The effects of agro-clusters on rural poverty: A spatial perspective for West Java of Indonesia

The agricultural sector plays an important role for rural economies. However, rural populations still face poverty as one main issue threating livelihoods. Regional concentration and specialization in agricultural production and processing is referred to as agro-clusters. These clusters might generate income possibilities so that rural poverty may be reduced. We empirically analyse this question by applying spatial econometric models because neighbouring regional economies are likely to influence each other. The analysis focuses on the 545 sub-districts of the West Java province of Indonesia where about 10% of the population live in poverty. Concentration of agricultural employment is found to have significant effects on poverty reduction in the sub-district as well as its neighbouring regions. Specialisation in agricultural output is also found to cause lower poverty rates. This implies that the government should support the regional specialization in agriculture. Based on the identification of the comparative advantage of each sub-district, the government should establish regional production nuclei in agriculture in order to boost the specialization. Care has to be taken of the spillover effects the policies will have for surrounding areas