Impact of The Rising Rice Prices On Indonesian Economy

Abstract

The purpose of this research is to analyzes impact of the rising rice prices on sectoral economic performance and welfare in Indonesia by using Computable General Equilibrium Model (CGE) based on Social Accounting Matrix (SAM) of 2008. Economic sector of Indonesia is agregated into 22 sectors using Constant Elasticity of Substitutioon (CES) production function and 8 groups of households using Cobb-Douglasss utility. The result shows that rising price of 5 – 15 percent will increase domestic output of paddy,beans, and other food commodities, forestry, fishery, food and beverage industry, rice milling, spining and textil industry, wood industry, fertilizer, and pesticide. While the sector is declining domestic output of plantation sector, mining, paper industry, chemical and others, restaurants and hotels, and government.On the other hand, the increase of rice price decreases export, but it increases a whole import. The household real income increases, while group of households welfare decreases as the rice price increase. The government should be aware of the rising rice price,because it will harm the households.

Keywords: rice price, sectoral economic performance, households welfare, CGE