Effects of Potable Water on an Agricultural Based Economy

4363 words (17 pages) Business Assignment

16th Jun 2020 Business Assignment Reference this

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Abstract

In this paper I shall be investigating the research question: “To what extent does the scarcity of potable water affect Indonesia ability to export goods?”

Throughout this paper I will be going over the poverty in which the nation of Indonesia is experiencing. In addition, even though Indonesia has experienced rapid growth they still haven’t come up with an effective Economic plan.

The central idea that will be presented throughout this paper are based on real facts and statistics found on the growing water problem in Indonesia.  I will talk about the taxes that are placed on certain goods and services in which inflate the prices for certain commodities. Mainly, I will address the main issue of scarcity of potable water.Also, how clean water is a central factor to Indonesia’s economy through the use of growing crops. I will evaluate Indonesia’s economy in terms of growth and price per quantity of goods. I will relate the price of Industry growth over population growth and how this correlates with the poverty in which the country experiences.

In Conclusion, Although Indonesia has experienced rapid growth with its exportation, it’s high barriers on entry have inflated the food market and have penalized the individuals that live in it. Indonesia though having abnormal profits in the long run it’s profits are not going towards the right areas to support the 80 percent and not the 20 percent.  In the following paper it is imperative to analyze how potable water is imperative to supporting this agricultural based economy.

Table Of Contents

I.Introduction 4

II. Approach 5

III. Defining Economic Terms 6

IV. Theory/Applying Economic Terms 7-9

V. Evaluating Economic Terms 10

VI. Evaluating Economic Solutions 13-15

VIII. Conclusion 15-16

VIII Limitations 16

IX Bibliography 17-18

INTRODUCTION:

The situation in Indonesia, in regards to potable water and access to said water, is dire. Indonesia is facing serious and significant scarcity; this water scarcity is occurring despite the revelation in Indonesia Economy.  Indonesia exportation has been decreasing over the last five year with staggering amount of people starving. However, Indonesia has experienced GDP growth, it has only aided the top 20 percent of the population. Indonesia Net GDP is relatively low considering the goods imported to offset said scarcity.  Though, Indonesia with yearly exports of 140 billion, Indonesia current Gdp of $932 billion which is equivalent to a GDP per capita of  11,600. Indonesia exportation has been declining at an analyzing rate of 3.08 percent of the last five years. Such dropping has spurred rising income inequality in which only the top 20 percent are able to not starve (World Bank). The inflation of food can be pinpointed towards the high foods in which get taxed on due to restrictions on food. While Indonesia technically has enough food to feed its population, economic barriers pose a problem for achieving food security for all sectors. Imports from those countries offer little relief, as barriers applied a tax on food.

In this research paper I will be concentrating on the certain fascists in which affect Indonesia water supply. Also, how certain goods are inflated by the certain trade barriers in which have been placed by the government in the region. The Idea that Indonesian economy needs to learn from other developed nations.

Why I Chose This Topic:

While doing research into developing nations where there economy is focused making changes based off of the climate . I found that such nations have been hindered by certain variables being a lack of water or an overabundance of non purified water. Leading them to become more industrial based and less climate base.

Approach:

When finding the extent to which the scarcity of potable water affected Indonesia ability to export goods, it was imperative for me to find every major trade in which supports Indonesia’s economy. From this research I began to assess the extent to which it pushes economies to aide or be deterred. Though it was complicated as Indonesian economic issues were more deep rooted. As they are supposedly one of the fastest growing developing nations in the world.

In this paper it was imperative to evaluate all primary and secondary sources.  I needed to outline certain economic theories before making educated based assumptions on certain markers, and what perpetuation they would cause. I investigates the factors in which influence the top 20 percent of the economy and the lower 80 percent in which are starving. I needed to measure the extent of how the nations classifies certain classes.  Also, I needed to find a cost and benefit analysis to find the extent to which Indonesia is experiencing this scarcity of clean water.

All data I found was backed by statistical reference in reference to the economic growth in which Indonesia has experienced. I did extensive research into corporate practices and looked further into any sort of abnormal practices from the major Industries. Also, how indicative were these practices in pinpointing where Indonesian economy in going.

Economic Terms:

According to economist Allan Savory “ agriculture  is not a crop of production as popular belief holds it’s the production of food and fiber from the world’s land and waters. Without agriculture it is not possible to have a city, stock market, banks, university, church or army.” Agriculture is the foundation of civilization and any stable economy. In order to break down the issue it is first imperative for the reader to understand the fundamentals behind scarcity and the variables that can spur from it. Scarcity can be defined when the goods and services in which society demands are finite and peoples wantings will never be sustained.  Scarcity can be evaluated by land, labour, capital, and entrepreneurship. For the purposes of this paper we will be evaluating scarcity in terms of capital. Capital is the resources which sustain an economy. A variable in which goes with scarcity is the opportunity cost of the goods. The opportunity cost is the next best decision in which is put down for another variable. Such goods that are put down for another variable are economic goods. For this paper the economic good in which we are investigating is potable water . In order to graph such goods economist would use the Production Possibility Frontier. The PPF is used to find the economic efficiency for an industry in which accounts for all variables in which the firm’s profit or dont profit.

Theories

In order to fully evaluate the effect on Indonesia’s economy it was important to analyze data based off of two theories. Neoclassical and Keynesian theories were two ways to analyze the effects  of Indonesia developing economy.

Neoclassical is a way of determining or analyzing the goods, output, and income fluctuation in an economy through the laws of supply and demand. While Keynesian theory elaborates on how in the short run the economy is influenced by Aggregate demand .(Kognity) In the case of Indonesia one needs to determine the explicit cost of production for firms competing. During this exploration of Indonesia’s economy it is imperative to determine the number of firms competing and the restictritions that are placed upon them by the government. In the end, we need to evaluate the elasticity of demand and how the government has to be willing to no place indirect taxes on certain goods and services.

Applying Economic Terms:

When applying the economic theories stated above it is imperative to analyze the full situation of Indonesia’s economy. The scarcity of purified water has push Indonesia into becoming a more industrial based economy.  Such natural resources left by the high amounts of deforestation have led the government into pushing more towards and industrial based economy in the next five years.  Though indonesia has experienced rapid growth over the short run period it is imperative to assess the restrictions on certain small or big business. The government has experienced rapid growth. They began to grant of subsidies which is expected to bring 20 percent Indonesia. In addition, the implementation of  new forms of social  programs would increase the from 0.3 to 0.5 percent of GDP between 2004 and 2010. As Indonesia has cheaper taxes compared to the United States a lot of manufacturing jobs are planned to open with the idea of improving on their technology sector. “Indonesia Gini coefficient rose by about 6 percentage points in the period of 2005 to 2012.” (World Bank)  This increase in the business sector reflect the idea that Indonesia has been focused on their trade rather than their people. With 150,000 children dying a year because of a lack of potable water.  This explains that though Indonesia has had massive growth in their business sector people are still starving.  The scarcity of potable water can be shown by the statistics.

When Referring To the Graph: In order to evaluate Indonesia situation when referring to the graph as supply goes up  the equilibrium price in the market falls from ‘P*’ to ‘Pc’.  “Since prices will be lower  the law of demand, consumers will demand more of the good, and therefore the new equilibrium price and quantity will be established at ‘Pc’ and ‘Qsb’ (Kognity).” This  theory is important as it shows a possible solution to which Indonesia could use to solve their issue with purified water. The government at the moment divides the water into classes.Affect agriculture and affect groundwater is polluted 80 percent with e coli.High foods get taxed on food products  due to restrictions and percent budget on food. If the government were to subsidize the highly taxed foods they will be able to provide for people.  The government needs to reistintuing to Indonesia’s economy  under new leadership. Throughout his term till the end in  2019.

When analyzing the laws of demand and supply we need to know the extent to which the Indonesian government is willing to do to help the people.  The statistics back that if yearly exports of “140 billion the current Gdp of Indonesia is 932 which means that their GDP per capita 11,600 Indonesia exports out has been declining and an annualized rate of 3.08” In addition Indonesia has seen the effects of  lowering yearly exports. According to a recent survey from Commodity Indonesia they have seen “ 224 billion to 140 billion” (Commodity Indonesia).

 

Referring to the Graph: The supply of potable clean water will shift the curve if the government finds a way to lower the regulation on price. This will in turn greatly affect the amount of agricultural product the government can produce. The change in supply is represented by S1 to S2. The changes in quantity of product is represented by the shift from Q1 to Q2.

When looking at the implementation of the Neoclassical Theory which elaborates on the total flow of income in the economy being the central factor of growth for the supply and demand of goods and services. Indonesia has been interested in growing there tourism sector. According to a recent survey from Bloomberg in 2016 Indonesia experienced a 16 billion dollar gross in the tourism sector which accounts for 6.2 percent of there GDP ( Ardian/Bloomberg). Further evaluation could pinpoint how this could become an economic deflector for the growing issue of non clean potable water. As the tourism sector certain holy sites receive 20,000 visitors a day in which accounts for a major facet of their economy. The Tourism Agency of Indonesia has set of goal of 20 million tourists through the use of investment in art, and film.  (diplomat.org)   Though, public investment has gone into the wrong area as in increase in tax in tax revenue has been spent in the wrong area. From various surveys sources their is a “ tax burden of 10.4 percent on various domestic income” (Heritage 7) This reinforces the idea of government spending going into the wrong area being less into clean water supply and more in less important matters. The government spending had amounted to 16 percent of the gdp in 2017 (Heritage 7). In addition, governments had not placed capital into social programs in which would train the farmers to cope with surface runoff and other problems. Also the lack of  implementation crops in which don’t require water to grow, such as corn, soya beans, green beans, and cucumbers. As about 27 million inhabitants lack clean water in Indonesia (Water.org). In which has led to the deaths of 150,000 young every year from starvation (Water.org).  Indonesia goods and services had totaled for 39.5 percent of Indonesia’s GDP as for 2017.

The Keynesian theory can be described as during an economic down a markets total exports can change for the Aggregate Demand.  In the Case of Indonesia the economic down turn of having a Gdp drop to 140 billion ( Ardian/Bloomberg). The tax burden hurting consumers in the industry can reflect the hindered marketplace. The market failure of non purified water had led to an economic depression as mentioned prior. In addition, the aggregate demand can be shown as the money being exchanged through the use of agricultural products. Though the currency is very low in Indonesia’s economy and the price of goods to high for consumers willing to purchase goods and services .

Evaluation Economic Terms:

Indonesia’s has shown many similarities to other agricultural based economies such as Vietnam and etc. Being heavily reliant on purified water Indonesia has showed a correlation with water since it has becomed less purified. Agricultural demand has seen a decline in the total wanting for the goods (World Bank). According to a recent study by economist they found a correlation between Indonesia trade declining as “80 percent of their ground water being polluted” (Commodity 4)  Polluted groundwater has shifted the curve of supply has a leakage would further push Indonesia’s economy further down. Though government intervention has been minimal the effects are evident as stated above “150,000 children have passed due to lack of clean supply of water”(World Bank).

When evaluating the laws of supply and demand as the supply of water constantly decreases it becomes harder for the consumer to purchase the product as prices become more expensive. The lack of consumption has led to a decrease in further economic growth in Indonesia.  As stated prior the government needs to provide a subsidy in which would further increase the agricultural and private sector. Privatization is a central priority for the Indonesian government as it would allow a steady increase in jobs. That’s one theory as others suggest an increase in cultural development would allow a change in future developments. (Capita 1) Further evaluating the progress of Indonesia though the government has changed over time in terms of government progress, further investigation shows that Indonesia still has time before further agricultural developments. In order to further evaluate Indonesia progress it is imperative to go more in depth on the effects of Indonesia’s economy.

When evaluating the Keynesian economics theory and how it affects Indonesia’s economy in the short term, I believe it to be not an effective assessment. As the fluctuation of goods and services through aggregate demand will not improve the economic downturn of Indonesia. Also, Indonesia has had this issue for many years and goods and has been gratualing decreasing from the lack of lowering barriers of entry. I think Indonesia economic state is hard to analyze and this is something Keynesian and Neoclassical theories lack. In addition, though both Keynesian and Neoclassical both elaborate on the variables and effects of an agricultural based economy it seems unlikely of a short term economic change. Though there is still the issue of the political and social, and economic changes as the government needs to focus on the laws of supply and demand. As mentioned earlier a  yearly export of 140 billion and Indonesia having a GDP of 932 which means that their GDP per capita 11,600 Indonesia exports out has been declining and an annualized rate around 3.08 (Heritage). So if this issue of exportation is not solved soon by the government further complications could arise.   Though Indonesia has the option of food to feed its people the growing economic barriers negate imports.

Evaluation of Solution:

As stated prior economic inequality and bad investment in certain areas of government has led to a lack of action in the industry of providing affect goods and services in terms of fixing the issue of clean water. When elaborating on the Neoclassical theory I talk about the greater glow of income domestically leads to economic growth and how tourism has accounted for 16 billion dollars a year for the economy( Bloomberg)  Earlier I elaborated on the use of a subsidy, which is when the government privades a grant to either a sector or business in order to help them through a situation. This could also be another possible solution to the lack of potable water for farmers in order to help sustain healthy crop growth. As mentioned prior Indonesia is an agriculturally based economy and needs to maintain sustainability in there sector in order to help future economic growth. In addition, Indonesia needs to figure out how to lower the economic barriers to entry in which inhibits more profits for the nature. Eliminating such barriers would increase the agricultural sector. Also, Indonesia has large numbers of economic disparity as though in increase in social programs have occured. According to Dutch Water Sector Solutions forum Indonesia” focuses on poverty reduction programs spending money on poor pro programing 19 million 2017.” (Dutch Water 4)  Subsidies implemented into the agricultural center can also lower the amount of spread of e coli in the water supply. Referring to the data table below Indonesia has been ranked at some of the top ten nations for a lack of potable water. A recent survey has found that 32 million people have a lack of access to clean water.  At a growing rate this can become more unstable for its economy and lead to further issues the implementation of the suggested economic actions.

Referring to the information above I evaluated the complexity of the situation and how the economy of Indonesia has seen a drop from “224 to 140 billion dollars a year” (Commodity.com) This further reinforcing the idea of a lack of government action in the business sector or having any form of government intervention. High taxes over the years have led to further economic disparity. The government has put public tax revenue in the wrong economic sector amounting to a “tax burden of 10 percent”(Heritage 4) Public investment has gone into the wrong area of infrastructure and has led to less growth in important economic sectors. Governments have also placed barriers of entry on limitations on trade with other countries in which limit the amount of goods and services entering the country. As mentioned trade is a central goal to Indonesia’s economy and fixing the issue of clean water would potentially affect such sectors. The solutions evaluated prior can possibly affect the business sectors greatly. As a shift in the demand and supply for agricultural products could change. Also, the tourism sector could potentially shift to become even bigger in Indonesia.

Prior I talked about the addition of subsidies on the water supply in Indonesia. As mentioned earlier a subsidy is when the government provides a grant to a particular industry in order to lower the production cost of a product. Making goods more accessible for people as at a cheaper price for consumers would lower starvation. I suggested this should be implemented on the e coli in the water supply as this will allow the production cost to lower for farmers and would allow more sustainability Indonesia exportation. Also, governments should continue to spend money on tourism as it accounts for 16 percent of there economic growth.

Conclusion:

Throughout this paper we have found many methods in order to approach the growing issue of high e coli counts in the potable water system. The general ideas stated throughout this paper are how does the government intervene with this issue of potable water affecting farmers. As suggested prior from the information stated above a subsidy or a grant provided by the government would highly affect Indonesia economic state on the water supply.  Indonesia has about 25 million civilians living in impoverished conditions, in which the government has refused to put funding in social programs in order to decrease this rate. The fundamental reasons unknown though capital has gone towards the funding of advertisement campaigns for foreigners. This accounting for 16 billion dollars of Indonesia GDP can account for the increase in tourism ads. Though tourism is a key factor of Indonesia economic growth, an increase in social programs will help sustain a clean agricultural base for Indonesia. Two solutions I suggested were using products that don’t require constant flows of water, or figure out ways to clean the water system.  In the end, Indonesia new administration needs to focus on these key issues as exportation is a key facet to Indonesia growing agricultural based economy.

Limitations: 

When evaluating the essential question of to what extent does the scarcity of potable water affect Indonesia ability to export goods? I found there to be limitations in the finding of sources to support my idea of Indonesia needed economic growth in certain areas. Though it was easy to find information to the extent of an e coli outbreak, the statistics to back it seems to be hidden.  Coming up with an approach for the Indonesia government was challenging as knew policies have been introduced throughout the year. The fundamental ideas of scarcity were easy to track as the numbers of a decrease of Gdp and high barriers of entry were something the private organizations had elaborated about.  Coming up with ideas that will have a lasting impact on Indonesia were hard to pinpoint as governmental policies prevent the furthering of these ideas. Finding factors that influence Indonesia domestic policies were hard to track as some sources gave false information. Such information was imperative to find out the total effects on the graph and how that would shift Indonesia economic state. Information in reference to water supply was easier to ascertain as social needs had been stated on various sources. Finally, in order to pinpoint where government intervention is needed, I had to find sources that gave a detailed analysis in order to breakdown each statement.

Websites:

  • Acosta, Pablo. “Indonesia’s Social Assistance System: Praising Reforms But More Work Ahead.” East Asia & Pacific on the Rise, 14 Nov. 2017, blogs.worldbank.org/eastasiapacific/indonesia-social-assistance-system-praising-reforms-more-work-ahead.
  • “Euroconsult Mott MacDonald to Lead Large Peatland Restoration Project on Sumatra, Indonesia.” Dutch Water Sector, www.dutchwatersector.com/news/euroconsult-mott-macdonald-to-lead-large-peatland-restoration-project-on-sumatra-indonesia.
  • https://Fhtbali.com/Site/Wp-Content/Uploads/2020fhtblogonewdate–300×161.Png, 14 Mar. 2019, fhtbali.com/1-36-million-tourists-visit-indonesia-march/.
  • Frarizca. “Over 1.36 Million Tourists Visit Indonesia in March.” Food, Hotel & Tourism Bali, Frarizca Leona
  • “Indonesia.” OEC – Brazil (BRA) Exports, Imports, and Trade Partners, atlas.media.mit.edu/en/profile/country/idn/.
  • Investments, Indonesia. “Politics of Indonesia.” Indonesia, www.indonesia-investments.com/culture/politics/item65.
  • “Indonesia.” Indonesia Economy: Population, GDP, Inflation, Business, Trade, FDI, Corruption, 2019, www.heritage.org/index/country/indonesia
  • Water Charity For Safe Water & Sanitation.” Water.org, water.org/.
  • Water Charity 2018“

Articles

  • Agarwal, Vibhuti. “Indians Have the Worst Access to Safe Drinking Water in the World.” The Wall Street Journal, Dow Jones & Company, 22 Mar. 2016, blogs.wsj.com/indiarealtime/2016/03/22/indians-have-the-worst-access-to-safe-drinking-water-in-the-world/.
  • Salna, Rusmana, Rahadiana , Karlis,Yoga, Rieka. “Deadly Indonesia Quake, Tsunami Deliver Fresh Economic Risk.” Bloomberg.com, Bloomberg, 1 Oct. 2018, www.bloomberg.com/news/articles/2018-10-01/deadly-indonesia-quake-tsunami-deliver-fresh-economic-risk.

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