Lionel Demery

The role of agriculture in poverty reduction an empirical perspective

The relative contribution of a sector to poverty reduction is shown to depend on its direct and indirect growth effects as well as its participation effect. The paper assesses how these effects compare between agriculture and non-agriculture by reviewing the literature and by analyzing cross-country national accounts and poverty data from household surveys. Special attention is given to Sub-Saharan Africa. While the direct growth effect of agriculture on poverty reduction is likely to be smaller than that of non-agriculture (though not because of inherently inferior productivity growth), the indirect growth effect of agriculture (through its linkages with nonagriculture) appears substantial and at least as large as the reverse feedback effect. The poor participate much more in growth in the agricultural sector, especially in low-income countries, resulting in much larger poverty reduction impact. Together, these findings support the overall premise that enhancing agricultural productivity is the critical entry-point in designing effective poverty reduction strategies, including in Sub-Saharan Africa. Yet, to maximize the poverty reducing effects, the right agricultural technology and investments must be pursued, underscoring the need for much more country specific analysis of the structure and institutional organization of the rural economy in designing poverty reduction strategies.

Growth, Distribution, and Poverty in Africa: Messages from the 1990s

This book synthesizes, and elaborates on the results of a series of country studies, completed under the Poverty Dynamics in Africa Initiative, organized by the Africa Region of the Bank. These studies made use of vastly improved household survey data, which have enhanced understanding of African poverty dynamics during the past decade. The book examines the main factors behind observed poverty changes in eight countries - Ethiopia, Ghana, Madagascar, Mauritania, Nigeria, Uganda, Zambia, and Zimbabwe. After reviewing the trends in income poverty and other, more direct measures of well-being (such as education, health, and nutrition), the authors go beyond the aggregate numbers, and highlight the insights to be gained from unraveling the microeconomic data. These data reveal systematic distributional effects, linking growth and poverty, which lead to some groups gaining from episodes of economic growth, and others being left behind. It further describes those groups left behind, and calls for public action to ensure that all poor Africans gain from future economic growth.

The impact of macroeconomic adjustment on poverty in the presence of wage rigidities

The paper examines the effects of macro-economic policy on poverty when the labour market is subject to partial wage rigidity. It shows that the orothodox assumption of a perfect labour market ignores a number of important conflicts arising from macro-economic policy. Specifically, it demonstrates that an expenditure switching policy will have greater adverse effects on the formal sector compared with the informal sector, and this has implications for poverty. Under reasonable assumptions about the incidence of poverty in these sectors, the paper suggests that more confident predictions about poverty outcomes are possible, although in the last analysis, theoretical ambiguity is always present. Whether the rigid wage case gives significantly different predictions from the orthodox model is shown to depend critically on the poverty level among the unemployed. If this is similar to that found in the formal sector, the difference between the two models is only quantitatively important when the share of formal sector employment is large. In this case, the rigid-wage model indicates less favourable poverty outcomes. However, if poverty levels are high among the unemployed, the rigid-wage model predicts more favourable effects.

Poverty and macroeconomic policy in Malaysia, 1979-1987

Abstract Exploring the effects on Malaysias poor of the early 1980s recession and the mid-1980s adjustment, Demery and Demery use an applied general equilibrium model to asses three counterfactual policy packages against the chosen package. The first package assumes an earlier, preemptive adjustment to see whether delaying the decision to accept the economic and political consequences of adjustment made matters worse for poor households. The second assumes milder fiscal restraint, timed with the actual restraint, but a bolder devaluation of the ringgit—to see whether it might have been possible to speed the recovery without increasing the adverse effects on the poor. The third assumes stiffer taxes to raise revenue and correct the public deficits that the milder restraint of the second package could not. Only the third package comes close to achieving the actual outcome, but at the cost of hurting the poor, as happens with the first two packages. The governments chosen policies for cutting and switching expenditures and devaluing the exchange rate thus did much to protect the poor. The slowdown in poverty alleviation in the mid-1980s was the result of the recession, not of the adjustment policies. The government had few alternatives to restore the macroeconomic balances as effectively without making matters even worse for the poor.

Cross-Section Evidence for Balanced and Unbalanced Growth

PpTHE terms balanced and unbalanced growth appear in many and varied contexts within economic theory. One writer has even suggested that it is a cause of much confusion that balance in economic growth could mean almost anything (Ohlin, 1959, p. 338). This lack of definition has also characterized attempts at statistical verification of the theories. Balanced growth in the Nurkse (1953) sense arose in the context of development economics and sought to provide some policy conclusions for less developed countries. Solow-Samuelson-Von Neuman balanced growth is of more theoretical interest and of broader application. Two recent papers (Swamy, 1967 and Yotopoulos, 1970) laboured under the disadvantage of mixing these two quite separate notions of balanced growth. We shall argue that consequently, the evidence already presented sheds little light on the development controversy. This paper examines evidence for balanced and unbalanced growth theories in the Nurkse-Hirschman sense (Haberler, 1961; Hirschman, 1958; Nurkse, 1953). Nurkses balanced growth argument involves two propositions: firstly, the size of the domestic market is maximized only with a balanced growth of sectors because, by assumption, excess supply is wasted and excess demands are frustrated; secondly, the size of the market is the main determinant of investment in less developed countries. Therefore, Nurkse viewed balance as a means of stimulating growth. Hirschmans version of unbalanced growth, like Nurkses theory, was concerned primarily with the inducement to invest. Only Hirschman argued that excess demand and supply are necessary in order to make investment decisions obvious. Excess demand induces investment in supplying industries (backward linkage) and excess supply leads to the establishment of using industries (forward linkage). It is clear that Hirschmans theory of unbalanced growth applies mainly to the intermediate goods sector. A number of studies (including Bhatt, 1965 and Mathur, 1966)) have made considerable ground in providing a synthesis of the theories, usually developing the fact that Nurkse and Hirschman exempt vertical and horizontal sectors, respectively. Consequently there may not arise a problem of policy choice between balanced and unbalanced growth. In the context of this paper, the most important feature of both theories is the implicit exclusion of the effects of international trade. If trade becomes the engine of growth in any less developed country, the theoretical controversy becomes less relevant for development policy. Furthermore, distortions in sectoral growth rates due to international trade, do not constitute unbalanced growth in the Hirschman sense. These considerations render difficult any empirical enquiry.

Statistical Evidence of Balanced and Unbalanced Growth: Comment

where G is the growth rate of aggregate demand, and gi and Ei are the actual growth rate and the income elasticity of output for the ith sector respectively. GEi is defined as the expected growth rate of the ilh sector.2 Measure (2) is preferred to (1) as the latter is unnecessarily sensitive to extreme deviations in sectoral growth rates. Swamy then correlated both measures of imbalance with the aggregate growth rate, G. Coefficients were positive and statistically significant for all periods except 1938-1948. He concludes that the statistical evidence does not corroborate the balanced growth theory. 3 Swamys results have to be interpreted carefully. In the first place there are weaknesses in the statistical techniques he adopts. These result from his reliance on the correlation between G and V. This correlation is questionable on two counts. Firstly, where the k sectors form a large proportion of aggregate output, we would expect high sectoral growth rates to be accompanied by a high growth of overall output. The association between V and G merely reflects a mutual component in both (i.e., gi). However, since Swamy disaggregated into 13 manufacturing sectors, this spurious element may not be important. Secondly, variations in G automatically affect V since one of the elements of the latter is GEi. This will generate a positive correlation between G and V when the sign of (gi GEj) is negative (and a negative correlation when the sign is positive). Take the limiting case,

Agriculture in Africa

Stylized facts set agendas and shape debates. In rapidly changing and data scarce environments, they also risk being ill-informed, outdated and misleading. So, following higher food prices since the 2008 world food crisis, robust economic growth and rapid urbanization, and climatic change, is conventional wisdom about African agriculture and rural livelihoods still accurate? Or is it more akin to myth than fact? The essays in “Agriculture in Africa – Telling Myths from Facts” aim to set the record straight. They exploit newly gathered, nationally representative, geo-referenced information at the household and plot level, from six African countries. In these new Living Standard Measurement Study-Integrated Surveys on Agriculture, every aspect of farming and non-farming life is queried—from the plots farmers cultivate, the crops they grow, the harvest that is achieved, and the inputs they use, to all the other sources of income they rely on and the risks they face. Together the surveys cover more than 40 percent of the Sub-Saharan African population. In all, sixteen conventional wisdoms are examined, relating to four themes: the extent of farmer’s engagement in input, factor and product markets; the role of off-farm activities; the technology and farming systems used; and the risk environment farmers face. Some striking surprises, in true myth-busting fashion, emerge. And a number of new issues are also thrown up. The studies bring a more refined, empirically grounded understanding of the complex reality of African agriculture. They also confirm that investing in regular, nationally representative data collection yields high social returns.Stylized facts set agendas and shape debates. In rapidly changing and data scarce environments, they also risk being ill-informed, outdated and misleading. So, following higher food prices since the 2008 world food crisis, robust economic growth and rapid urbanization, and climatic change, is conventional wisdom about African agriculture and rural livelihoods still accurate? Or is it more akin to myth than fact? The essays in “Agriculture in Africa” Telling Myths from Facts aim to set the record straight. They exploit newly gathered, nationally representative, geo-referenced information at the household and plot level, from six African countries. In these new Living Standard Measurement Study-Integrated Surveys on Agriculture, every aspect of farming and non-farming life is queried—from the plots farmers cultivate, the crops they grow, the harvest that is achieved, and the inputs they use, to all the other sources of income they rely on and the risks they face. Together the surveys cover more than 40 percent of the Sub-Saharan African population. In all, sixteen conventional wisdoms are examined, relating to four themes: the extent of farmers engagement in input, factor and product markets; the role of off-farm activities; the technology and farming systems used; and the risk environment farmers face. Some striking surprises, in true myth-busting fashion, emerge. And a number of new issues are also thrown up. The studies bring a more refined, empirically grounded understanding of the complex reality of African agriculture. They also confirm that investing in regular, nationally representative data collection yields high social returns.• With about a third of smallholder farmers reporting cultivating trees on their farms, trees are not uncommon in the five Sub-Saharan African countries studied. Fruit trees and tree cash crops (such as coffee, cacao, and cashew nuts) are the most frequent tree categories grown. • The prevalence of on-farm trees for timber is also sizable in Tanzania (18 percent of smallholders), but minimal or poorly recorded elsewhere. • In addition to sales, fruit trees are also commonly used for self-consumption in Ethiopia and Uganda, implying that they may play an important role in food security and nutrition. • Their contribution to income is not negligible—17 percent of total gross income among tree crop growers, and 6 percent on average across all rural households. • Tree-growing households are better off on average in most of the study countries. • Trees are more likely on larger farms, in warmer areas, and closer to forests. Their prevalence also appears to be shaped by national policies and institutional factors.

Adjustment and Poverty Evidence: A Response to Weeks

The paper responds to a comment by John Weeks on an earlier article by the authors. He maintains that the macroeconomic index used in that article was invalid for its purpose, and that the survey evidence of poverty change was inconsistent with national accounts data. The authors maintain that although the macroeconomic policy index has its limitations, it succeeds in capturing the changes in macropolicy during the periods. Using the data that Weeks himself provides, the authors also show that the national accounts estimates are in fact consistent with the survey evidence in all countries but one. The central proposition of the original paper therefore stands: poverty declined in countries where macroeconomic policies improved, and increased where they worsened.