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Agricultural Demand Linkages and Growth Multiplier in Rural Indonesia

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Author Info

  • Asep Suryahadi

    (SMERU)

  • Daniel Suryadarma
  • Sudarno Sumarto
  • Jack Molyneaux

Abstract

In a fast urbanizing Indonesia, the rural sector still plays an important role in the countrys economy. Although declining, the majority of the population still live and find employment in rural areas. However, rural areas lag behind urban areas in many aspects. As a result, around 80% of all the poor in the country are found in rural areas. Resolving this problem requires a clear and effective strategy to jump-start and sustain economic growth in rural areas. This study finds that the growth of the agricultural sector strongly induces the growth of the non-agricultural sector in rural areas. Although it has been fluctuating over time, it is estimated that, on average, one percent growth in the agricultural sector will induce 1.2% growth in the non-agricultural sector in rural areas. This finding vindicates the view that rising incomes in the agricultural sector stimulate demand for locally produced goods and services in rural areas, in particular those produced by the non-tradable sector. Formulated appropriately, a rural development strategy that develops the agricultural sector could provide a major impetus for achieving a fast growing and vibrant rural sector in Indonesia.

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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Development Economics Working Papers with number 22551.

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Date of creation: Jan 2006
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Handle: RePEc:eab:develo:22551

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Related research

Keywords: economic growth; rural development; Indonesia;

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References

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  1. Haggblade, Steven & Hazell, Peter B. & Brown, James, 1988. "Farm-nonfarm linkages in rural sub-Saharan Africa," Policy Research Working Paper Series, The World Bank 6, The World Bank.
  2. Block, Steven A., 1999. "Agriculture and economic growth in Ethiopia: growth multipliers from a four-sector simulation model," Agricultural Economics, Blackwell, Blackwell, vol. 20(3), pages 241-252, May.
  3. Datt, Gaurav & Ravallion, Martin, 1996. "Why have some Indian states done better than others at reducing rural poverty?," Policy Research Working Paper Series, The World Bank 1594, The World Bank.
  4. Lewis, John P., 1976. "The new economics of growth: A strategy for India and the developing world : John W. Mellor a twentieth century fund study (Cornell University Press, Ithaca, NY, 1976) pp. xv+335," Journal of Development Economics, Elsevier, Elsevier, vol. 3(4), pages 390-393, December.
  5. Ravallion, Martin & Datt, Gaurav, 1996. "How Important to India's Poor Is the Sectoral Composition of Economic Growth?," World Bank Economic Review, World Bank Group, World Bank Group, vol. 10(1), pages 1-25, January.
  6. Simphiwe, N., 2001. "Prospects For Rural Growth? Measuring Growth Linkages In A South African Smallholder Farming Area," Working Papers, University of Pretoria, Department of Agricultural Economics, Extension and Rural Development 18027, University of Pretoria, Department of Agricultural Economics, Extension and Rural Development.
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Cited by:
  1. Sambit Bhattacharyya & Budy P. Resosudarmo, 2013. "Growth, Growth Accelerations and the Poor: Lessons from Indonesia," CSAE Working Paper Series, Centre for the Study of African Economies, University of Oxford 2013-14, Centre for the Study of African Economies, University of Oxford.
  2. Kumawat, Lokendra, 2010. "Effect of Rainfall on Seasonals in Indian Manufacturing Production: Evidence from Sectoral Data," MPRA Paper, University Library of Munich, Germany 25300, University Library of Munich, Germany.

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