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Pathways Out of Poverty During an Economic Crisis: An Empirical Assessment of Rural Indonesia - Working Paper 115

3/14/07
Neil McCulloch and Julian Weisbrod
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Development, at its most basic level, is about making poor people less poor. But how do people actually escape poverty? There are few quantitative models that have been tested over significant historical periods to show how it happens. In this working paper, CGD senior fellow Peter Timmer and his co-authors report on the pathways out of poverty in Indonesia during 1993 to 2000, a period of economic and political turmoil, using cross-sectional data from the Central Statistical Board (BPS) for 1993 and 2002, as well as a panel data set from the Indonesia Family Life Survey (IFLS) for 1993 and 2000. They find that most of the rural agricultural poor people who escaped poverty did so without moving to urban areas. Changes in agricultural prices, wages and productivity played a critical role in making it possible for them to move out of poverty.

Policy implications include:

  • Governments should shift resources towards things that boost agricultural productivity, since it is the principle pathway out of poverty. This might include increased spending on agricultural research, improving the extension service, improving rural roads, and facilitating access to and use of more modern technology.
  • Since the rural non-farm sector plays a role in getting people out of poverty, improving the investment climate for that sector is key. This means better market integration and infrastructure investment outside the capital.
  • Improved education is still one of the most effective routes out of poverty. Ensuring that the poor have access to education, including post-primary education, should therefore be a cornerstone of the government’s anti-poverty strategy.