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Indonesia's Moratorium on Palm Oil Expansion from Natural Forests: Economy-Wide Impacts and the Role of International Transfers

Author

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  • Arief A. Yusuf

    (Professor, Center for Sustainable Development Goals Studies, Universitas Padjadjaran. Author email: arief.yusuf@unpad.ac.id)

  • Elizabeth L. Roos

    (Senior Research Fellow, Victoria University. Author email: Louise.Roos@vu.edu.au)

  • Jonathan M. Horridge

    (Professor, Victoria University. Author email: mark.horridge@vu.edu.au.)

Abstract

Indonesia has introduced a moratorium on the conversion of natural forests to land used for palm oil production. Using a dynamic, bottom-up, interregional computable general equilibrium model of the Indonesian economy, we assess several scenarios of the moratorium and discuss its impacts on the domestic economy as well as on regional economies within Indonesia. We find the moratorium reduces Indonesian economic growth and other macroeconomic indicators, but international transfers can more than compensate the welfare losses. The impacts also vary across regions. Sumatra, which is highly dependent on palm oil and is home to forests that no longer have a high carbon stock, receives fewer transfers and suffers the greatest economic loss. Kalimantan, which is relatively less dependent on palm oil and has forests with a relatively high carbon stock, receives more transfers and gets greater benefit. This implies that additional policy measures anticipating the unbalanced impacts of the moratorium are required if the trade-off between conservation and reducing interregional economic disparity is to be reconciled.

Suggested Citation

  • Arief A. Yusuf & Elizabeth L. Roos & Jonathan M. Horridge, 2018. "Indonesia's Moratorium on Palm Oil Expansion from Natural Forests: Economy-Wide Impacts and the Role of International Transfers," Asian Development Review, MIT Press, vol. 35(2), pages 85-112, September.
    • Handle: RePEc:tpr:adbadr:v:35:y:2018:i:2:p:85-112
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    1. V. Bellassen & V. Gitz, 2008. "Reducing Emissions from Deforestation and Degradation in Cameroon - Assessing costs and benefits," Post-Print hal-00716370, HAL.
    2. Mark Horridge, 2011. "The TERM model and its data base," Centre of Policy Studies/IMPACT Centre Working Papers g-219, Victoria University, Centre of Policy Studies/IMPACT Centre.
    3. Bellassen, Valentin & Gitz, Vincent, 2008. "Reducing Emissions from Deforestation and Degradation in Cameroon -- Assessing costs and benefits," Ecological Economics, Elsevier, vol. 68(1-2), pages 336-344, December.
    4. Richard Dutu, 2015. "Making the Most of Natural Resources in Indonesia," OECD Economics Department Working Papers 1236, OECD Publishing.
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    Cited by:

    1. Wittwer, Glyn, 2022. "Preparing a multi-country, sub-national CGE model: EuroTERM including Ukraine," Conference papers 333470, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    2. Arief Anshory Yusuf, 2021. "The impact of Industry 4.0 on the Indonesian economy: A general equilibrium assessment," Regional Science Policy & Practice, Wiley Blackwell, vol. 13(6), pages 1805-1824, December.
    3. Malahayati, Marissa & Masui, Toshihiko, 2019. "The impact of green house gas mitigation policy for land use and the forestry sector in Indonesia: Applying the computable general equilibrium model," Forest Policy and Economics, Elsevier, vol. 109(C).
    4. Purnomo, Herry & Okarda, Beni & Dermawan, Ahmad & Ilham, Qori Pebrial & Pacheco, Pablo & Nurfatriani, Fitri & Suhendang, Endang, 2020. "Reconciling oil palm economic development and environmental conservation in Indonesia: A value chain dynamic approach," Forest Policy and Economics, Elsevier, vol. 111(C).
    5. Prija Djatmika & Prischa Listiningrum & Theresia B. Sumarno & Dararida F. Mahira & Corinthias P. M. Sianipar, 2023. "Just Transition in Biofuel Development towards Low-Carbon Economy: Multi-Actor Perspectives on Policies and Practices in Indonesia," Energies, MDPI, vol. 17(1), pages 1-29, December.
    6. Leijten, Floris & Sim, Sarah & King, Henry & Verburg, Peter H., 2021. "Local deforestation spillovers induced by forest moratoria: Evidence from Indonesia," Land Use Policy, Elsevier, vol. 109(C).
    7. Shang Xu & H. Allen Klaiber & Daniela A. Miteva, 2023. "Impacts of forest conservation on local agricultural labor supply: Evidence from the Indonesian forest moratorium," American Journal of Agricultural Economics, John Wiley & Sons, vol. 105(3), pages 940-965, May.
    8. L. Kiely & D. V. Spracklen & S. R. Arnold & E. Papargyropoulou & L. Conibear & C. Wiedinmyer & C. Knote & H. A. Adrianto, 2021. "Assessing costs of Indonesian fires and the benefits of restoring peatland," Nature Communications, Nature, vol. 12(1), pages 1-11, December.

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    More about this item

    Keywords

    carbon emissions; computable general equilibrium; Indonesia; palm oil;
    All these keywords.

    JEL classification:

    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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