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Agricultural Demand Linkages and Growth Multiplier in Rural Indonesia

Author

Listed:
  • 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.

Suggested Citation

  • Asep Suryahadi & Daniel Suryadarma & Sudarno Sumarto & Jack Molyneaux, 2006. "Agricultural Demand Linkages and Growth Multiplier in Rural Indonesia," Development Economics Working Papers 22551, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:develo:22551
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    File URL: http://www.eaber.org/node/22551
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    References listed on IDEAS

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    1. 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, vol. 3(4), pages 390-393, December.
    2. Block, Steven A., 1999. "Agriculture and economic growth in Ethiopia: growth multipliers from a four-sector simulation model," Agricultural Economics, Blackwell, vol. 20(3), pages 241-252, May.
    3. 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, vol. 10(1), pages 1-25, January.
    4. Haggblade, Steven & Hazell, Peter & Brown, James, 1989. "Farm-nonfarm linkages in rural sub-Saharan Africa," World Development, Elsevier, vol. 17(8), pages 1173-1201, August.
    5. Bautista, Romeo M. & Thomas, Marcelle., 1998. "Agricultural growth linkages in Zimbabwe: income and equity effects," TMD discussion papers 31, International Food Policy Research Institute (IFPRI).
    6. Simphiwe, N., 2001. "Prospects For Rural Growth? Measuring Growth Linkages In A South African Smallholder Farming Area," Working Papers 18027, University of Pretoria, Department of Agricultural Economics, Extension and Rural Development.
    7. Datt, Gaurav & Ravallion, Martin, 1998. "Why Have Some Indian States Done Better Than Others at Reducing Rural Poverty?," Economica, London School of Economics and Political Science, vol. 65(257), pages 17-38, February.
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    Citations

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    Cited by:

    1. Bhattacharyya, Sambit & Resosudarmo, Budy P., 2015. "Growth, Growth Accelerations, and the Poor: Lessons from Indonesia," World Development, Elsevier, vol. 66(C), pages 154-165.
    2. Kumawat, Lokendra, 2010. "Effect of Rainfall on Seasonals in Indian Manufacturing Production: Evidence from Sectoral Data," MPRA Paper 25300, University Library of Munich, Germany.

    More about this item

    Keywords

    economic growth; rural development; Indonesia;

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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