The Assessment of the Importance of Agricultural Growth for Poverty Reduction in Indonesia

Although poverty is generally recognized as a highly multidimensional phenomenon, in the Indonesian context, poverty has been mainly an agricultural or a rural phenomenon. This has of course an important policy implication for poverty reduction in Indonesia. This paper examines the importance of agricultural growth for poverty reduction in Indonesia. It shows that: (i) agriculture is still the biggest employment-generating sector; (ii) the vast majority of poor families are in agriculture, consisting mainly of the marginal farmers and agricultural laborers; (iii) poverty in agriculture is caused by many factors, including lack or unequal distribution of land, and lack of capital; (iv) growth in gross domestic product (GDP) has an impact on poverty reduction; and (v) the decomposition of changes in poverty by sector shows that the output growth in agriculture appears to have the greater effect on the change in poverty than that in manufacturing, though it is lower than that in services.