The role of the forest-related sector to the Indonesian Economy: SAM Multiplier Analysis 1985-2008

Abstract

Indonesia is now the country with the highest deforestation rate in the world, and due to the high rate of associated land use change, Indonesia has also become one of the biggest greenhouse gas emitters in the world. It is commonly thought that the cause of this is Indonesia's high dependence on the forest-related sector. To investigate the role of forest-related sectors to the Indonesian economy, this study tried to analyze the Social Accounting Matrix (SAM) multiplier from 1985-2008. It was found that there is a tendency for the forest-related sector to contribute a higher multiplier effect to the economy, meaning that Indonesia's economy is very dependent on the forest-related sector. However, the contribution to the economy is paid for by a high rate of deforestation. Our analysis predicts that the high deforestation rate is mainly due to the establishment of new commercial plantation areas, especially palm oil, and the high rate of illegal logging.