Three decades of agricultural and rural transformation in Indonesia

Abstract

Structural transformation in Indonesia has been a subject of broad empirical research. However, a minimal study has verified the characteristics of rural transformation. This paper aims to analyze indicators of rural transformation, likely drivers, and their impact on household income and poverty incidence. The analysis utilizes national data covering the period of 1990-2019. The data is analyzed using graphical illustrations and a simple regression analysis. As part of rural transformation, the result shows that there have been changes in the share of agriculture value from staple food to high-value commodities, particularly during the first two decades. This transformation is also complemented by the increase in rural non-farm employment, most notably during the last decade. The results also highlight stages and the likely drivers to those changes, including institution, policies, and investment (IPIs). Finally, this phenomenon leads to rural household income growth and a reduction in rural poverty. The finding of this research implies that to increase rural household income and reduce rural poverty rate, the government should focus not only on increasing agricultural productivity but also on promoting rural non-farm employment.