Dakar seminar dorosh may 2013


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Paul A. Dorosh
Agricultural Growth, Urbanization and Poverty: Implications of Alternative Development Strategies in Africa / Dakar Senegal

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Dakar seminar dorosh may 2013

  1. 1. Agricultural Growth, Urbanization and Poverty:Implications of Alternative Development Strategiesin AfricaPaul A. DoroshInternational Food Policy Research Institute (IFPRI)Workshop on “Economic Transformation in West Africa:What it Means for Food Security and Poverty Reduction”Dakar, SenegalMay 15, 2013 1
  2. 2. Key Development Policies• Sectoral allocation of public investments– Potential trade-offs between investing in agriculture /rural areas versus industry / urban areas in terms ofnational economic growth and poverty reduction• Land and Migration Regulations influencing Rateof Urbanization– Insecure or non-transferable property rights, e.g.prohibition of sale of land, loss of land rights forthose who leave rural areas– Registration requirements for new migrants to cities2
  3. 3. Ethiopia: Development Budget1999/00 and 2007/083Source: Calculated from Ethiopia Ministry of Finance and Economic Development data.051015202530351999/00 2007/08(bn2007/08birr)RuralUrbanOther
  4. 4. Economic Structure: Ethiopia and Uganda• Disaggregated national social accounting matrices– Regions (cities, towns and rural areas)• Agricultural production disaggregated by agro-ecological zones– Sectors (60 in Uganda : 77 in Ethiopia)• Agriculture: 24% of GDP in Uganda; 48% of GDP in Ethiopia)– Households (regional poor and non-poor)Population (%) GDP (%) Poverty rate (%)Eth Uganda Eth Uganda Eth UgandaNational 100.0 100.0 100.0 100.0 40.0 40.0Rural 84.5 84.7 53.3 62.4 41.8 44.3Towns 10.2 9.3 26.4 18.0 35.5 23.7Cities 5.2 6.1 20.4 19.6 19.2 4.84Source: Dorosh and Thurlow (2012) estimates for 2005 derivedfrom Social Accounting Matrices.
  5. 5. Model Summary• Sectoral and rural economy linkages– National product markets (some non-tradable localservices)– Open economy model (i.e., imperfect substitution)– Fixed technical coefficients (i.e., IO table)• Surplus labor in rural areas– Higher wages in urban industrial sectors• Internal migration– Limited treatment of remittances• Agglomeration and technical change7
  6. 6. Agglomeration and Technical Change8
  7. 7. Urbanization ScenarioModerate increases in migration promote economic growth• Baseline urbanization– Ethiopia: 15.5% to 21.1%– Uganda: 15.3% to 18.7%• Now we add 10% points• Strongest growth inurban industrial centers• But agric. and ruralareas also benefit fromhigher demand0.0 1.0 2.0 3.0 4.0Total GDPAgricultureIndustryServicesRural areasTownsCitiesSectorsRegionsAverage annual change from baseline (%)Uganda Ethiopia 11
  8. 8. Urbanization ScenarioPercentage of poor in urban areas rises with increased migration• Per capita welfare risesfor both poor and non-poor households• Poorer migrantsreduce urban percapita welfare (returnsto unskilled labor fall)• Towns receive mostinternal migrants – sotheir average fallsfurthest-2.0 -1.0 0.0 1.0AllPoorNon-poorRural areasSmall townMajor citiesNationalRegionsAverage annual change from baseline (%)Uganda Ethiopia12
  9. 9. Investment ScenariosSimulation design• Raise share of public capital allocated to eithercities, towns or rural areas by 10%• Reallocation of existing resources– Increase budget allocation for target sector– Proportionately reduce allocation to other sectors• Urban investment increases public capital (KPC) butreduces investment in agriculture• Agriculture investment has a TFP-spending elasticity of0.15 (causes agricultural output to increase/decreasefor agric./urban sims)Source: Dorosh and Thurlow (2012), “Can Cities or Towns Drive AfricanDevelopment? Economywide Analysis for Ethiopia and Uganda”. 13
  10. 10. Investment ScenariosEconomic growth• Rural investment:– Slows national andindustrial growth• Urban investment– Favors industry butreduces agriculture-1.5 -1.0 -0.5 0.0 0.5 1.0Total GDPAgricultureIndustryServicesTotal GDPAgricultureIndustryServicesUgandaEthiopiaAverage annual change from baseline (%)Cities Towns Rural areasAdditional investment in:14
  11. 11. Investment ScenariosHousehold welfare• Rural investment:– Significantly improvesnational welfare, despiteslower growth– Benefits ruralhouseholds (includingpoor rural)• Clear trade-offsbetween growth andwelfare objectives-0.40 -0.20 0.00 0.20 0.40NationalRural areasSmall townMajor citiesPoorNon-poorAverage annual change from baseline (%)Cities Towns Rural areasUgandaAdditional investment in:15Household group
  12. 12. Summary• Migration/agglomeration are potential sources ofgrowth• Urbanization also reduces the rural-urban divide• But without supporting investments, there is an“urbanization of poverty” and rising urban inequality• We identify trade-offs to investing in urban areas(i.e., faster growth but deteriorating poor householdwelfare)• The urban investments, even with agglomeration andmigration effects, generate less poverty reduction thanagricultural growth17
  13. 13. Summary (2)The model simulation results suggest:• There is a growth-equity tradeoff in public investmentchoices in African economies with high shares of GDPand poverty in rural areas.• Urban infrastructure investments promote higheroverall GDP growth.• However, given productive investment opportunities inagriculture, shifting public expenditures towardsagricultural productivity-enhancing investmentsreduces poverty more than allocating additionalresources to urban investments.18