Buoyed by the boom? The Differential Returns to Land and Labor from an Agricultural Export Boom
Agricultural export booms and busts have the potential to enrich or devastate rural households in developing countries. While the aggregate revenue gain depends on global price and local supply response, little is known about how this revenue diffuses within a local economy. This paper demonstrates how resource revenue is distributed within a local economy during an agricultural export boom and bust. Using data from the Indonesian palm oil boom, I estimate changes in household expenditures by plantation ownership and establishment date. I find that in districts with mostly small, family-owned plantations, average expenditure rises during the boom and falls by roughly the same magnitude during the bust. Where there are mostly large plantations, household expenditures do not significantly change during either period. So while plantation-owning households benefit from high prices, they are also exposed to more downside risk. For new and established producer districts, expenditure also rises and falls, though the increase during the boom is larger for established producers. Thus because any increases in household expenditure from the price boom were temporary, palm oil production may not be a sustainable poverty reduction strategy.