A Household Welfare Perspective on the Expansion of Palm Oil Production in Indonesia

Palm oil production potentially affects environment, food security and rural development in Indonesia. However, there is little research on the welfare impacts of the production expansion. By using district level data on palm oil production and area planted and national household survey (SUSENAS), this paper studies the impact of the expansion of the palm oil production on household expenditure and health. Instrumental variable estimates exploit the historical production and district forest area as an exogenous source of variation. We find that smallholder production has a negative effect on household expenditure but this effect is not present among rural households. More, total cultivated area increases prevalence of asthma in Kalimantan. The results suggest that palm oil is not a panacea to increase rural welfare and that there is no evidence of positive spillover effects.