Agro-clusters for rural development in the Indonesian Province of West Java

Abstract

Neighbouring economies are likely to influence one another. The concentration of farming activities referred to as an "agro-cluster" generates opportunities for income and employment in a given region and its surrounding area. We analyse the link between poverty rates and agro-clusters by accounting for spatial spillovers. To quantify agro-clusters, we employ one input-oriented and one output-oriented measure. Our analysis applies six spatial econometric specifications and focuses on 545 sub-districts of West Java, where about 10% of the population live in poverty. We find that the concentration of agricultural employment substantially reduces poverty in a sub-district. We also find that specialisation in crop outputs has positive impacts on poverty reduction and that localisation externalities are fundamental to agriculture's success. These findings imply that policy interventions may be applied in a spatially selective manner because they will generate spatial-spillover effects on poverty reduction in surrounding areas.