Cash crop choice and income dynamics in rural areas: evidence for post-crisis Indonesia

Authors

  • Stephan Klasen,

    1. Department of Economics, Goettingen University and Courant Research Center “Poverty, equity, and growth in developing and transition countries”, Platz der Goettinger Sieben 3, Goettingen, Germany
    Search for more papers by this author
  • Jan Priebe,

    Corresponding author
    • Department of Economics, Goettingen University and Courant Research Center “Poverty, equity, and growth in developing and transition countries”, Platz der Goettinger Sieben 3, Goettingen, Germany
    Search for more papers by this author
  • Robert Rudolf

    1. Division of International Studies, Korea University, Seongbuk-gu, Seoul, Korea
    Search for more papers by this author

  • Data Appendix Available OnlineA data appendix to replicate main results is available in the online version of this article.

Corresponding author. Tel.: +49(0)551-397304; fax: +49(0)551-397302.

E-mail address: jpriebe@uni-goettingen.de (J. Priebe).

Abstract

In this article we investigate the factors affecting levels and growth of incomes in rural Indonesia following the crisis of 1997–1998. In particular, we investigate the relative roles of nonfarm incomes and productivity improvements achieved via changes in crops versus improvements on the same crops on income dynamics. Framing the article in the context of an optimal labor allocation model, relying on unique household panel data from Central Sulawesi, and using advanced panel econometric methods, we find that local innovations related to the adoption and intensification of new cash crop varieties, more specifically the shift from coffee to cocoa production, can explain a substantial part of the observed post-crisis developments. Causal estimates of the effect of growing cocoa suggest that households were on average able to achieve about 14% higher income levels during the post-crisis period compared to the planting of other crops, most notably coffee. Also, our results demonstrate the importance of engagement in nonfarm activities for household income growth. Comparative analyses using a nationally representative survey suggest that similar processes are at play in other parts of Indonesia.

Ancillary