Food and agricultural sector in Indonesia’s economic growth during COVID-19 pandemic: an ARDL approach

Abstract

Purpose. Global-scale financial crises, either in the financial sector itself or in other fields such as zoonotic disasters, in the form of the spread of viruses resulting in deaths and significant economic contraction, are becoming more frequent and are expected to occur in the future. This study aims to assess the crisis’s impacts, in this case, COVID-19 pandemic, on the food and agriculture sector’s role in Indonesia’s economic growth. Methodology / approach. This study used ARDL bound test to cointegration approach to analyze whether COVID-19 pandemic had a negative impact on Indonesia’s economic growth with regard to the food and agricultural sector. The relation pattern of particular interests includes (i) the relation between agriculture and economic growth, (ii) the relation between food and beverage industry and economic growth, and (iii) the causal relation between agriculture, food and beverage industry, and economic growth. Results. In the long run, economic growth, agricultural output, and food and beverage industry’s output have a dynamic causal relation (bi-directional causality). Partially, COVID-19 pandemic influences economic growth negatively but insignificantly. However, the effect is simultaneously significant, but the regression coefficient is very small, and not strong enough to disrupt the positive effect of agricultural output and food and beverage industry’s output. COVID-19 does not negatively influence agricultural production and food and beverage industry as the regression coefficients are positive, insignificant, and very small.Originality / scientific novelty. This research is the first (particularly in Indonesia) to analyze COVID-19’s impacts on economic growth with regard to food and agriculture sector using an econometric operation with time series statistical data, covering data during the pandemic. Therefore, the parameter test results have higher predictability. Practical value / implication. This study presents evidence that COVID-19 pandemic influences economic growth not through disruption of production in the agriculture and food and beverage sectors, but induction by demand. Therefore, the most appropriate policy to deal with the crisis is to simultaneously handle health aspect as the source of crisis and maintain demand for agricultural and food products directly through fiscal stimulus in the form of social safety net for poor and near-poor households and indirectly through supporting micro, small and medium enterprises (MSMEs) from bankruptcy in the prevention of mass unemployment. In the future, however, there will be a need to further study agricultural resilience by subsector and investigate food and beverage industry’s role in an open economic model. In addition, it is quite advisable to further study the impacts of the government’s safety net program in the form of basic food assistance and delivery cost subsidy for online shopping to stimulate demand-driven growth that can support farmers in production and service demand through contactless marketing.