The Role of Agricultural Exports in Indonesia's Economic Development
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Iowa State University Capstones, Theses and Retrospective Theses and Dissertations Dissertations 1972 The oler of agricultural exports in Indonesia's economic development Bernardus Sugiarta Muljana Iowa State University Follow this and additional works at: https://lib.dr.iastate.edu/rtd Part of the Agricultural and Resource Economics Commons, and the Agricultural Economics Commons Recommended Citation Muljana, Bernardus Sugiarta, "The or le of agricultural exports in Indonesia's economic development" (1972). Retrospective Theses and Dissertations. 5222. https://lib.dr.iastate.edu/rtd/5222 This Dissertation is brought to you for free and open access by the Iowa State University Capstones, Theses and Dissertations at Iowa State University Digital Repository. It has been accepted for inclusion in Retrospective Theses and Dissertations by an authorized administrator of Iowa State University Digital Repository. For more information, please contact [email protected]. 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University IVIicrofilms 300 North Zeeb Road Ann Arbor, Michigan 48106 A Xerox Education Company I I 72-19,996 MUUANA., Bemardus Sugiarta, 1931- THE ROLE OF AGRICULTURAL EXPORTS IN INDONESIA'S i ECONOMIC DEVELOPMENT. Iowa State University, Ph.D., 1972 Economics, agricultural University Microfilms, A XEROX Company, Ann Arbor. Michigan THIS DISSERTATION HAS BEEN MICROFILMED EXACTLY AS RECEIVED The role of agricultural exports in Indonesia's economic development by Bernardus Sugiarta Muljana A Dissertation Submitted to the Graduate Faculty in Partial Fulfillment of The Requirements for the Degree of DOCTOR OF PHILOSOPHY Major Subject I Agricultural Economics Approved: Signature was redacted for privacy. In Charge of Major Work Signature was redacted for privacy. For the Major Department Signature was redacted for privacy. For the Graduate College Iowa State University Ames, Iowa 1972 PLEASE NOTE: Some pages may have indistinct print. Filmed as received. University Microfilms, A Xerox Education Company il TABLE OF CONTENTS CHAPTER ONE INTRODUCTION The Need for the Study Exports and Economic Development The Approach of the Study The Organization of the Dissertation CHAPTER TWO INDONESIA'S AGRICULTURAL SECTOR A Brief Discription o:f Indonesia's Economy The Agricultural Sector CHAPTER THREE THE ROLE OF AGRICULTURAL EXPORTS IN INDONESIA'S ECONOMIC DEVELOPMENT Indonesia's Exports and Her Economy Agricultural Contribution to Exports Agricultural Exports and the Economy A Model for Indonesia's Nineteen Sixties' Economy : A Quantitative Examination CHAPTER FOUR THE PROSPECTS OF INDONESIA'S EXPORTS OF HER MAJOR AGRICULTURAL COMMERCIAL COMMODITIES World Exports in 1950- I968 The World Export Prospect for 1974 The Prospects of Indonesia's Major Agricultural Exports CHAPTER FIVE INDONESIA'S AGRICULTURAL EXPORTS AND HER FIVE-YEAR DEVELOPMENT . PLANNING 1970-1974 International Trade and Planning The Plan Described iii Page The Expected Role of Agriculture in Exports 16? A Quantitative Description of the Plan I69 The Relation of Agricultural Exports to Income, Consumption and Investment 173 CHAPTER SIX SUMMARY AND CONCLUSION 18? Summary and Conclusions 18? Suggestions for Further Research and the Problems Involved I89 BIBLIOGRAPHY 197 ACKNOWLEDGMENTS 205 APPENDIXES 207a Appendix 1 207a Appendix 2 209a Appendix 3 211a Appendix 3 215a Appendix 5 2l6a 1 CHAPTER ONE INTRODUCTION This study has three purposes. The first purpose is to provide an understanding of how agricultural exports affect Indonesia's economy. The second is to investigate whether Indonesia's agricultural exports will develop according to the goals set forth in the present Five-Year Development Plan, which covers the period 1969-7O - 1973-74.^ And the third is to study the possible effects on the execution of the plan if agricultural exports do not develop in the way expected by the planners. The Need for the Study One of the most intriguing features of Indonesia's present development plan is the fact that for its execution it requires that during the planning period the country's total imports should amount to 5,876 billion dollars. At the same time the planners expect that the country's foreign ex change earnings during the period will amount to only 3,982 billion dollars, and from these earnings the govern ment is expected to pay 84-7 million dollars of the standing ^Officially the execution of the present Five-Year Development Plan, which henceforth we simply will refer to as the plan, was started in June, 1969* In most cases the period 1969-73 is referred to as the planning period. To allow for the gestation period undertaken, this study con siders it more appropriate to refer to 1970-74 as the plan ning period. 2 debts. Indonesia's foreign exchange revenues received during the planning period will clearly fall short of the amounts needed to meet its obligations in the period. To be able to meet these obligations, the plan requires that the country ob tain loans and attract foreign investments from abroad. In terms of US dollars, the capital inflows are expected to be ^59 million in 1970, 699 million in 1971» 89^ million in 1972, 1.005 billion in 1973. and 1.081 billion in 1974. Of the total foreign exchange earnings expected during the planning period, about 80 percent is to come from agricul tural exports. As will be argued in the following section, exports play a crucial role in the development of a develop ing country like Indonesia. This, and the fact that the agricultural sector is supposed to contribute such a large share to Indonesia's export earnings, implies that in the efforts to implement the development plan successfully, the planning authorities have assigned a very important role to agricultural exports. This strongly suggests that a study of Indonesia's agricultural exports is necessary. Exports and Economic Development Modern economists have always been aware of the existence of interrelationships between agricultural and industrial de velopment. Recently many of them have shown that industrial development can start in a country only if the agricultural 3 sector has had the ability to create surpluses, and that for industrial development to keep going, the agricultural sector must expand its surpluses continuously.^ However, in spite of the fact that surpluses would not be very useful and per haps would never be able to expand in the absence of trade, there have not been very many economists who are interested in the relationships between agricultural trade and economic development. As recently as 1967 certain economists were able to state that" • • . in most writings on economic de velopment trade has been little more than an after-thought" (47, p. 403).2 For the purpose of this dissertation, economic develop ment is defined in a narrow sense. It is defined as a process of continuous capital formation. Using this defini tion, the following discussion is based on the premise that anything which contributes to the success of new investments is a positive contribution to capital formation, and, hence, to economic development. As has been shown by Nurkse, suc cessful investments require, on the one hand, savings that ^Among others; B. F. Johnston and J. W, Mellor (23), W. A, Lewis (26), J. W. Mellor (28) William Nicholls (33), J. C, H. Pei and Gustave Ranis (7, 8, 9 ), and Erik Thorbecke (46).. 2 George-S. Tolley and George D. Gwyer (48). However, see Gunnar Myrdall (32), Douglass C. North (34), and for more recent works* George L. Hicks and Geoffrey McNicoll (19) and Gerald M. Meier (27). 4 can be transformed into production factors, and on the other, they require markets or effective demands which are suffi cient to make these investments profitable (38, pp. 5-11)* Agricultural exports contribute to capital formation mostly through their contribution to exports. It is thus necessary to see the ways in which exports contribute to capital formation. Contribution to income It is obvious that an expansion of exports will add to income and, in turn, increase the opportunities for new in vestments.^ It should be sufficient to mention that through its positive effects on savings as well as on effective de mands an increase in income and, hence, an expansion of ex ports which causes the increase, shall under certain conditions enhance the country's capacity to invest.