Labor-saving technological change and decreasing fertility rates: The oil palm boom in Indonesia

Although new production technologies are often regarded as one of the key drivers of the reduction in live birth per women, empirical evidence is scarce. This paper addresses this gap, exploring the expansion of oil palm in Indonesia. We argue that this type of technological change is rather unique, as it induces gender-specific labor savings that affect not only large-scale farms but also smallholder farmers. We use Becker s quantity-quality model to identify different causal mechanism through which the expansion of oil palm could affect fertility rates. Our identification strategy relies on an instrumental variables approach with regency-fixed effects, in which the expansion of area under oil palm at regency level is instrumented by regency-level attainable yield of oil palm interacted with the national oil palm expansion. We find consistently negative effects of the oil palm expansion on fertility. The results suggest that the negative effect is mainly explained by increasing female wages and increasing consumption expenditure. This suggests that the fertility reduction was driven by income effects of the oil palm boom at the household level, as well increased female opportunity costs of child rearing. Acknowledgement : This study was financed by the Deutsche Forschungsgemeinschaft (DFG) in the framework of the collaborative German - Indonesian research project CRC990. We thank Matin Qaim and Krisztina Kis-Katos for their comments.