Non Farm Activity, Household Expenditure, and Poverty Reduction in Rural Indonesia

Agus Sugiharto, Ardyanto Fitrady, M.Si., Ph.D.

2020 | Skripsi | S1 ILMU EKONOMI

Rural communities with livelihoods as farmers faced greater poverty problems than urban communities, they have various obstacles in meeting their needs due to the low income derived from agricultural products. Based on previous literature, diversification into non-farm activities can reduce the probability of households entering poverty. Using panel data from the Indonesia Family Life Survey (IFLS) waves 4 and 5 this study aims to analyze the effect of non-farm activity on expenditure level and poverty reduction in rural household in Indonesia. This study uses the instrumental variable-probit regression method, in which non-farm activity is non-farm networks. The results of this study indicate that have positive significant results on increasing the probability of households moving out of poverty. This study also indicate that non-farm activities significantly improve work efficiency through reducing working hours without affecting the level of income from the agricultural sector.

Rural communities with livelihoods as farmers faced greater poverty problems than urban communities, they have various obstacles in meeting their needs due to the low income derived from agricultural products. Based on previous literature, diversification into non-farm activities can reduce the probability of households entering poverty. Using panel data from the Indonesia Family Life Survey (IFLS) waves 4 and 5 this study aims to analyze the effect of non-farm activity on expenditure level and poverty reduction in rural household in Indonesia. This study uses the instrumental variable-probit regression method, in which non-farm activity is non-farm networks. The results of this study indicate that have positive significant results on increasing the probability of households moving out of poverty. This study also indicate that non-farm activities significantly improve work efficiency through reducing working hours without affecting the level of income from the agricultural sector.

Kata Kunci : Non-farm activity, Poverty, Instrumental variable, Rural household.