Why Does Agricultural Productivity Fail to Drive Regional Growth? Agricultural Downstreaming, Export Orientation, and Climate Adaptation in North Sumatra

Abstract

In many resource-rich regions, the abundance of agricultural production often grows more rapidly than the welfare it successfully creates. This study examines the role of agricultural downstreaming, export orientation, and climate adaptation in driving regional economic performance across 33 regencies and municipalities in North Sumatra during the 2019–2022 period. The analysis uses secondary panel data obtained from Statistics Indonesia (BPS) and Meteorology, Climatology, and Geophysical Agency (BMKG), covering six strategic commodities, as well as variables of agricultural wages, export values, and climate indicators. The empirical approach applies the Random Effect Model (REM) and Error Correction Model (ECM) to capture both short-term and long-term dynamics. The results show that increases in physical productivity are not always able to proportionally drive regional economic growth, particularly in commodities that still face limitations in downstream processing capacity and unequal market access. In contrast, agricultural wages and export orientation consistently show positive and significant effects across most commodities, confirming the importance of labor incentives and trade openness in strengthening regional agricultural economic performance. The interaction between productivity and climate adaptation shows mixed results, with positive effects on several commodities, but insignificant effects on others, thereby confirming the need for adaptation strategies based on local agroecological characteristics. The findings of this study contribute by demonstrating that improvements in agricultural productivity do not automatically drive regional economic growth and provide empirical evidence that agricultural transformation is more strongly determined by the integration of downstream development, labor incentives, trade openness, and ecological resilience. Finally, these findings imply the need for downstreaming policies that are agroecologically adaptive and spatially inclusive, as well as—within the perspective of Islamic economics—the strengthening of maqāṣid-based agricultural development that integrates productivity, welfare, adaptation, and equity.