Regional rural transformation and its association with household income and poverty incidence in Indonesia in the last two decades

Abstract

Increasing rural household income and reducing poverty rank among Indonesia’s top development priorities. Promoting rural transformation is one strategic policy framework to achieve these goals. In the last three decades, agricultural production has shifted from low-value food crops to high-value commodities, such as horticulture, estate crops, and livestock. Previous studies have analyzed rural transformation in Indonesia at the national level, but information on the magnitudes of impact across regions remains scarce. This study aims to analyze the changes in rural transformation at a regional level in the past two decades. The research utilizes secondary data from Statistics Indonesia (BPS), covering 34 provinces from 2000 to 2020, analyzed using descriptive and panel data regression analyses. The results show an increasing trend in the share of high-value agriculture (RT1) and rural non-farm employment (RT2). Both RT1 and RT2 are positively associated with the growth of rural household income and a lower poverty rate. However, the speed of structural transformation (ST), RT1, RT2, rural income growth, and poverty reduction vary across regions. This research implies that improving rural income and reducing poverty should be done by integrating policies, i.e., promoting high-value agriculture and expanding rural non-farm employment. Particular attention should also be given to provinces with slow growth in ST, RT1, RT2, and rural household income.