The Consistency of H-O Theory on Indonesian Agriculture Products

Published: 2021-06-29 06:59:48
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By : Valentina Tjahjani / 34408057



Indonesia is a tropical country and the 16th largest countries in the world in terms of land area with 1,919,440 square kilometer of land. Which means, Indonesia has a high arable land that is very fertile for agriculture. Indonesia is rich in natural resources and billion hectares of land spreading from western to eastern region, making Indonesia becomes an agrarian country for centuries. Indonesia is an agriculture country, means that agriculture sector holds an important role for Indonesian economy. Agriculture sector helps Indonesia to broaden the job opportunity, increase people's income, and give food supply to the people, also agriculture had been Indonesia's largest employers for centuries.
The empirical evidences show that during economic crisis the agricultural industry is proven to be more resistance to external shock than other sectors, so, it has become a buffer of Indonesian economy, especially in supplying food, export earning, job opportunity and poverty alleviation. In addition, agriculture has been a leading sector in rural development through the development of agriculture-based enterprises. With it consistent growth and absorption of huge number of employment, the sector has been contributing to sustainable national economic growth. During the recovery period, the agriculture sector development has shown significant progress. In general, the sector has been able to escape from continuous contraction threat and low spiral growth trap, and even has entered accelerating growth towards sustainable growth.
Labor Force Table

The data above shows that Indonesia has a large amount of labor which is the 4th largest in the world. This condition means that Indonesia has an abundant labor force. Indonesia's labor force keeps on growing every year, and it maintains the position as the 4th largest labor force in the world from 2003 until now.
As shown in the table below that 38,3 percent of Indonesian labors are in agriculture sectors, while service accounts for almost half of Indonesian labors.

However, from the GDP composition by sector, it turns out that service only contributes 37,1% to the total GDP, meaning that Indonesian's service is not a value added service. While in agriculture, the fact is more ironic because agriculture sector only contributes 16,5% to Indonesian GDP, but the labor absorption is more than one third of labor force.

Those fact shows that Indonesia has labor and land abundant, so based from Heckscher-Ohlin theory (H-O theory), Indonesian export should be based on what is provided abundantly in Indonesia while the import should be based on what is not abundantly provided in Indonesia. So, Indonesian Industry should be based on labor and land intensive. Therefore, Indonesia's pattern of trade will be exporting labor and natural resources intensive products such as agriculture products and importing capital intensive's products such as computers.

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