Food and agricultural sector in Indonesia’s economic growth during COVID-19 pandemic: an ARDL approach
Purpose. Global-scale financial crises, either in the financial sector itself or in other fields such as zoonotic disasters, in the form of the spread of viruses resulting in deaths and significant economic contraction, are becoming more frequent and are expected to occur in the future. This study aims to assess the crisis’s impacts, in this case, COVID-19 pandemic, on the food and agriculture sector’s role in Indonesia’s economic growth.
Methodology / approach. This study used ARDL bound test to cointegration approach to analyze whether COVID-19 pandemic had a negative impact on Indonesia’s economic growth with regard to the food and agricultural sector. The relation pattern of particular interests includes (i) the relation between agriculture and economic growth, (ii) the relation between food and beverage industry and economic growth, and (iii) the causal relation between agriculture, food and beverage industry, and economic growth.
Results. In the long run, economic growth, agricultural output, and food and beverage industry’s output have a dynamic causal relation (bi-directional causality). Partially, COVID-19 pandemic influences economic growth negatively but insignificantly. However, the effect is simultaneously significant, but the regression coefficient is very small, and not strong enough to disrupt the positive effect of agricultural output and food and beverage industry’s output. COVID-19 does not negatively influence agricultural production and food and beverage industry as the regression coefficients are positive, insignificant, and very small.Originality / scientific novelty. This research is the first (particularly in Indonesia) to analyze COVID-19’s impacts on economic growth with regard to food and agriculture sector using an econometric operation with time series statistical data, covering data during the pandemic. Therefore, the parameter test results have higher predictability.
Practical value / implication. This study presents evidence that COVID-19 pandemic influences economic growth not through disruption of production in the agriculture and food and beverage sectors, but induction by demand. Therefore, the most appropriate policy to deal with the crisis is to simultaneously handle health aspect as the source of crisis and maintain demand for agricultural and food products directly through fiscal stimulus in the form of social safety net for poor and near-poor households and indirectly through supporting micro, small and medium enterprises (MSMEs) from bankruptcy in the prevention of mass unemployment. In the future, however, there will be a need to further study agricultural resilience by subsector and investigate food and beverage industry’s role in an open economic model. In addition, it is quite advisable to further study the impacts of the government’s safety net program in the form of basic food assistance and delivery cost subsidy for online shopping to stimulate demand-driven growth that can support farmers in production and service demand through contactless marketing.
Baldwin, R. (2006). Globalization: the great unbundling(s)’. Economic Council of Finland. Available at: repository.graduateinstitute.ch/record/295612/files/Baldwin_06-09-20.pdf.
Baldwin, R., & Lopez-Gonzalez, J. (2015). Supply-chain trade: a portrait of global patterns and several testable hypotheses. The World Economy, 38(11), 1682–1721. https://doi.org/10.1111/twec.12189.
Asian Development Bank (2017). ASEAN 4.0. What does the Fourth Industrial Revolution mean for regional economic integration? Asian Development Bank White Paper. https://doi.org/10.22617/TCS179126-2.
Busega, I. (2015). The impact of the financial crisis under the effect of increasing global economic interdependence. The case of Eastern and Central Europe Economies. The Romanian Economic Journal, 18(51), 97–116. Available at http://www.rejournal.eu/article/impact-financial-crisis-under-effects-increasing-global-economic-interdependence-case.
Marin, A. J. T. (2019). Learning lessons from the economic crisis in self-employment. Contemporary Economic, 14(1), 3–21. https://doi.org/10.5709/ce.1897-9254.329.
AMRO (ASEAN+3 Macroeconomic Research Office) (2021). ASEAN+3 regional economic outlook 2021: global value chains in the post-pandemic “New Normal”. Available at: https://www.amro-asia.org/wp-content/uploads/2021/04/AMRO-AREO-2021_C2-rev.pdf.
Jiang, D., Wang, X., & Zhao, R. (2022). Analysis on the economic recovery in the post-Covid-19 era: evidence from China. Frontier Public Health, 9, 787190. https://doi.org/10.3389/fpubh.2021.787190.
Detrix, J. (2017). The next financial crisis is probably around the corner – we just don’t know from where. Available at: https://qz.com/1096237/deutsche-bank-analysis-on-the-frequency-of-financial-crisis.
Bloom, E., de Wit, V., & Jose, M. J. C-S. (2005). Potential Economic Impact of an Avian Flu Pandemic on Asia. Asian Development Bank. Available at: https://www.adb.org/publications/potential-economic-impact-avian-flu-pandemic-asia.
Barro, R. J., Ursula, J. F., & Weng, J. (2022). Macroeconomics of the great influenza pandemic, 1918–1920. Research in Economics, 76(1), 21–29. https://doi.org/10.1016/j.rie.2022.01.00.
Osterhaus, A. (2005). Emerging virus infections in a changing world: combating nature, the most dangerous bio-terrorist in UN/ISDR. In UN/ISDR (Ed.), Know Risk (pp. 150–151). Geneva, United Nations Inter-Agency Secretariat of the International Strategy for Disaster Reduction (UN/ISDR).
Nayak, J., Mishra, M., Naik, B., Swapnarekha, H., Cengiz, K., & Shanmuganathan, V. (2020). An impact study of COVID-19 on six different industries: automobile, energy and power, agriculture, education, travel and tourism and consumer electronics. Expert Systems, 39(3), e12677. https://doi.org/10.1111/exsy.12677.
Coccia, M. (2020). Factors determining the diffusion of covid-19 and suggested strategy to prevent future accelerated viral infectivity similar to COVID. Science of the Total Environment, 729, 138474. https://doi.org/10.1016/j.scitotenv.2020.138474.
Baudron, F., & Liégeois, F. (2020). Fixing our global agricultural system to prevent the next COVID-19. Outlook on Agriculture, 49(2), 111–118. https://doi.org/10.1177/0030727020931122.
Hamid, S., & Mir, M. Y. (2021). Global Asia-food sector: challenges and opportunity in Covid-19 pandemic. Frontier Sociology, 6, 647337. https://doi.org/10.3389/fsoc.2021.647337.
Maren, I. E., Wijk, H., McNeal, K., Wang, S., Zu, S., Cao, R., Furst, K., & Marsh, R. (2022). Diversified farming systems: impact and adaptive responses to the covid-19 pandemic in the United States, Norway and China. Frontier Sustainable Food System, 6, 887707. https://doi.org/10.3389/fsufs.2022.887707.
APF (Asia Pacific Foundation) of Canada (2021). COVID-19 pandemic implications on agriculture and food consumption, production and trade in the ASEAN Member States. Available at: https://asiapacific.ca/publication/covid-19-pandemic-implications-agriculture-and-food.
World Bank (2020). Global Economic Prospects. IBRD/World Bank. Available at: https://www.worldbank.org/en/publication/global-economic-prospects.
Fan, S., Teng, P., Chew, P., Smith, G., & Copeland, L. (2021). Food system resilience and COVID-19 – lesson from the Asian Experience. Global Food Security, 28, 100501. https://doi.org/10.1026/j.gfs.2021.100501.
Heo, K., Hong, S. H., Han, J-S., Abdurohman, Long, G. T., Gonzales, M. M. D., Tabe, T. … & Yeah, K. L. (2022). The Impact of COVID-19 on Regional Economics and Policy Responses. 2022 KIPF-AMRO Joint Research. KIPF, Seoul. Available at: https://www.amro-asia.org/the-impact-of-covid-19-on-regional-economies-and-policy-responses.
Debata, B., Patnaik, P., & Mishra, A. (2020). COVID-19 Pandemic: its impact on people, economy, and environment. Journal of Public Affairs, 20(4), e2372. https://doi.org/10.1002/pa.2372.
Gosh-Jerath, S., Kapoor, R., Dhasmana, A., Singh, A., Downs, S., & Ahmed, S. (2022). Effect of COVID-19 pandemic on food systems and determinants of resilience in indigenous community of Jharhand state, India: a serial cross-sectional study. Frontiers in Sustainable Food Systems, 6, 724321. https://doi.org/10.3389/fsufs.2022.724321.
Iese, V., Wairiu, M., Hickey, G. M., Ugalde, D., Salili, D. H., Walenenea Jr, J., Tabe, T., … & Ward, A. C. (2021). Impacts of COVID-19 on agriculture and food systems in pacific Island countries (PICs): evidence from communities in Fiji and Solomon Islands. Agricultural Systems, 190, 103099. https://doi.org/10.1016/j.agsy.2021.103099.
Jaacks, L. M., Gupta, N., Plage, J., Awasthi, A., Veluguri, D., Rastogi, S., Dall’Agnese, E., … & Jain, A. (2022). Correction: impact of the COVID-19 pandemic on agriculture in India: cross-sectional results from a nationally representative survey. PLOS Sustain Transform, 1(10), e0000033. https://doi.org/10.1371/journal.pstr.0000033.
Durant, J. L., Asprooth, L., Galt, R. E., Schmulevich, S. P., Manser, G. M., & Pinzon, N. (2023). Farm resilience during the COVID-19 pandemic: the case of California Direct Market Farmers. Agricultural Systems, 204, 103532. https://doi.org/10.1066/j.agsy.2022.103532.
Boyaci-Gunduz, C. P., Ibrahim, S. A., Wei, O. C., & Galanakis, C. M. (2021). Transformation of the food sector: security and resilience during the COVID-19 Pandemic. Food, 10(3), 497. https://doi.org/10.3390/foods10030497.
Okolie, C. C., & Ogundeji, A. (2022). Effect of COVID-19 on agricultural production and food security: a scientometric analysis. Humanities and Social Science Communications, 9, 64. https://doi.org/10.1057/s41599-022-01080-0.
ERS-USDA (Economic Research Service of U.S. Department of Agriculture). (2023). Agriculture and Food Sectors and the Economy. Available at: https://www.ers.usda.gov/data-products/ag-and-food-statistics-charting-the-essentials/ ag-and-food-sectors-and-the-economy.
Bashir, A., Suhel, Azwardi, Adiyatma, D. P., Hamidi, I., & Adnan, N. (2019). The causality between agriculture, industry, and economic growth: evidence from Indonesia. Etikonomi, 18(2), 155–168. https://doi.org/10.15408/etk.v18i2.9428.
Awokuse, T. O., & Xie, R. (2015). Does agriculture really matter for economic growth in developing countries? Canadian Journal of Agricultural Economics, 63(1), 77–99. https://doi.org/10.1111/cjag.12038.
Sridhar, A., Balakrishnan, A., Jacob, M. M., Sillanpaa, M., & Dayanandan, N., (2022). Global impact of COVID-19 on agriculture: role of sustainable agriculture and digital farming. Environmental Science and Pollution Research, 30, 42509–42525. https://doi.org/10.1007/s11356-022-19358-w.
Streimikiene, D., Belezentis, T., Volkov, A., Ribasauskiene, E., Morkunas, M., & Zickiene, A. (2022). Negative effect of COVID-19 pandemic on agriculture: systematic literature review in the framework of vulnerability, resilience and risks involved. Economic Research – Ekonomska Istrazivanja, 35(1), 529–545. https://doi.org/10.1080/1331677X.2021.1919542.
DuPuis, E. M., Ransom, E., & Worosz, M. R. (2022). Food supply chain shocks and the pivot toward local: lessons from the global pandemic. Frontiers in Sustainable Food Systems, 6, 836574. https://doi.org/10.3389/fsufs.2022.836574.
Ugur, A., & Buruklar, T. (2022). Effects of COVID-19 pandemic on agri-food production and farmers. Food science and Technology Campinas, 42, e19821. https://doi.org/10.1590/fst.19821.
Sharma, A., Ghosh, D., Divekar, N., Gore, M., Gochhait, S., & Shireshi, S. S. (2021). Comparing the socio-economic implications of the 1918 Spanish flu and the COVID-19 Pandemic in India: a systematic review of literature. International Social Science Journal, 71(S1), 23–36. https://doi.org/10.1111/issj.12266.
Inegbedion, H. E. (2021). Covid-19 lockdown: implication for food security. Journal of Agribusiness in Developing and Emerging Economies, 11(5), 437–451. https://doi.org/10.1108/JADEE-06-2020-0130.
Katircioglu, S. T. (2006). Causality between agriculture and economic growth in a small nation under political isolation: a case from North Cyprus. International Journal of Social Economics, 33(4), 331–343. https://doi.ord/10.1108/03068290610651643.
Eddine-Chebbi, H. (2010). Agriculture and economic growth in Tunisia. China Agricultural Economic Review, 2(1), 63–78. https://doi.org/10.1108/17561371011017504.
Hashim, K., & Masih, M. (2014). What causes economic growth in Malaysia: exports or imports? MPRA Paper No. 62366. Available at: https://mpra.ub.uni-muenchen.de/62366.
Pesaran, M. H., & Shin, Y. (1999). An autoregressive distributed lag modelling approach to cointegration analysis. In S. Strom (Ed). Econometrics and Economic Theory in the 20th Century (pp. 371–413). Cambridge, Cambridge University Press.
Pesaran, M. H., Shin, Y., & Smith, R. J., (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. https://doi.org/10.1002/jae.616.
Gujarati, D. N. (2012). Econometrics by Example. New York etc, Palgrave Macmillan.
Pesaran, M. H. (2015). Time Series and Panel Data Econometrics. Oxford, UK, Oxford University Press.
Wong, H. T. (2008). Exports and domestic demand: some empirical evidence in ASEAN-5. Labuan Bulletin of International Business & Finance, 6, 39–55. https://doi.org/10.51200/lbibf.v6i.2592.
Furuoka, F. (2019). A new procedure for testing the export-led growth hypothesis: a research note. Global Economy Journal, 19(3), 1950016. https://doi.org/10.1142/S2194565919500167.
Des, A., McFarlane, A., & Jung, Y. C. (2019). Remittances and GDP in Jamaica: an ARDL bounds testing approach to cointegration. International Economic Journal, 33(2), 365–381. https://doi.org/10.1080/10168737.2019.1597144.
Aslam, B., Hu, J., Ali, S., Algarni, T. S., & Abdullah, M. A. (2022). Malaysia’s economic growth, consumption of oil, industry and CO2 emissions: evidence from the ARDL Model. International Journal of Environmental Science and Technology, 19(4), 3189–3200. https://doi.org/10.1007/s13762-021-03279-1.
Wolde, M., Sera, L., & Merra, T. M. (2022). Causal Interrelationship between income inequality and economic growth in Ethiopia. Cogent Economics & Finance, 10(1), 2087299. https://doi.org/10.1080/23322039.2022.2087299.
Shahbaz, M., & Rahman, M. M. (2012). The dynamic of financial development, foreign direct investment, and economic growth: cointegration and causality analysis in Pakistan. SAGE Journal, 13(2), 201–219. https://doi.org/10.1177/097215091201300202.
Worldometers (2023). Corona virus cases: Indonesia. Available at: https://www.worldometers.info/coronavirus/ country/Indonesia.
Ministry of Health of Indonesia (2023). Vaccines Dashboard. Available at: https://vaksin.kemkes.go.id/#/vaccines.
Beckman, J., & Countryman, A. M. (2021). The importance of agriculture in the economy: impact from COVID-19. American Journal of Agricultural Economics, 103(5), 1595–1611. https://doi.org/10.1111/ajae.12212.
Itakura, K. (2020). Evaluating the impact of the USA-China trade war. Asian Economic Policy Review, 15(1), 77–93. https://doi.org/10.1111/aepr.12286.
Elobeid, A., Carriquiry, M., Dumortier, J., Swenson, D., & Hayes, D. J. (2021). China-US trade dispute and its impact on global agricultural markets, the U.S. economy, and green house gas emissions. Journal of Agricultural Economics, 72(3), 647–672. https://doi.org/10.1111/1477-9552.12430.
Purwono, R., Heriqbaldi, U., Esquivias, M. A., & Mubin, M. K. (2022). The American-China trade war and spillover effects on value added export from Indonesia. Sustainability, 14(5), 3093. https://doi.org/10.3390/su14053093.
Narayan, P. K., & Smyth, R. (2006). What determines migration flows from low income to high-income countries? An empirical investigation of Fiji-US Migration 1972–2000. Contemporary Economic Policy, 24(2), 332–342. https://doi.org/10.1093/cep/byj019.
Edwards, E., Halimatussadiah, A., Moeis, F. R., & Maulia, R. F. (2022). Agriculture, development and sustainability in the COVID-19 Era. Bulletin of Indonesian Economic Studies, 58(1), 1–30. https://doi.org/10.1080/00074918.2022.2056935.
Teng, B., Wang, S., Shi, Y., Sun, Y., Wang, W., Hu, W., & Shi, C. (2022). Economic recovery forecasts under impacts of COVID-19. Economic Modelling, 110, 105821. https://doi.org/10.1016/j.econmod.2022.105821.
Clavin, P. (2022). Turbulence and the lesson of history. Finance and Development, 59(2), 17–19. Available at: https://www.imf.org/en/Publications/fandd/issues/2022/06/turbulence-and-the-lessons-of-history-patricia-clavin.
Malahayati, M., Masui, T., & Anggraeni, L. (2021). An assessment of the short-term impact of COVID-19 on economics and environment: a case study of Indonesia. Economia, 22(3), 291–313. https://doi.org/10.1016/j.econ.2021.12.003.
Elenev, V., Landvoigt, T., & Nieuwerburgh, S. V. (2022). Can the Covid Bailouts Save the Economy? Economic Policy, 37(110), 277–330. Available at: https://www.nber.org/system/files/working_papers/w27207/w27207.pdf.
Steel, I., & Harris, T. (2020). COVID-19 economic recovery: fiscal stimulus chices for lower-income countries. London, ODI.
Indonesia’s outstanding government debt reached Rp 4,778 trillion in 2019 (2020). IDN Financial. Available at: https://www.idnfinancials.com/news/31129/indonesia-outstanding-government-debt-reached.
Government’s debts close to IDR 750 thousand trillion in October 2022 (2022). IDN Financial. Available at: https://www.idnfinancials.com/news/45220/governments-debts-close-idr-october.
Felipe, J., & Lim, J. (2005). Export or Domestic-led Growth in Asia? ERD Working Paper No. 69. Asian Development Bank.
Arapova, E. (2018). Determinants of household final consumption expenditures in Asian countries: a panel model, 1991–2015. Applied Econometrics and International Development, 18(1), 121–140. Available at: https://www.usc.es/economet/reviews/aeid1818.pdf.