Land-use change and rural development in Indonesia: Economic, institutional and demographic aspects of deforestation and oil palm expansion

Over the past few decades, lowland rainforest areas in Jambi Province of Sumatra have experienced dramatic change in land-use, one of the major drivers of which is the expansion of smallholder plantations. Building on two sets of household survey data compiled within C07 subproject, our research attempts to better understand the socioeconomic drivers of land use changes with a particular focus on the role of different types of institutions, and the associated welfare implications on smallholder farmers. The two competing crops in Jambi - rubber and oil palm - are different with respect to factor use; rubber is more labour-intensive, while oil palm is more capital-intensive. Thus, it can be postulated that labour-scarce farm households have economic incentives to either switch to oil palm or involve labourers in rubber through sharecropping. This decision is hypothesized to be dependent on the functioning of micro-level institutions like property rights over agrarian land. Household level data will be combined with village and district level data to analyse the co-evolution of factor markets and associated institutions with land-use changes. Furthermore, oil palm adoption is expected to be associated with significant gains in income and consumption - two important indicators of household living standard - of smallholders. The application of panel data models will enable us to give precise estimates of these impacts.