An Empirical Analysis of Land-use Change in Indonesia

Abstract

Indonesia has committed to reduce emissions by reducing deforestation and forest degradation. The commitment implies that Indonesia has to control the conversion of land forests to other uses. Forest conversion to other uses is influenced by social and economic factors. This paper aims to identify patterns of land uses and analyze the impact of economic factors on land use changes. We develop a land allocation behavior model derived from the profit maximization theory. To estimate parameter in each equation, this paper used seemingly unrelated regression (SUR) estimation method that can cope with some statistical issues i.e., contemporaneus correlation, autocorrelation and heteroskedasticity.

The results indicate that the behavior of the land use in Indonesia are influenced by commodity prices, wages, investment, population growth, income per capita, and road infrastructure. We also find that land use behavior is varied among six islands group. Response areas on output prices of estate crops and mining are higher than those in forests and food crops. To mitigate climate change on the land use basis, some policies that lead to reforestation can be promoted including increasing timber price by including externality aspect, improving road infrastructure and investing in technology that can increase productivity of estate and food crops. Related to the efforts to mitigate climate change on the land use basis, the policies related to timber prices and road infrastructures are timely. Increasing output prices for timber and improving road infrastructure increase land use for forest which in turn leads to reforestation.