Resource information
This paper uses farm panel data from
Indonesia to examine dynamic patterns of land use, capital
investments, and wages in agriculture. The empirical
analysis shows that an increase in real wages has induced
the substitution of labor by machines among relatively large
farmers. Large farmers tend to increase the scale of
operation by renting in more land when real wages increase.
Machines and land are complementary if the scale of
operation is greater than a threshold size. In contrast,
such a dynamic change was not observed among relatively
small holders, which implies a divergence in the movement of
the production frontier between Java and off-Java regions
given that the majority of small farmers are concentrated in Java.
