Pathways out of poverty during an economic crisis: an empirical assessment of rural Indonesia

Most poor people in developing countries still live in rural areas and are primarily engaged in low productivity farming activities. This paper reports on the pathways out of poverty in Indonesia during a period of economic and political turmoil. It uses cross-sectional data for 1993 and 2002, as well as a panel data set for 1993 and 2000, to show which pathways out of poverty were most successful over this period. It assesses the importance of changes in sector and location in driving changes in individual incomes and household poverty over time.

The authors' findings suggest that increased engagement of farmers in rural non-farm enterprises is an important route out of rural poverty, but that most of the rural agricultural poor that exit poverty still do so while remaining rural and agricultural. Therefore changes in agricultural prices, wages and productivity still play a critical role in moving people out of poverty.

The paper concludes with four key policy recommendations:

• government should shift resources towards actions which boost agricultural productivity
• the investment climate for the rural non-farm sector needs to be improved
• policies should ensure that newly urbanised areas have access to the economic and social services needed to reduce urban poverty
• ensuring that the poor have access to education, including post-primary education, should be a cornerstone of the government's anti-poverty strategy.