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Long-term impacts of global food crisis on production decisions : evidence from farm investments in Indonesia
 
Author:Nose, Manabu; Yamauchi, Futoshi; Collection Title:Policy Research working paper ; no. WPS 6065
Country:Indonesia; Date Stored:2012/10/24
Document Date:2012/05/01Document Type:Policy Research Working Paper
SubTopics:Regional Economic Development; Markets and Market Access; Emerging Markets; Economic Theory & Research; Food & Beverage IndustryLanguage:English
Region:East Asia and PacificReport Number:WPS6065
Volume No:1 of 1  

Summary: Did the rise in food prices have a long-term impact on agricultural production? Using household-level panel data from seven provinces of Indonesia, this paper finds that the price shock created a forward-looking incentive to invest, which can dynamically enhance productivity in agriculture. It also finds that the impact of the price shock on investment behavior differs by initial wealth. In response to price increases, wealthy farmers invested more in productive assets, while poor farmers increased their financial savings as well as consumption. Price spikes relax liquidity constraints, which increases investments among the richer while do so savings and consumptions among the poor, possibly leading to diverging income inequality in the long run.

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