Land-use change and income inequality in rural Indonesia

Abstract

Many regions in Southeast Asia are experiencing massive land-use change. While areas covered with tropical forests and traditional agricultural crops, such as rubber, are shrinking, oil palm plantations are rapidly gaining ground. Recent studies have analyzed environmental effects of this land-use change. Relatively little is known about the socioeconomic implications. A few studies have examined economic effects of oil palm cultivation for particular groups of households, such as farmers, but broader effects for different types of rural households are not yet well understood. We address this research gap with data from farm and non-farm households in rural Jambi, one of the hotspots of Indonesia's recent oil palm boom. On average, farm households have significantly higher incomes than non-farm households that often work as agricultural laborers on rubber and oil palm plantations. Both farm and non-farm households are better off in villages with a large share of the land under oil palm than in villages where relatively more rubber and other crops are grown. Oil palm does not seem to have significant effects on overall rural inequality. While oil palm cultivation contributes to increasing inequality among farmers, it tends to decrease income inequality among non-farm households through labor-market and employment effects.