Indonesia's Moratorium on Palm Oil Expansion from Natural Forests: Economy-Wide Impacts and the Role of International Transfers

Asian Development Review 35:2

28 Pages Posted: 6 Oct 2018

Date Written: September 1, 2018

Abstract

Indonesia has introduced a moratorium on the conversion of natural forests to land used for palm oil production. Using a dynamic, bottom-up, interregional computable general equilibrium model of the Indonesian economy, we assess several scenarios of the moratorium and discuss its impacts on the domestic economy as well as on regional economies within Indonesia. We find the moratorium reduces Indonesian economic growth and other macroeconomic indicators, but international transfers can more than compensate the welfare losses. The impacts also vary across regions. Sumatra, which is highly dependent on palm oil and is home to forests that no longer have a high carbon stock, receives fewer transfers and suffers the greatest economic loss. Kalimantan, which is relatively less dependent on palm oil and has forests with a relatively high carbon stock, receives more transfers and gets greater benefit. This implies that additional policy measures anticipating the unbalanced impacts of the moratorium are required if the trade-off between conservation and reducing interregional economic disparity is to be reconciled.

Keywords: carbon emissions, computable general equilibrium, Indonesia, palm oil

JEL Classification: R10, R11, R13

Suggested Citation

Yusuf, Arief Anshory and Roos, Elizabeth Louisa and Horridge, Jonathan, Indonesia's Moratorium on Palm Oil Expansion from Natural Forests: Economy-Wide Impacts and the Role of International Transfers (September 1, 2018). Asian Development Review 35:2, Available at SSRN: https://ssrn.com/abstract=3249140

Arief Anshory Yusuf (Contact Author)

Padjadjaran University

Jl. Dipatiukur 35
Bandung, West Java 40132
Indonesia

Elizabeth Louisa Roos

Victoria University ( email )

Footscray Park
PO Box 14428
Melbourne, 8001
Australia

Jonathan Horridge

Victoria University ( email )

Melbourne, 8001
Australia

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