Export agriculture and regional development: evidence from Indonesia

I measure the impacts of the world’s largest modern agricultural expansion—that of Indonesian palm oil since 2000—on regional poverty reduction and consumption growth. Identification exploits geographic differences in suitability for cultivation and rapid growth in global demand. The median areal expansion of five percent of district area led to 2.7 percentage points faster poverty reduction and 4 percent faster consumption growth. The results can be explained by higher agricultural productivity and farm gate incomes, and indirect effects through investments, fiscal linkages, and publicly-provided goods. Each percentage point of additional agriculture-driven poverty reduction also corresponds to around three percent of district area in forest loss since 2000.