Sources of growth in Indonesian agriculture

Abstract

Indonesia sustained an average increase in agricultural output of 3.6% per year between 1961 and 2006, resulting in a more than fivefold increase in real output. This paper constructs Tornqvist-Thiel indices of agricultural outputs, inputs and total factor productivity (TFP) to examine the sources of growth in Indonesian agriculture over this period. The paper extends previous work on measuring productivity change in Indonesian agriculture by assembling more complete data on cropland and expanding the commodity coverage to include cultured fisheries in addition to crops and livestock. It also accounts for the contribution of the spread of rural education and literacy to agricultural growth. Results show that Indonesia pursued both agricultural intensification to raise yield, especially for food crops, and extensification to expand crop area and absorb more labor. Productivity growth accelerated in the 1970s and 1980s but stagnated in the 1990s once “Green Revolution” food crop varieties had become widely adopted. TFP growth resumed in the early 2000s led by diversification into non-staple commodities such as tropical perennials, horticulture, livestock and aquaculture. Agricultural extensification continued to be an important source of growth in many of parts of the archipelago where previously forested areas were converted to cropland. Human capital deepening, in the form of the spread of literacy and education in the farm labor force, made a modest but sustained contribution to agricultural productivity growth.