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Volatility of world rice prices, import tariffs and poverty in Indonesia: a CGE-microsimulation analysis

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  • Teguh, Dartanto

Abstract

This study aims at measuring the impact of world price volatility and import tariffs on rice on poverty in Indonesia. Applying a Computable General Equilibrium-Microsimulation approach and the endogenous poverty line, this study found that the volatility of world rice prices during 2007 to 2010 had a large effect on the poverty incidence in Indonesia. The simulation result showed that a 60 per cent increase in world rice price raises the head count index by 0.81 per cent which is equivalent to an increase in the number of poor by 1,687,270. However, both the 40 per cent decrease in the effective import tariffs on rice enacted by regulation No.93/PMK.011/2007 and the zero import tariffs implemented by regulation No. 241/PMK.011/2010 in response to high world rice prices could not perfectly absorb the negative impact of increasing world rice prices on poverty. The 40 per cent decrease in the effective import tariffs on rice reduced the head count index by 0.08 per cent equal to 161,546 people while the zero import tariffs on rice reduced the head count index by 0.19 per cent equal to 390,160 people. These policies might not be enough to absorb the negative impact of an increase in world rice prices from 2007-2010, because, during this period, the world rice prices increased on average by almost 71 per cent, which have impoverished approximately two million people. Moreover, protection in the agricultural sector, such as raising import tariffs, intended to help agricultural producers will have the reverse effect of raising the head count index.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 31451.

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Date of creation: Dec 2010
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Publication status: Published in Economics and Finance in Indonesia Vol.52.No.3(2010): pp. 335-364
Handle: RePEc:pra:mprapa:31451

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Keywords: Rice Policy; Import Tariffs; Poverty; CGE; Microsimulation.;

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  1. B. Decaluwé & L. Savard & E. Thorbecke, 2005. "General Equilibrium Approach for Poverty Analysis: With an Application to Cameroon," African Development Review, African Development Bank, vol. 17(2), pages 213-243.
  2. Ivanic, Maros & Martin, Will, 2008. "Implications of higher global food prices for poverty in low-income countries," Policy Research Working Paper Series 4594, The World Bank.
  3. Warr, Peter G. & Yusuf, Arief Anshory, 2010. "International food prices and poverty in Indonesia," 2010 Conference (54th), February 10-12, 2010, Adelaide, Australia 59259, Australian Agricultural and Resource Economics Society.
  4. Maros Ivanic & Will Martin, 2008. "Implications of higher global food prices for poverty in low-income countries-super-1," Agricultural Economics, International Association of Agricultural Economists, vol. 39(s1), pages 405-416, November.
  5. Cezary A. Kapuscinski & Prof Peter G. Warr, 1996. "Estimation of Armington Elasticities: An Application to the Philippines," Trade and Development 96/8, Australian National University, Department of Economics.
  6. Peter Warr, 2005. "Food policy and poverty in Indonesia: a general equilibrium analysis ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 49(4), pages 429-451, December.
  7. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
  8. Warr, Peter G., 2005. "Food policy and poverty in Indonesia: a general equilibrium analysis," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 49(4), December.
  9. Luc Savard, 2003. "Poverty and Income Distribution in a CGE-Household Micro-Simulation Model: Top-Down/Bottom Up Approach," Cahiers de recherche 0343, CIRPEE.
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Cited by:
  1. Teguh Dartanto, 2012. "Reducing Fuel Subsidies and the Implication on Fiscal Balance and Poverty in Indonesia: A Simulation Analysis," Working Papers in Economics and Business 201206, Faculty of Economics, University of Indonesia, revised May 2012.

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