Spillovers to manufacturing plants from multi-million dollar plantations: Evidence from the Indonesian palm oil boom

Abstract

We estimate spillover effects to local manufacturing plants from the Indonesian palm oil boom, using a stacked difference-in-differences approach. We use new data on the establishment dates and ownership of palm oil mills to identify clean shocks from investments in new plantations. Local plantation booms increased sales and productivity ofmanufacturing plants, despite increasing blue-collar wages. Using confidential input-output data, we rule out the possibility that this effect is driven by supply chain linkages. Plants increased their share of tradable goods, but produced fewer relationshipspecific goods. Local road upgrades point to improved market access as an explanation for this shift. ∗kraus@mcc-berlin.net, rheilmayr@ucsb.eu, koch@mcc-berlin.net. We thankMarkCurtis, Ryan Edwards, Sabine Fuss, Kelsey Jack, Krisztina Kis-Katos, Kyle Meng, Sudarno Sumarto, Daniel Suryadarma, Asep Suryahadi, Ping Yowargana, Piotr Śpiewanowski, and seminar participants at MCC Berlin, IRSA in Surakarta, UC Santa Barbara, and at AERE for their helpful comments. We thank staff at the Indonesian statistics agency, BPS, for their trust and excellent support. We are grateful to Jason Jon Benedict, Claudia Günther, Hanif Kusuma Wardani, and Mayang Krisnawardhani for their invaluable research assistance. Sebastian Kraus acknowledges funding by the RESTORE+ project (http://www.restoreplus.org/), part of the International Climate Initiative, supported by the Federal Ministry for the Environment, Nature Conservation, and Nuclear Safety (BMU) on the basis of a decision adopted by the German Bundestag. †Mercator Research Institute on Global Commons and Climate Change, Berlin, Germany ‡Bren School of Environmental Science & Management, UC Santa Barbara, United States §IZA Institute of Labor Economics, Bonn, Germany