Research pick: Indonesia’s Village Fund program and the dynamics of rural poverty - "Moderation of village funds and mediation of agricultural sector growth on poverty in rural areas"

A study published in the International Journal of Economics and Business Research looks at rural poverty in Indonesia and sheds light on the interplay between the Village Fund program, agricultural sector growth, population migration, and changes in land use. The study used multigroup structural equation modelling with WarpPLS (partial least squares) to analyse data obtained from the Central Bureau of Statistics for 33 provinces.

Earlier work in this area had treated the Village Fund program as an independent variable. The new study, undertaken by Abd. Rahman Razak and Nur Imam Saifullah of Hasanuddin University, Adji Achmad Rinaldo Fernandes of Brawijaya University, reveals that this program has a a moderating effect, influencing the strength of relationships between other key factors associated with rural economics. Critically, the team found that an increase in the Village Fund can either enhance or weaken connections between population migration, changes in land use, agricultural sector growth, and rural poverty.

The work thus underscores the need for prudent Village Fund management. Funds should be allocated strategically to projects that support agricultural sector growth, maintain land use and help to reduce rural poverty. Strategies such as using the Village Fund for building basic infrastructure, supporting productive agricultural businesses, and developing agro-industry are thus emphasised with a view to ensuring the program has a positive mediating effect overall.

Fundamentally, in order to address issues such as land use change and outward migration, an annual increase in the Village Fund is needed. Also, effort must be made to attract agricultural sector investors and create an investment-friendly environment in villages. There is a need too, to develop the agricultural sub-sectors at the forefront of each village’s economic activity and to emphasize the processing of agricultural products to boost value and improve competitiveness.

The research offers practical insights for policymakers, advocating for a comprehensive and stimulating approach to using the Village Fund program with a view to improving rural development and the lives of those people living and working in these regions.

Razak, A.R., Fernandes, A.A.R. and Saifullah, N.I. (2023) ‘Moderation of village funds and mediation of agricultural sector growth on poverty in rural areas’, Int. J. Economics and Business Research, Vol. 26, No. 4, pp.463–483.