorientation of the domestic production network during 2010–2020 rather than a simple expansion of intermediate demand.

4. Results and Discussion

This section presents the empirical findings from the comparative analysis of Indonesia’s IO tables for 2010, 2016, and 2020. The analysis focuses on three dimensions of structural transformation: changes in the breadth of backward and forward linkages, the evolution of output multipliers, and shifts in labor multipliers that illuminate the employment implications of downstreaming. Together, these dimensions reveal how the nickel extraction sector became embedded within a changing domestic industrial landscape during Indonesia’s downstreaming era. The discussion interprets these results through the theoretical lens developed earlier, with an emphasis on capability formation, structural reorientation, and the employment/value-added trade-off characteristic of resource-based industrialization.

4.1. Evolution of Backward and Forward Linkages

A central expectation of downstreaming policies is that redirecting raw material flows into domestic processing will rewire the extractive sector’s position within the broader production network. The evidence from the IO tables (

Table 1. Summary indicators for nickel extraction (selected benchmarks).

	2010	2016	2020
Backward linkage breadth (count of i with aiN > 0)	75	73	77
Forward linkage breadth (count of j with aNj > 0)	16	8	4
Labor multiplier (jobs per IDR 1 trillion final demand)	6514	3366	3100

Note: Robustness analysis on multiplier results for 2010, 2016, and 2020 is reported in Appendix A Table A1, Table A2 and Table A3; A full set of multiplier data per sector is available upon request.

) shows that Indonesia’s nickel extraction sector experienced a clear narrowing of its production linkages over time. Backward linkages declined modestly from 75 in 2010 to 73 in 2016, and rebounded in 2020, which was 77. Forward linkages declined more sharply, from 16 to 8 over the same period, however continue to decline in year 2020, i.e., 4.

The contraction of forward linkages is particularly noteworthy. It signals that nickel output is increasingly flowing into a narrower set of downstream sectors, consistent with Indonesia’s transformation from an exporter of raw ore to a producer of refined nickel products. As smelting, refining, and battery precursor production expands, raw ore is channeled overwhelmingly toward these technologically demanding industries. This pattern is consistent with theories of resource-based industrial upgrading that predict structural narrowing as economies move toward specialized, capital-intensive processing activities that require fewer, but more sophisticated, downstream uses.

The modest decline in backward linkages reflects a related logic. As processing increases, extraction becomes less reliant on a multitude of low-skill or low-technology intermediate goods and more dependent on a focused set of specialized inputs such as electricity, fuel products, engineering services, and heavy machinery. This reorientation toward high-value inputs is characteristic of what the structural transformation literature describes as a shift away from generalist, low-complexity interactions toward specialized, capability-intensive relationships. Thus, the linkage results suggest that nickel has evolved from a dispersed, commodified resource input into a more central, specialized node in Indonesia’s industrial architecture.

4.2. Output Multipliers and the Reorientation of Domestic Value Creation

Changes in output multipliers provide further evidence of structural reconfiguration. Between 2010 and 2016, the sectors whose multipliers increased most strongly in relation to nickel include professional and technical services, refined energy and fuel products, machinery and fabricated metal manufacturing, transport equipment manufacturing, and financial services. These increases indicate that demand for nickel extraction increasingly propagates through sectors that are themselves central to Indonesia’s evolving industrial ecosystem.

The rise of professional and technical services reflects the growing need for engineering, design, environmental compliance, and technical consulting services as smelters and refining plants multiply. Machinery and fabricated metals show similar gains, highlighting the capital-intensive nature of nickel processing and the complementary demand for equipment, mechanical components, and precision inputs. Increases in multipliers for transport equipment and logistics sectors correspond to the substantial infrastructure and mobility requirements associated with large-scale processing investments. The strengthened role of financial services suggests that downstreaming is embedding nickel extraction more deeply into the financial architecture of industrial development, particularly through project finance, equipment leasing, and risk management services.

These multiplier patterns reflect the formation of a nascent EV-oriented industrial cluster around nickel. Rather than taking place exclusively within the mining sector, the economic impact of nickel expansion is increasingly mediated by a constellation of knowledge-intensive, capital-intensive, and service-intensive activities. This finding resonates with capability-based theories of industrialization, which emphasize that structural change occurs not only through sectoral reallocation but also through network effects and complementary capability formation. By fostering stronger multipliers in advanced sectors, nickel downstreaming appears to have accelerated Indonesia’s movement toward a more sophisticated industrial structure—albeit one that is uneven and heavily reliant on imported technology.

4.3. Labor Multipliers and the Employment–Value-Added Trade-Off

While output multipliers illuminate the structural breadth of nickel’s economic influence, labor multipliers reveal the employment consequences of downstreaming. The empirical results indicate a large decline in labor intensity: the labor multiplier for nickel extraction fell from approximately 6514 jobs per IDR 1 trillion of final demand in 2010 to 3366 jobs in 2016, with further decline evident in 2020.

This dramatic reduction is aligned with the theoretical expectation that upgrading from raw ore extraction to refining and processing is fundamentally capital deepening. The technologies involved in smelting, hydrometallurgy, and precursor production rely heavily on automated machinery, energy-intensive reactors, and advanced chemical processes that substitute machinery for labor. As a result, the economy’s dependence on unskilled or semi-skilled mining labor decreases, even as the value-added potential of the nickel sector expands.

The decline in labor multipliers also indicates that structural change within the nickel economy may generate distributional tensions. Although the sector becomes more productive and more connected to high-value industries, this transformation reduces the number of jobs supported per unit of output. The mismatch between a higher value added and lower labor absorption suggests that downstreaming alone cannot ensure inclusive industrialization.

4.4. Integrating Linkages, Multipliers, and Employment: Emerging Patterns of Structural Transformation

Taken together, the findings on linkages, output multipliers, and labor multipliers reveal a coherent pattern of structural transformation driven by nickel downstreaming. The contraction of linkage breadth reflects increasing specialization. Rising multipliers in the EV-adjacent sectors identified above signal the emergence of a multi-sectoral industrial ecosystem around nickel processing, one that aligns closely with Indonesia’s ambitions to become a regional hub for EV-related manufacturing. The decline in labor intensity highlights an inherent tension within resource-based industrialization: the path to a higher value added may be inherently labor-saving.

These results underscore the importance of viewing critical mineral strategies not merely as trade or investment initiatives but as engines of systemic industrial change. Understanding these dynamics is essential for the complementary policy framework discussed in the next section.

5. Policy Implications

The results reveal a pattern of structural transformation that is both promising and cautionary. Indonesia’s downstreaming strategy has reconfigured the nickel sector’s position within the domestic economy, creating deeper connections with high-value manufacturing and services while simultaneously reducing labor intensity. This section synthesizes the implications and outlines policy priorities necessary to translate downstreaming into broad-based, inclusive, and sustainable development.

5.1. Downstreaming as a Driver of Structural Transformation, but Not a Source of Mass Employment

The first major implication of the findings is that downstreaming changes the structure of the economy but does not, on its own, create large numbers of jobs. The sharp decline in labor multipliers documented in Section 4.3 underscores that upgrading toward refining and advanced processing is fundamentally capital-intensive. As global evidence on mineral-based industrialization suggests, the “value-added dividend” from higher processing stages is often accompanied by a “labor absorption penalty.”

This reality suggests that policymakers must decouple expectations about employment creation from expectations about value-added growth. Industrial development strategies that rely heavily on downstreaming must be complemented by policies designed explicitly to support workers and communities affected by labor displacement. This includes vocational training, reskilling initiatives, mobility support, and targeted social protection—none of which can be assumed to emerge organically from industrial upgrading.

5.2. Building Complementary Capabilities in High-Value Services and Capital Goods

The rise in output multipliers across the EV-adjacent sectors identified in Section 4.2 shows that nickel has become a platform for the formation of a broader industrial cluster. This pattern is consistent with theories of capability formation that emphasize the growth of related industries.

To consolidate this emerging ecosystem, Indonesia will need to actively strengthen engineering and technical services, including metallurgical expertise, environmental engineering, and process control. It must also expand its capital goods manufacturing base, particularly in machinery, heavy equipment, and precision components. Advanced logistics and transport solutions will be essential, especially for the efficient movement of ores, intermediates, and refined products across the value chain. At the same time, energy infrastructure requires significant reinforcement, as mineral processing is highly electricity-intensive and depends on reliable supply, system integration, and progressive decarbonization. Strengthening financial and project-development capabilities will be equally critical, particularly in the areas of risk management, long-term financing, and the provision of industrial credit.

Without deliberate policy support, these sectors may fail to deepen local capabilities, reducing the long-term developmental benefits of the nickel boom. Policies to encourage technology transfer, local content development, joint ventures, and supplier upgrading are therefore essential. In addition, transparent industrial financing mechanisms can ensure that domestic firms, rather than only foreign investors, participate in capability-building opportunities.

5.3. Addressing the Regional Concentration and Uneven Geography of Downstreaming

Nickel processing facilities in Indonesia are geographically concentrated, particularly in Sulawesi and Maluku. The results of this study highlight that the economic benefits associated with downstreaming, particularly the rise of high-value services and advanced manufacturing, tend to accrue in urban, skills-intensive regions, not in mining districts. This spatial mismatch has implications for regional inequality and political economy stability.

To mitigate uneven development, policymakers must adopt complementary regional measures that address structural gaps between mining areas and processing hubs. This includes establishing off-site training centers in mining regions to facilitate skill upgrading and improve workforce adaptability. Targeted infrastructure investments are also necessary to better connect mining districts with industrial clusters, ensuring smoother flows of goods, services, and labor. In parallel, local supplier development programs should be implemented to integrate small and medium enterprises into processing-related value chains, allowing broader participation in industrial upgrading. Urban planning and labor mobility policies must also support workers relocating from mining communities to processing centers, ensuring adequate housing, services, and social integration.

Absent of such interventions, downstreaming risks creating a bifurcated development pattern, specifically high-value gains in processing clusters, and stagnation or decline in extraction-dependent regions.

5.4. Ensuring Environmental and Energy System Preparedness

Nickel downstreaming is among the most energy-intensive industrial activities, and Indonesia’s dramatic expansion of smelting capacity has already placed significant pressure on the energy system. The shift from Ore exports to domestic processing, while economically valuable, intensifies demand for electricity, fuel, water, and waste management systems.

The policy implications are clear. Indonesia must align its industrial policy objectives with energy planning strategies to ensure that the rapid expansion of smelting capacity does not overwhelm the existing infrastructure. At the same time, greater investment in renewable energy is essential to maintain long-term competitiveness and reduce the high carbon intensity associated with current processing operations. Environmental regulations and compliance standards must also evolve to reflect the growing complexity of downstream activities, particularly in areas such as tailings management, air quality control, and waste recovery.

Failure to manage these environmental and energy risks could undermine the longer-term sustainability and legitimacy of downstreaming.

5.5. Governing Critical Minerals in a Globalized Economy

As global competition for critical minerals intensifies, Indonesia’s position in the EV supply chain is shaped not only by domestic policies but also by international trade, investment, and geopolitical dynamics. The structural reorientation documented in Section 4 supports the argument that Indonesia can anchor a regional EV cluster, but only under conditions of sufficient coordination and strategic engagement.

Policy implications include anchoring long-term industrial partnerships, particularly with firms that provide advanced technology, engineering services, and battery-related research and development. Investment screening should be used strategically to ensure that foreign participation contributes to domestic capability upgrading rather than reinforcing enclave-style operations. Regional cooperation within ASEAN is also critical, both to avoid beggar-thy-neighbor competition in downstreaming incentives and to foster more integrated regional value chains. Finally, trade diplomacy will remain essential in light of ongoing disputes related to export restrictions and the strategic importance of nickel in global supply chains.

Indonesia’s ability to leverage nickel as a strategic asset will depend on institutional capacity to coordinate across ministries, regulate complex partnerships, negotiate international agreements, and manage political economy pressures at home.

5.6. Designing Inclusive Industrialization Around a Capital-Intensive Sector

The combination of rising output multipliers and declining labor multipliers points to the need for a broader policy framework that addresses both competitiveness and inclusion. Downstreaming creates high-value opportunities, but these opportunities are not inherently inclusive.

To ensure that industrial transformation translates into broad-based development, policymakers should prioritize workforce development strategies aligned with the technological demands of smelting, refining, and battery precursor manufacturing. Education and training reforms must strengthen STEM capabilities, expand high-quality technical and vocational education, and build mid-skill production competencies. Social policies should protect displaced workers in extraction-heavy communities through unemployment support, retraining incentives, and targeted mobility schemes. Industrial policy must actively promote the entry and scaling-up of domestic firms across both upstream and downstream segments of the nickel value chain.

The evidence from this study supports the argument that industrial policy is necessary but insufficient. Inclusive growth requires a complementary “social capability strategy” that ensures workers and firms have the skills, resources, and institutional support necessary to participate in an upgrading economy.

6. Conclusions

This paper has examined how Indonesia’s nickel economy evolved across a decade of downstreaming, using Input–Output tables for 2010, 2016, and 2020 to map changes in intersectoral linkages, output multipliers, and labor intensity. Rather than attributing specific causal effects to policy instruments, the analysis has provided a structural characterization of the nickel sector’s domestic footprint during a period in which export restrictions, processing mandates, and large-scale investment flows reshaped the mineral landscape.

Three conclusions emerge. First, the nickel extraction sector’s production relationships narrowed as forward linkages contracted, and input sourcing became more specialized, consistent with a downstreaming trajectory that deepens ties to a smaller set of capability-intensive suppliers. Second, output multipliers increased most in EV-adjacent and enabling sectors—professional and technical services, machinery and fabricated metals, transport equipment, energy, and finance—suggesting that downstreaming operates through the growth of complementary ecosystems rather than through broad-based diversification. Third, labor multipliers declined sharply, indicating that value-added upgrading has been accompanied by capital deepening and weaker employment absorption. Together, these findings support a nuanced view of downstreaming as a structural transformation with uneven distributional outcomes, and they provide an IO-based empirical anchor for contemporary debates on critical mineral industrial policy.

These results illustrate that Indonesia’s downstreaming strategy has set in motion a process of structural transformation rather than a simple change in export composition. Nickel has shifted from being a raw commodity exported with limited domestic spillovers to becoming an anchor sector that shapes the development of advanced manufacturing, technical services, logistics, and energy infrastructure. Yet the transformation remains uneven, and its developmental payoff will depend on how effectively Indonesia manages the social, spatial, and technological challenges associated with a capital-intensive industrial trajectory.

The findings suggest several priorities for future policy and research. Policymakers must strengthen complementary capabilities in engineering, capital goods, services, and renewable energy; support affected workers and regions through targeted social and skills policies; and pursue regional cooperation to enhance the strategic position of critical minerals within ASEAN. For researchers, the IO-based mapping provided here can be extended through more disaggregated value chain data, micro-level firm surveys, or dynamic modeling approaches that capture technological change and investment cycles.

Ultimately, the Indonesian case demonstrates that mineral-based industrialization in the critical minerals era is not a binary choice between raw exports and full-scale manufacturing. It is a process of continuous reconfiguration, in which production networks, labor markets, and technological capabilities evolve in tandem. By documenting these dynamics through a multi-year, multisectoral lens, this paper contributes to a deeper understanding of how critical mineral strategies shape structural transformation in resource-rich economies, and what is required to convert industrial upgrading into inclusive and sustainable development.