Economic Analysis of Oil Palm Plantation and Oil Palm Productivity in Effect on Per Capita Income in Indonesia

Oil palm plantation was becoming the mainstay of agricultural commodities in Indonesia since last three decades. Indonesia as an equatorial country with 147 million hectares of forest area has a great potential in the development of oil palm plantations as a weapon in increasing per capita income especially in rural areas. However, it cannot be denied that expansions of oil palm plantations bring negative effects, especially in relation with environmental issues and conservation of biodiversity. This study conducted in order to understand the effects of oil palm plantation and oil palm productivity on per capita income in the region and national level in Indonesia. This study uses panel data at provincial level which consists of 23 provinces in Indonesia in the vulnerable period of 9 years from 2003 to 2011 in annually data. The region level is divided in 5 based on the similarity of provincial location in same island in Indonesia. The results showed that oil palm plantation did not significant in effect the per capita income in Indonesia. In region level, oil palm plantations gave significant effect on per capita income in the opposite relationship and this effect was represented by all across regions. Oil palm productivity is significant in effected on per capita income at national level with positive relationship. However, oil palm productivity did not give significant effect in representation across regions in Indonesia. According to these results, this study concludes that expansion of oil palm plantations do not significant in increasing per capita income. Increasing of oil palm productivity becomes more reasonable way in increasing per capita income in Indonesia.