The Role of Palm Oil Industry in The Economy of Riau Province: An Input-Output Analysis

Abstract

Industrial sector has important role in the economy of Riau Province. It can be seen from its contribution to the Gross Regional Domestic Product (GRDP) which reaches 49,642.78 billion rupiah or about 26.84 percent of total Riau Province GRDP in 2011. One of the potential subsectors in industrial sector is palm oil industry. The high prospect of palm oil industry supported by the increased production and the export of palm oil that will positively impact the economic growth of Riau Province. The research objectives are to analyze the role of palm oil industry in the economy of Riau Province, to analyze the linkages of palm oil industry towards other sectors, to analyze the dispersion impact of palm oil industry to other sectors, to analyze the economic impact of palm oil industry in terms of multiplier effect in the economy of Riau Province, and to analyze the position of palm oil industry in the economy of Riau Province as a priority sector. The data used in this research is secondary data, namely Input-Output (I-O) Table of Riau Province in 2010 classification of 112 sectors and aggregated to 22 sectors. The data is obtained from Badan Pusat Statistik (BPS), Badan Perencanaan Pembangunan Daerah (Bappeda), and other related institutions. In addition, data in this research is also obtained from many literatures and various sources that support the objectives of this research. Data is processed by utilizing Input-Output Analysis for Practitioners (IOAP) Complementary Version 1.0.1. and Microsoft Excel 2007. The results shows that palm oil industry has significant role in the economy of Riau Province. It can be observed from its position which occupies the second rank on total demand, the first rank on total household consumption expenditure, the second rank on total trade surplus, and the third rank on total gross value added. From linkages analysis, the research shows that palm oil industry has backward linkages value higher than forward linkages value. From dispersion analysis, the research finds that palm oil industry has coefficient of dispersion greater than sensitivity of dispersion. This indicates that palm oil industry has more ability to attract the upstream sector. Furthermore, multiplier analysis comes up with conclusion that palm oil industry has positive multiplier effect to the economy of Riau Province. This indicates that there will be a maximum effect on increasing production and formation of new output if each unit of money for final demand spent to buy the output of palm oil industry. Finally, based on priority sector analysis, palm oil industry is found to occupy the first rank out of 22 sectors in the economy of Riau Province in 2010.