RETHINKING AGRICULTURAL DEVELOPMENT POLICY: DYNAMIC EVIDENCE ON INFRASTRUCTURE, INVESTMENT, COOPERATIVES, AND FERTILIZER SUBSIDIES IN INDONESIA

Abstract

Agricultural development remains a strategic priority for Indonesia because of its crucial role in food security, rural livelihoods, and regional economic growth. Yet, despite substantial government interventions through infrastructure development, agricultural cooperatives, investment promotion, and fertilizer subsidy programs, significant gaps in agricultural economic performance persist across provinces. Existing studies generally examine these determinants in isolation, while attention to their integrated and dynamic influence on agricultural growth remains limited. This study analyzes the effects of road infrastructure, rice productivity, agricultural cooperatives, the farmers' terms of trade, investment, and fertilizer subsidies on agricultural economic growth across Indonesian provinces. Using a balanced panel of 33 provinces over 2015– 2024, the analysis applies a Dynamic Panel Generalized Method of Moments (GMM) estimator to address endogeneity, unobserved heterogeneity, and growth persistence. The novelty lies in developing a Dynamic Agricultural Development Framework and introducing the Agricultural Development Policy Paradox, which holds that institutional expansion and higher policy spending do not automatically yield stronger agricultural performance. The results show that road infrastructure, rice productivity, and investment exert positive and significant effects on agricultural economic growth, while the farmers' terms of trade contribute positively but more weakly. By contrast, agricultural cooperatives exert a significant negative effect, and fertilizer subsidies are insignificant. These findings indicate that productivity improvement, infrastructure development, and investment are more influential drivers of agricultural growth than institutional expansion and subsidy allocation alone.