Optimising Sulawesi’s Economic Growth: Exploring the Potential of the Agriculture, Plantation, and Fisheries Sectors in Developing Countries
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Introduction
Regional economic inequality refers to the discrepancy in economic development and wealth distribution among different regions within a country or globally. This disparity has significant implications for both social and economic well-being. To effectively address regional disparities and foster balanced economic growth, policymakers must have a thorough understanding of the economic interdependence between regions. Economic interdependence means that the economic activities in one region can significantly influence those in another. For instance, a prosperous region might provide markets for goods produced in less affluent areas, or it might supply capital or labor to those areas. Conversely, economic downturns in one region can have a ripple effect on others.
Unequal economic growth between regions within a country can be attributed to various factors. The International Monetary Fund (IMF) highlights that differences in economic performance among regions within countries can be substantial and sometimes even surpass the disparities observed between countries themselves. For instance, the average real GDP per person in Slovakia is approximately 90 percent lower than that in the United States. Furthermore, within the United States, there is a significant contrast in per capita GDP between the state of New York and Mississippi, with New York’s per capita GDP being 100 percent higher than Mississippi’s (Blog 2019).
In Indonesia, there exists a significant disparity between regions that perform well and those that perform poorly. The Western Region of Indonesia, particularly Java and Sumatra, dominates the contribution to the national Gross Domestic Product (GDP). The issue of regional development inequality is a significant problem in Indonesia’s economic development (Wijaya et al. 2020). This inequality is also observed within the islands of Indonesia, including Sulawesi. While South Sulawesi has the highest contribution to the Regional Gross Domestic Product (PDRB) among the provinces in Sulawesi, provinces such as West Sulawesi and Gorontalo lag behind in regional development (BPS Sulawesi Selatan 2023).
Sulawesi Island possesses substantial economic potential, but the disparity in development among its provinces indicates an economic concentration in only a few provinces. This can hinder equitable and sustainable economic growth across the Sulawesi region. One proven solution to address the inequality in growth between regions is through economic integration. Economic integration is a process where countries or regions strive to eliminate trade, technological, socio-cultural, and political barriers among them. This is achieved through jointly established policies to create a more open business climate and enhance economic cooperation between different regions (Kenton 2023).
Economic integration indeed offers significant benefits in addressing the inequality in growth between regions. Through economic integration, less-developed regions can access larger markets and increase trade with more advanced regions. This, in turn, promotes economic growth and creates new business opportunities.
Moreover, economic integration facilitates technology transfer between advanced and less-developed regions. Less-developed regions can leverage the knowledge and skills from more advanced regions to enhance their competitiveness. This presents a golden opportunity for self-improvement and achieving greater progress (Adhikari 2022).
Furthermore, economic integration creates a more attractive investment climate by removing trade and investment barriers between regions. Consequently, larger investment flows can reach less-developed regions, helping accelerate their economic growth. This is a much-needed boost to create new job opportunities and improve the welfare of the people.
Analyzing the economic interconnection between regions is an important initial step in understanding the characteristics of each region’s economy. In this regard, the use of the Interregional Input-Output (IRIO) Analysis Model is relevant. The IRIO analysis allows us to understand the sectoral interdependencies between regions, and this information can help identify patterns of cooperation that will enhance economic activities between regions. Increasing these activities can lead to the convergence of growth in the Sulawesi region (Pribadi, Putra, and Rustiadi 2015).
The results of the IRIO model analysis serve as a strong foundation for formulating more effective and sustainable development strategies to address regional disparities. By deeply understanding and synthesizing the analyzed information, we can design appropriate policies to promote equitable economic growth across all regions (Miller and Blair 2009).
Through careful planning and implementation of policies based on IRIO analysis, we can build equality and sustainable economic growth for the entire society. This will bring long-term benefits and create better conditions for economic development in all regions. Therefore, IRIO analysis plays a crucial role in providing a better understanding of the economic interconnections between regions and helps formulate appropriate policies to enhance balanced economic growth across all regions (Taufiqqurrachman 2022).
Methods
Interregional Input-Output (IRIO) analysis is a powerful tool used to study the economic interdependencies between different regions or areas within a country. It builds on the traditional Input-Output (IO) framework, which examines the flow of goods and services between industries within a single region. The IRIO analysis expands this framework to capture the flows of goods, services, and resources between different regions.
The IRIO method provides a comprehensive view of the economic relationships and dependencies between regions. It enables policymakers and researchers to understand how economic activities in one region can affect other regions and vice versa. By quantifying these interdependencies, it becomes possible to analyze the ripple effects of policy changes, shocks, or investments in one region on the economies of other regions (Miller and Blair 2009).
The analysis involves constructing interregional input-output tables, )which capture the exchanges of goods and services between sectors in different regions. These tables provide a detailed picture of the regional supply chains and the sectors that contribute the most to the economies of each region. They also allow for the assessment of the potential impacts of changes in demand, production, or investment patterns on regional economies.
The insights gained from IRIO analysis can inform regional development strategies, policy planning, and decision-making. By understanding the economic interdependencies, policymakers can identify areas of cooperation, specialization, and potential for growth between regions. This can help in designing policies and initiatives that promote balanced economic development, reduce regional disparities, and enhance the overall economic performance of a country or region.
Inter-regional Input-Output (IRIO) analysis in matrix notation is a method used to understand the economic interdependencies between different regions. The data used in IRIO analysis is typically presented in a matrix format, with rows and columns representing different regions and sectors.
The basic structure of an IRIO table can be represented as follows: Let’s consider an economy with \(r\) regions and \(n\) sectors. The total output of sector \(i\) in region \(s\) is denoted by \(x_{is}\). The intermediate demand from sector \(j\) in region \(t\) to sector \(i\) in region \(s\) is denoted by \(z_{ijst}\). The final demand of sector \(i\) in region \(s\) is denoted by \(y_{is}\).
The total output \(x_{is}\) is equal to the sum of intermediate demands plus the final demand: \[x_{is} = \sum_{j=1}^{n} \sum_{t=1}^{r} z_{ijst} + y_{is} \tag{1}\]
By substituting the second equation into the first, we get the basic equation of the IRIO model: This equation can be written in matrix notation as: \[x_{is} = \sum_{j=1}^{n} \sum_{t=1}^{r} a_{ijst} x_{jt} + y_{is} \tag{2}\]
Or \[\mathbf{X} = \mathbf{AX} + \mathbf{Y} \tag{3}\]
where \(X\) is the total output matrix,
\(A\) is the technical coefficient matrix, and
\(Y\) is the final demand matrix.
This equation can be solved for \(X\) to find the total output given the technical coefficients and the final demand \[\mathbf{X} = (\mathbf{I} - \mathbf{A})^{-1} \mathbf{Y} \tag{4}\]
Where \(I\) is the identity matrix and\((\mathbf{I} - \mathbf{A})^{-1}\) is known as the Leontief inverse, which captures the direct and indirect effects of final demand on output.
The matrix \(A\) is referred to as the technology matrix. With a slight modification, equation (3) can produce the following output multiplier matrix:
\[\begin{array}{c}(\mathbf{I-A}) \mathbf{X} = \mathbf{Y} \\ \mathbf{X} = (\mathbf{I}-\mathbf{A})^{-1} \mathbf{Y} \\ \mathbf{X} = \mathbf{L} \mathbf{Y} \end{array}\]
The matrix is the output multiplier matrix or often referred to as the Leontief inverse matrix. The forecasting power in the input-output model lies in this L matrix. With this matrix we can forecast the impact of changes in each exogenous variable in final demand on changes in output.
The simulation of final demand change is done by increasing the final demand in the leading sectors of Sulawesi Island Province (Food Crop Agriculture Sector, Plantation Sector, and Fisheries Sector) by 20% to see the change in output of each sector in the Sulawesi Island Province economy. The equation of final demand change is as follows:
\[\Delta \mathbf{X}=(\mathbf{I-A})^{-1} \Delta \mathbf{Y} \tag{5}\]
Where is the change in output due to an increase in final demand, is the output multiplier matrix or Leontief inverse matrix, and is the change or increase in final demand.
Simulation
Simulations in the IRIO model were conducted by providing a 20% increase in demand in the final demand of the agricultural sector, which includes the food crops sub-sector, plantation sub-sector, and fisheries sub-sector. There are several factors that trigger the agricultural sector to increase output (Ueda and Kunimitsu 2020).
Agriculture is often considered a priority sector in the economic development of a region. By focusing the increase in demand on the agricultural sector, we can direct efforts and resources to strengthen this sector in particular. This can help in efforts to increase food production, reduce import dependency, and improve regional food security (“Agriculture Overview: Development News, Research, Data,” n.d.).
The agriculture sector has significant growth potential on Sulawesi Island, especially in the food crops, plantations, and fisheries subsectors. By increasing demand in these sectors, you can encourage investment, technology development, and productivity improvements in the agricultural sector. This can help capitalize on existing growth potential and drive economic improvement in the region.
Sulawesi Island may have significant economic dependence on the agricultural sector. By increasing demand in this sector, we can reduce the risk of dependence on other sectors that may be vulnerable to economic fluctuations. This can help create long-term economic stability and reduce vulnerability to external factors.
While increasing demand is only in the agricultural sector, it can also trigger a domino effect on related sectors and support economic diversification. Growth in the agricultural sector can boost the growth of other sectors such as the food processing industry, agricultural support services, and the distribution sector. Overall, this can help create a more diverse and sustainable economic ecosystem on Sulawesi Island.
The decision to increase demand only in the agricultural sector can also be influenced by specific policy factors. For example, the government may have a strategic focus on developing the agricultural sector as part of a regional economic development plan. In this case, increasing demand in the agricultural sector is a concrete step towards realizing this policy objective.
Creating a scenario of a 20 percent increase in demand in the food crop agriculture subsector, plantation subsector, and fisheries subsector in the Sulawesi Island inter-regional input-output (I-O) modeling has several important reasons, among others:
By creating a scenario of a 20 percent increase in demand, you can analyze the economic impact generated by the growth of the agricultural subsector. You can see how the increase in demand will affect output, income and employment in the subsector. This information can serve as a basis for policy assessment and decision-making regarding the development of the agricultural sector in Sulawesi.
Growth in the agricultural subsectors of food crops, plantations and fisheries can have a significant impact on the regional economy. By creating scenarios of increased demand, you can identify potential growth in these sectors. This information can be used to plan investment, infrastructure development and other policy support to maximize the potential for economic growth in Sulawesi.
Sulawesi has different geographical and economic characteristics in each region. Using inter-regional I-O modeling, you can account for regional dependencies between agricultural subsectors and related sectors in different regions. Thus, the demand increase scenario can provide an overview of how the growth of the agricultural subsector in one region can affect other regions economically.
The growth of the agricultural subsectors of food crops, plantations and fisheries is directly related to regional food security. By creating scenarios of increased demand, you can evaluate whether increased production in these subsectors can better meet food needs in Sulawesi. This can help with policy planning and strategic measures to improve regional food security.
The growth of the agricultural subsector also has implications for the environment. By creating scenarios of increased demand, you can analyze possible environmental impacts, such as natural resource use, water use, and impacts on biodiversity. This information is important to ensure that the growth of the agricultural sector is sustainable and takes environmental aspects into account.
By creating a 20 percent demand increase scenario in the agricultural subsectors of food crops, plantations, and fisheries in the Sulawesi Island inter-regional I-O modeling, we can analyze the potential for economic growth, regional dependency, food security, environmental impacts, and support better decision-making and policy planning in the development of the agricultural sector in the region.
Discussion
Increase in final demand for food crops sub-sector.
An increase in final demand in the agricultural sector of food crops by 20% will increase the output value of each province: South Sulawesi by 652,013 million rupiah, Gorontalo by 251,031 million rupiah, Central Sulawesi by 192,439 million rupiah, North Sulawesi by 129,966 million rupiah, Southeast Sulawesi by 91,406 million rupiah, West Sulawesi by 76,203 million rupiah.
Output growth due to an increase in the final demand of the food crop agriculture sector was greatest in Gorontalo Province, which amounted to 10.97 percent. Furthermore, West Sulawesi Province also experienced an increase of 6.61%. Meanwhile, Central Sulawesi recorded a growth of 4.91 percent. North Sulawesi and southeast Sulawesi also experienced an increase in output of 4.42 percent and 4.04 percent, respectively. However, the lowest output growth occurred in the province of South Sulawesi, with a growth of 3.75 percent.
### Increase in final Demand for Plantation sector
A 20% increase in final demand in the plantation sector would have a significant impact on the income of Sulawesi provinces. Below are the estimated output values of each province after such an increase in demand: Central Sulawesi: 1,784,734 million rupiah South Sulawesi: 1,117,126 million rupiah West Sulawesi: 629,965 million rupiah North Sulawesi: 554,892 million rupiah Southeast Sulawesi: 246,925 million rupiah Gorontalo: 166,831 million rupiah.
With a 20% increase in demand, the output value of each province in Sulawesi is expected to increase significantly.
Output growth in the plantation sector has experienced a significant increase due to an increase in final demand. The largest increase occurred in Central Sulawesi Province with a percentage of 22.45%. Furthermore, Gorontalo Province experienced a growth of 16.30%, followed by Southeast Sulawesi with a growth of 13.87%. West Sulawesi also experienced significant growth of 12.89%, while North Sulawesi recorded growth of 11.49%. Finally, South Sulawesi province experienced growth of 9.06%.
### Increasing in Final Demand for Fisheries Sub-sector
A 20% increase in final demand in the fisheries sector will have a positive impact on the output value of each province in Sulawesi. In this case, the output value in South Sulawesi will increase by 4,233,292 million rupiah, in Southeast Sulawesi by 1,667,442 million rupiah, in Central Sulawesi by 1,390,161 million rupiah, in North Sulawesi by 1,207,592 million rupiah, in West Sulawesi Province by 704,802 million rupiah, and in Gorontalo Province by 443,978 million rupiah. With this increase, it is expected that the fisheries sector can make a more significant contribution to the local economy and improve the welfare of the people in the region.
Output growth due to the increase in final demand of fisheries sector was the largest in Gorontalo Province, which amounted to 18.66%. This shows that the fisheries sector in Gorontalo Province experienced significant growth, exceeding the growth of the fisheries sector in other provinces. In addition, there was a fairly high increase in West Sulawesi Province of 16.29%, indicating that the fisheries sector in this province also experienced a significant increase. Southeast Sulawesi also recorded a significant growth of 15.21%, while South Sulawesi recorded a growth of 14.47%. In Central Sulawesi Province, there was an increase in output of 13.74%, while in North Sulawesi Province there was an increase of 13.25%. Thus, it can be concluded that final demand in the fisheries sector experienced a significant increase in several provinces in Indonesia.
It can be seen that a 20% increase in final demand in the food crop agriculture sector has a significant impact on the output value of each province in Sulawesi. The empirical data shows that the increase in demand contributes positively to regional economic growth and the value of agricultural output in these provinces.
In the food crop agriculture sector, the province that experienced the largest output growth was Gorontalo Province, with a growth percentage of 10.97%. Gorontalo Province was followed by West Sulawesi Province, which experienced a growth of 6.61%. Meanwhile, Central Sulawesi Province recorded a growth of 4.91%, North Sulawesi and Southeast Sulawesi provinces experienced an increase in output of 4.42% and 4.04%, respectively. However, the lowest output growth occurred in South Sulawesi Province, with a growth of 3.75%.
Furthermore, a 20% increase in final demand in the plantation sector also had a significant impact on the income of Sulawesi provinces. The research shows that the increase in demand positively contributes to output growth in the plantation sector in these provinces.
Within the plantation sector, the highest output growth occurred in Central Sulawesi Province with a percentage growth of 22.45%. Gorontalo province experienced a growth of 16.30%, followed by Southeast Sulawesi with a growth of 13.87%. West Sulawesi also experienced significant growth of 12.89%, while North Sulawesi recorded growth of 11.49%. Finally, South Sulawesi Province experienced growth of 9.06%.
In addition, a 20% increase in final demand in the fisheries sector also had a positive impact on the output value of each province in Sulawesi. In the fisheries sector, the largest output growth occurred in Gorontalo Province, with a percentage growth of 18.66%. West Sulawesi also experienced significant growth of 16.29%, while Southeast Sulawesi recorded growth of 15.21%. South Sulawesi and Central Sulawesi experienced an increase in output of 14.47% and 13.74% respectively, while North Sulawesi experienced an increase in output of 13.25%.
Based on the empirical data, it can be concluded that the increase in final demand in the agricultural sector of food crops, plantations and fisheries contributed significantly to the regional economic growth and output value of the provinces in Sulawesi. This research shows that these sectors have the potential to increase their contribution to the local economy and the welfare of the people in the region.
Conclusion
Increased demand in the agricultural sectors of food crops, plantations, and fisheries has the potential to significantly boost regional economic growth in the Sulawesi provinces. Furthermore, this growth can have a positive impact on local economies, leading to improved community welfare. The findings of this study shed light on the importance of these sectors in driving economic development in the Sulawesi region. It is crucial to recognize and harness the potential of these sectors to ensure sustainable and inclusive development. By implementing policies that prioritize the growth and development of the agricultural sectors, we can pave the way for a prosperous and thriving Sulawesi region.