Impact of oil palm expansion on the provision of private and community goods in rural Indonesia

Abstract

Curtailing deforestation and the negative environmental and social externalities of oil palm expansion in the tropics requires a clear understanding of the associated economic benefits. Through analyzing regency-level panel data for 2005–2014 from rural Indonesia, we find that oil palm expansion has had a robust and positive impact on the provision of private goods (i.e., amenities owned and benefited by individual households), although not on the provision of most community goods (i.e., amenities owned by the community or the government and benefited by several households in the community). One possible reason for the weaker impact on the creation of community goods is the absence of differential government spending in the regencies cultivating oil palm. Policies that aim to regulate oil palm expansion should take into consideration the positive effects that the crop has on rural livelihoods through enabling access to private goods. On the other hand, the central and regional governments should not assume that the development of rural infrastructure can be instigated solely by the expanding plantation sector.