Research on World Agricultural Economy

Persisting poverty remains a defining development challenge in many agriculturally based regions, particularly in island economies where opportunities for structural transformation are spatially and institutionally constrained. Conventional structural transformation theory emphasizes poverty reduction through labor reallocation from agriculture to manufacturing. However, this pathway may operate weakly in regions with limited industrial absorption and fragmented markets. This study examines the relationship between sector labor productivity, economic structure, and poverty persistence in East Nusa Tenggara (NTT), Indonesia, an archipelagic province with a strong dependence on low-productivity agriculture. Using district-level panel data from 21 regencies over the period 2012–2024, the analysis applies fixed-effects models to assess how productivity growth across agriculture, manufacturing, and services is associated with poverty dynamics, while accounting for differences between mainland and island districts. The results indicate that higher agricultural labor productivity is consistently associated with reductions in poverty, whereas productivity growth in manufacturing and aggregate labor reallocation exhibit weak or insignificant relationships. Productivity gains in the service sector show a modest poverty-reducing association, reflecting labor movements directly from agriculture into low-productivity informal services rather than into manufacturing. Interaction results further suggest that allocative efficiency contributes to poverty reduction primarily in mainland districts, highlighting the conditioning role of spatial constraints. These findings suggest that in agriculturally dominated archipelagic regions, poverty reduction is more closely linked to productivity improvement within agriculture than to intersectoral labor reallocation. Strengthening agricultural productivity, farmer institutions, and agro-processing linkages therefore remains central to inclusive development strategies in island economies.