Determinants of Agricultural Income to Promote Economic Sustainability in Indonesia

Abstract

Indonesia is an agricultural country where most of the population works as farmers. The share of the agricultural sector in Gross Domestic Product (GDP) ranks third, with an average informal sector employment of 88.34% in the last five years. This study aims to analyze the factors that influence the contribution of the agriculture sector to economic sustainability growth, proxied by national income, in the short and long run through the Error Correction Model (ECM) regression analysis tool with time series data of Indonesia for the 1991 – 2020 period through four independent variables; arable land, agricultural machinery, GDP growth per capita, and labor productivity of the agricultural sector. The results showed that Arable Land has a positive effect on Agricultural Income, significant in the long run but insignificant in the short run. Agricultural Machinery and Labor Productivity have a significant positive effect both in the short and long run. Then, the GDP per capita growth has a significant negative effect in the short and long run. From the results of the research, several policy recommendations have been compiled for the advancement of the agricultural sector in Indonesia, one of them is the intensification of machinery utilization.