The proximity-poverty dynamic: high-value agriculture, infrastructure and rural development in Indonesia

Abstract

Purpose This paper challenges the prevailing assumption that proximity to high-value agriculture (HVA) export clusters inherently reduces rural poverty. It aims to empirically investigate the relationship between HVA proximity and poverty outcomes across Indonesia, providing robust nationwide evidence on the spatial dynamics of HVA-led development. Design/methodology/approach This study combines a novel dataset of geolocated HVA exporting firms with national village-level surveys (Potensi Desa). Using network distance analysis, our multi-stage empirical strategy includes Ordinary Least Square with regional stratification, percentile-based regressions, and inverse probability weighted regression adjustment to account for non-linearities and selection bias. Findings The results reveal a heterogeneous relationship between HVA proximity and poverty outcomes. On average, closer village-level proximity to HVA export clusters is associated with higher measured poverty, a pattern consistent with enclave-style development and endogenous firm location in areas with pre-existing economic disadvantage. However, this relationship varies across regions and distance thresholds. Infrastructure exhibits a complex role: its direct association with poverty reduction is observed in more developed regions and non-agricultural sectors, but is less evident in HVA-dominated areas. More notably, infrastructure functions as a moderator, attenuating the localized disadvantages associated with HVA proximity by enhancing market connectivity. Research limitations/implications The use of cross-sectional data limits the ability to make definitive causal claims about long-term dynamics. Future research should employ panel data and micro-level case studies to explore specific household and firm-level mechanisms. Practical implications Policymakers should avoid simplistic “growth pole” strategies. Policies must be context-dependent, and infrastructure investment must be strategic–creating synergies that connect producers to logistics networks rather than assuming investment proximity alone reduces poverty. Social implications The findings suggest that large-scale agricultural investment can reinforce inequalities and create enclave economies. Improving rural welfare requires inclusive policies that ensure local communities actively participate in value chains. Originality/value This paper provides a nationwide evidence of the proximity-poverty dynamic in Indonesia using spatial approaches. This adds a new persepctive to the debate by highlighting the risks of enclave-style development and endogenous location choices by firms seeking lower-cost land and labor.