Palm | Kelapa Sawit

ABSTRACT: This paper attempts to explore the long debated issue of the impact of agricultural development on industrialization in the presence of a third sector namely, agro-industry which directly interfaces with both agriculture and industry and thereby provides a link between the two sectors. 

We find that in a closed economy where the demand structure reflects hierarchical preference, a producttivity surge in agriculture adversely affects industrialization. But in a small open economy, agricultural development may boost industrialization. The findings are in opposition with theoritical priors but are empirically more relevent. This paper also examines the impact of sectoral growth on income inequality in the presence of this hybrid sector.