Spillovers from agricultural processing

Abstract

This paper uses the proliferation of palm oil factories across Indonesia's undeveloped hinterland to study industrial onset and estimate spillovers from agricultural processing. The main finding is signs of urbanization and structural change around factories: more non-agricultural employment, higher incomes, and more people, firms, and other economic and social organizations. These patterns are largely explained by economic linkages, infrastructure and other public goods, and economies of scale in production. By focusing on subsistence rural regions in a large developing economy, this paper adds a globally- significant new case to a growing literature emphasizing the importance of agglomeration externalities for understanding the birth of new towns, the spatial distribution of economic activity, and structural transformation.