An economic analysis of poverty in the agricultural sector : a case study of Indonesia : a thesis presented in partial fulfilment of the requirements for the degree of Master of Management in Economics at Massey University, Manawatū, New Zealand

Abstract

Poverty is a multidimensional aspect which involves different types of deprivation in human capabilities such as income, education, health, food and nutrition, shelter, power and human rights. Despite Indonesia being categorized as a newly industrialized country, poverty is still a major concern, especially to the large group of people engaged in the agricultural sector. This study examines the characteristics of the poor households and the essential strategies to tackle the causes of poverty and notes policies for poverty reduction. As access to credit helps the poor to escape from poverty, this study also indicates that the characteristics can affect the households’ access to credit. Furthermore, this study evaluates the impact of food-based and health care safety nets on the households’ consumption expenditure. The two factors, educational level and area of employment of the household head play an important role in reducing poverty and accessing credit. A household head working in the service sector increases the household’s chance to be non-poor. Meanwhile, engaging in the agricultural sector may increase the households’ possibility to fall into chronic poverty and also lower the probability to get credit from formal institutions. The household heads with primary, secondary or tertiary level of education are most likely to escape from chronic poverty. Increase in years of schooling of the household heads reflects an increase in the households’ creditworthiness and ability to achieve a higher income and avoid falling into poverty. Owning assets also increases the households’ probability to move out from poverty and to secure formal and business credit. The food-based (Raskin) and health care (Askeskin) safety nets in Indonesia assist the households in poverty which supplements these households’ consumption expenditure. This result shows that the Raskin programme increases the households’ consumption of rice. Although there is not enough evidence to conclude that Askeskin programme affects the household’s consumption expenditure, a weak effect is found where it decreases the expenditure for medical services and increases the expenditure for non-medical items. The empirical findings suggest that agricultural development is important to reduce poverty levels in Indonesia. The government should ensure the poor households’ access to education and credit availability. Moreover, stabilizing food prices will be helpful to guarantee the nutrient intake of the poor, and thus can reduce poverty. These strategies should be supported by proper execution of the programmes such as targeting and integration.