Modern rice variety adoption and factor-market adjustments in Indonesia
1994
Tahlim Sudaryanto | Faisal Kasryno
The study confirms widespread evidence that modern variety adoption in Indonesia has been concentrated in irrigated and favorable rainfed production environments and has widened productivity differentials across environments. The analysis shows, however, that the potentially inequitable effects on regional income distribution have been mitigated by labor market adjustments in response to the increases in labor demand in the favorable areas. Instead of widespread mechanization, interregional migration, both permanent and seasonal, is the principal instrument for equalizing wages across regions. As a result, neither production environment nor modern variety adoption can account for cross-sectional differences in wages. The higher wage observed in the outer islands can be largely explained by the higher cost of living and lower supply of labor in those areas. It can therefore be inferred that rural labor markets in Indonesia are generally well integrated. This study also provides evidence that modern varieties and irrigation contribute to disparities in returns to land. The much higher farm size in the unfavourable areas compared to irrigated and rainfed areas, however, suggests that land market adjustment may be occurring to reduce income disparities across regions. Moreover, rapid growth in the overall Indonesian economy, which raises real wages, means that employment opportunities have become increasingly available to poor farmers in the unfavorable areas
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