Agricultural Productivity, Regional Inequality and Development Strategies in Latin America and Sub-Saharan Africa


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James Thurlow, Sam Morley, Alejandro Nin-Pratt and Paul Dorosh
International Food Policy Research Institute

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Agricultural Productivity, Regional Inequality and Development Strategies in Latin America and Sub-Saharan Africa

  1. 1. Agricultural Productivity, Regional Inequality and Development Strategies in Latin America and sub-Saharan Africa James Thurlow, Sam Morley, Alejandro Nin-Pratt and Paul Dorosh International Food Policy Research Institute Presentation based on: Thurlow, James, Sam Morley and Alejandro Nin-Pratt, “Lagging Regions and Development Strategies: The Case of Peru” and Dorosh, Paul and James Thurlow (2009), “Agglomeration, Migration and Regional Growth: A CGE Analysis for Uganda”. Brasilia Conference – June 2010
  2. 2. Agricultural Productivity, Regional Inequality and Development Strategies in Latin America and SSA <ul><li>In many countries in Latin America and sub-Saharan Africa, regional inequalities are increasing. </li></ul><ul><ul><li>Successful, rapidly growing city economies can increase rural-urban inequality </li></ul></ul><ul><ul><li>Agricultural productivity increases are often concentrated in ecologically or geographically favored areas (close to major cities or ports) </li></ul></ul><ul><ul><li>Many of the poor may not benefit from national income growth or agricultural productivity growth outside their region </li></ul></ul><ul><li>Given positive agglomeration productivity effects and possibilities of factor mobility (labor migration), what is the role of increasing agricultural productivity in reducing rural poverty? </li></ul>
  3. 3. Plan of Presentation <ul><li>Agricultural productivity trends in LA and SSA </li></ul><ul><li>Productivity Growth and Regional Inequality in Peru </li></ul><ul><ul><li>Peru’s current growth divergence </li></ul></ul><ul><ul><li>Multi-region general equilibrium model </li></ul></ul><ul><ul><li>Implications of interventions: reducing transport costs, expanding social transfers and increasing agricultural productivity </li></ul></ul><ul><li>Reducing regional inequality in Uganda </li></ul><ul><ul><li>Uganda’s north/south and rural/urban divides </li></ul></ul><ul><ul><li>Implications of interventions: reducing transport costs, urban investments; increasing agricultural productivity </li></ul></ul><ul><li>Concluding observations </li></ul>
  4. 4. Maize Yields in Latin America and SSA (1970-2008) <ul><li>Maize annual yield growth (1970-2008): LA (2.7%), SSA (0.7%) </li></ul><ul><li>Source: Calculated from FAO data. </li></ul>
  5. 5. Recent growth and poverty in Peru Economic growth has accelerated rapidly (>5% p.a.) National poverty has fallen in urban and rural areas BUT remains virtually unchanged in the Sierra (so the region’s share of extreme poverty has risen)
  6. 6. Regional inequality and economic development <ul><li>Peru has a serious lagging region problem </li></ul><ul><ul><li>Sierra/Selva are home to half the population and most of the poor </li></ul></ul><ul><ul><li>The regions have weak links to mining and the more dynamic coastal economy </li></ul></ul><ul><li>‘ Theory’ says regional inequality rises and then falls during the development process (i.e., spatial Kuznets curve) </li></ul><ul><ul><li>But there is no evidence of regional convergence taking place in Peru </li></ul></ul><ul><li>Four dynamic linkages underpin the hypothesis: </li></ul><ul><ul><ul><li>1. Regional trade </li></ul></ul></ul><ul><ul><ul><li>2. Capital movement in response to profit differentials </li></ul></ul></ul><ul><ul><ul><li>3. Labor migration in response to wage differentials </li></ul></ul></ul><ul><ul><ul><li>4. Central government policies </li></ul></ul></ul><ul><li>We have measured and modeled the four regional linkages, and assessed alternative growth options </li></ul>
  7. 7. Interventions to reduce regional inequality in Peru Three options <ul><li>Extending social transfers to poor rural households </li></ul><ul><ul><ul><li>Provide US$30 per month to all poor rural households in both regions </li></ul></ul></ul><ul><ul><ul><li>Increase taxes on urban households to pay for transfers </li></ul></ul></ul><ul><li>Reducing transaction costs between regions </li></ul><ul><ul><ul><li>Building and improving road and marketing networks between the coastal and inland regions </li></ul></ul></ul><ul><ul><ul><li>Increase TFP growth in the regional trade sector in both regions </li></ul></ul></ul><ul><ul><ul><li>Increase government spending by the same amount as the social spending scenario (TFP-to-spending elasticity = 0.1) </li></ul></ul></ul><ul><li>Increasing productivity in the inland region </li></ul><ul><ul><ul><li>Providing extension services, credit, infrastructure, etc </li></ul></ul></ul><ul><ul><ul><li>Increase TFP growth in agriculture, manufacturing and local trade </li></ul></ul></ul><ul><ul><ul><li>Increase government spending (TFP-to-spending elasticity = 0.1) </li></ul></ul></ul>
  8. 8. Research Findings – Peru Base Simulation <ul><li>There are linkages connecting coastal and inland economies (trade, migration, government, etc) </li></ul><ul><li>But these linkages may worsen regional inequality (i.e., coastal growth is at the expense of inland growth) </li></ul><ul><li>Inland welfare s rises as coastal goods become cheaper, but by far less than in the coastal region </li></ul><ul><li>Inland region becomes more dependent on coastal region </li></ul><ul><li>So Peru cannot rely on national growth to ‘trickle-down’ to the inland region </li></ul>
  9. 9. Peru: Interventions to reduce regional inequality Comparison Transaction costs : Strong growth-effect at the national level Weak inland supply response means import competition outweighs export opportunities Regional inequality worsens Social transfers : Regional and rural-urban inequality declines Slows down national growth rate Taxes and slower growth reduce urban incomes Inland productivity : Positive growth effect at national level and in the Sierra , but weak regional spillover effects reduces coastal GDP. Increases the national growth rate while reducing regional inequality.
  10. 10. Research Findings – Peru Policy Scenarios <ul><li>Social transfers reduces regional and rural/urban inequality, but little ‘growth-effect’ </li></ul><ul><li>Reducing transaction costs raises growth but causes the inland to specialize in agriculture because of increased import competition from coast) – makes regional inequality worse (a ‘double-edged sword’) </li></ul><ul><li>Increasing inland productivity raises growth and improves regional equality and rural incomes </li></ul><ul><li>Combining interventions may be optimal (e.g. reducing transaction costs while also raising inland productivity) </li></ul>
  11. 11. Uganda: On track to halve poverty by 2015 Uganda has performed well since the 1990s: Fast broad-based growth (esp. over recent years) National poverty rate has fallen (but slower declines in recent years) Source: WDI, 2007 Despite high population growth, GDP per capita has risen (US$310 in 2005)
  12. 12. Uganda’s north-south divide Rural and urban poverty rates have fallen, BUT northern poverty remains high and virtually unchanged Northern region Population share: 19.7% GDP share: 11% Poverty rate: 60.8% Share of poor: 38.5% Poverty headcount (%) Poverty is geographically concentrated: Southern region Population share: 80.3% GDP share: 89% Poverty rate: 23.8% Share of poor: 61.5% 1992/93 2005/06 National 55.7 31.1 Rural 59.7 34.3 Urban 27.8 13.8 North 72.2 60.8 South 51.7 23.8
  13. 13. Three strategies to address north/south divide 1. Kampala growth strategy Focus investments to encourage faster growth and agglomeration in capital city and attract northern migrants 2. Corridor growth strategy Invest in a north-south transport corridor and encourage faster growth in northern major urban centers 3. Rural agriculture strategy Raise investments in agricultural productivity in both northern and southern rural areas Kampala stats Population: 1.7m (6.1% of 27m) GDP growth: 10% p.a. Nat. manuf. share: 60% Gulu and Lira stats Population: 0.2m (0.7%) GDP growth: 4% p.a. Nat. manuf. share: 0.8%
  14. 14. Uganda: Simulation Results <ul><li>Kampala growth strategy </li></ul><ul><li>Raising Kampala’s growth does not generate enough economywide growth linkages to greatly improve livelihoods in rural areas and other urban centers. </li></ul><ul><ul><li>Agglomeration effects are positive but small </li></ul></ul><ul><ul><li>Kampala-based growth does not create enough new jobs for rural-urban migration to have a discernable impact on national poverty over the coming decade. </li></ul></ul><ul><ul><li>As a result, the north-south divide widens. </li></ul></ul><ul><li>THUS, even accounting for regional growth linkages, agglomeration effects, and migration opportunities, the northern region remains largely isolated from national growth process </li></ul>
  15. 15. Uganda: Simulation Results (2) <ul><li>Northern corridor scenario </li></ul><ul><li>Improving the corridor linking northern Uganda to Kampala greatly benefits northern urban households, with some spillover to neighboring rural areas </li></ul><ul><li>BUT, corridor has modest impact on national growth and poverty because of the small size of the northern urban centers (i.e., <1% of Uganda’s population) </li></ul><ul><ul><li>Low productivity of northern agricultural producers also limits supply response despite better market opportunities </li></ul></ul><ul><li>Thus, economy-wide positive effects of improving north-south trade linkages are still heavily constrained </li></ul>
  16. 16. Uganda: Simulation Results (3) <ul><li>Agricultural productivity scenario </li></ul><ul><li>Raising agricultural productivity is positive for rural growth and poverty </li></ul><ul><li>Agricultural growth also: </li></ul><ul><ul><li>Stimulates urban areas (i.e., higher demand for urban products; lower food prices; increased rural-urban migration) </li></ul></ul><ul><ul><li>Causes significant broad-based welfare improvements (esp. for urban poor and rural households in the north) </li></ul></ul><ul><li>Moreover, since north crop yields are far below their potentials, the modest yield gains simulated here (15% increase over 10 years as compared to the 40% CAADP target yield increase) appear to be feasible. </li></ul>
  17. 17. Uganda model results from the three growth strategies Comparing growth and poverty outcomes (1) <ul><li>“ Kampala” and “Agriculture” scenarios are equally effective at generating total GDP growth </li></ul><ul><li>But, agriculture scenario is more effective at reducing national, rural, and north rural poverty </li></ul><ul><li>(agriculture scenario has a higher poverty-growth elasticity) </li></ul>
  18. 18. Uganda: Summary <ul><li>Raising agricultural productivity should be a major component of any strategy aimed at substantially reducing poverty and regional inequality in Uganda </li></ul><ul><li>Nonetheless, because of demand constraints (esp. for food crops), it is essential to improve both productivity and market opportunities for rural producers </li></ul><ul><li>Growth in urban centers and the non-agricultural sector is a necessary complement to an agriculture-led growth strategy in Uganda </li></ul>
  19. 19. Concluding Observations <ul><li>Even in rapidly growing economies, income gaps between regions can widen. </li></ul><ul><ul><li>In both Peru and Uganda, rapid growth in major urban centers and coastal (Peru) regions outpaced growth in other regions. </li></ul></ul><ul><li>Model simulations show that increasing agricultural productivity can be an effective way of boosting rural incomes. </li></ul><ul><ul><li>In both countries, simulations suggest agricultural productivity growth slows rural-urban migration and reduces rural poverty much faster than growth in cities and coastal (Peru) alone. </li></ul></ul><ul><ul><li>The best poverty reduction and growth outcomes result from investments in both productivity and lowering transactions costs. </li></ul></ul><ul><li>Ongoing work on Ethiopia explores these issues further, placing a greater emphasis on the costs of alternative strategies. </li></ul>