Luc Christiaensen Will Martin POLICY SEMINAR Agriculture, Structural Transformation and Poverty Reduction Some New Insights OCT 22, 2018 - 12:15 PM TO 01:45 PM EDT

1. Agriculture, Structural Transformation and
Poverty Reduction: Some New Insights
Luc Christiaensen, Jobs Group, World Bank
Will Martin, International Food Policy Research Institute (IFPRI)
Presentation at IFPRI, Washington D.C.
22 October 2018

2. Agriculture, sectoral growth and poverty
1) Much studied with multitude of studies and emerging consensus
x-country, country specific (Brazil, China, India, Indonesia)
but continuing concerns : greater trade-openness, cost of obtaining growth
2) Eight papers emanating from a workshop held at the World Bank
3) Studies in this special issue
✓ more and more recent data (x-country and country case studies)
✓ methodologically agnostic (econometric and CGE) and more robust
✓ more attention to conditioning factors (initial inequality, literacy) and channels
✓ more disaggregated (production for home vs market; towns/cities; subsectors)
✓ more attention to policies and their financing to broker growth

3. Eight articles, World Development Vol 109, 2018
E Ligon & E. Sadoulet “Estimating the Relative Benefits of Agricultural Growth on the Distribution of
Expenditures”
M. Ivanic & W. Martin “Sectoral Productivity Growth and Poverty Reduction: National & Global Impacts”
P. Dorosh & J. Thurlow “ Beyond Agriculture Versus Non-Agriculture: Decomposing Sectoral Growth–
Poverty Linkages in Five African Countries”
A. Kirk, T. Kilic & C. Carletto “Composition of Household Income and Child Nutrition Outcomes Evidence
from Uganda”
S. Emran & F. Shilpi “Agricultural Productivity, Hired Labor, Wages, and Poverty: Evidence from
Bangladesh”
M. Eberhardt & D. Vollrath “The Effect of Agricultural Technology on the Speed of Development”
C. Adam, D. Bevan, D. Gollin “Rural–Urban Linkages, Public Investment and Transport Costs: The Case
of Tanzania”
X. Diao & M. McMillan “Toward an Understanding of Economic Growth in Africa: A Reinterpretation of the
Lewis Model”
https://www.sciencedirect.com/journal/world-development/vol/109/suppl/C

4. Eight insights
1) Overall, growth in agriculture more poverty reducing than growth elsewhere
2) This poverty reducing advantage disappears when countries (and people) get richer
3) Extent of agriculture’s edge varies by the non-agricultural subsectors
4) Regarding other welfare outcomes (nutrition), the advantage is more context specific
5) But it is not limited to landlocked countries
6) It can work by pulling in underutilized household labor (Bangladesh)
7) And it works faster when the elasticity of output to labor & transport costs are lower
8) Importantly, it critically depends on the financing source, a much neglected fact.

5. Insight 1:
Growth in agriculture more poverty reducing than growth elsewhere
1) Ligon/Sadoulet - econometric
✓10% poorest in each country vs 10% poorest
in the world
✓Additional econometric fixes (time f.e., spells
of diff. lengths, instrumentation of ag growth
(volatility & m.e. cause attenuation bias)
✓Difference stronger when higher illiteracy, but
not distinguishable from high initial poverty Source: Ligon and Sadoulet, 2018
-1
0
1
2
3
4
5
6
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Growth in ag more poverty reducing
than growth outside ag
aggregate ag growth aggregate nag growth

6. Insight 1:
Growth in agriculture more poverty reducing than growth elsewhere
2) Ivanic/Martin – CGE + micro-simulations
✓GTAP (140 regions, 54 sectors)  40
geographical units (31 countries + 9 major
economies), 3 sectors (ag+ proc food, industry,
svc); skilled & unskilled labor; full mobility of
K&L;
✓Effect of sectoral TFP, price & wage effects
✓∆Pov changes following ∆profits, ∆ wage inc,
∆pcons
✓Productivity gains in ag more pov reducing,
though channels differ
Source: Ivanic and Martin, 2018

7. Insight 1:
Growth in agriculture more poverty reducing than growth elsewhere
3) Dorosh/Thurlow – CGE + micro-simulations
✓Very disaggregated (3-5 regions, 50 sectors,
10-14 factors, 20-40 household groups
✓Dynamic (updating capital stock and
population over 10 years)
✓Model validation – compare observed pov to
growth elasticity to simulated (even though
different growth patterns)
✓Same results when using semi-elasticity
and some convergence @ higher pov lines Source: Dorosh and Thurlow, 2018
-1.19
-2.62
-1.99
-2.15
-1.21
-0.61
-0.74 -0.66
-1.04
-0.87
-3
-2.5
-2
-1.5
-1
-0.5
0
Poverty ($1.25) to growth elasticity
Agriculture Non agriculture
Irrespective of method and data, ag more pov reducing than nonag

8. Insight 2:
Poverty reducing advantage disappears when countries/people get
richer
-1
0
1
2
3
4
5
6
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Growth in ag more poverty reducing
than growth outside ag
aggregate ag growth aggregate nag growth
Ligon/Sadoulet: difference not significant in richer
countries

9. Insight 2:
Poverty reducing advantage disappears when countries/people get
richer
Source: Dorosh and Thurlow 2018
0.0
0.5
1.0
1.5
2.0
2.5
$0.75 $1.25 $0.75 $1.25 $0.75 $1.25 $0.75 $1.25
Malawi Mozambique Tanzania Zambia
Agriculture
Manufacturing
Trade and transport
Poverty reducing differences decline as poverty lines increase

10. Insight 3:
Agriculture’s edge also varies by the non-agricultural subsectors
-1.83
-0.78
-0.56
-1.26 -1.33
-0.81 -0.91
-0.74
-0.12
-2.0
-1.5
-1.0
-0.5
0.0
Poverty-growth elasticity
Average across 5 African countries

11. Insight 3:
Agriculture’s edge also varies by the non-agricultural subsectors
✓Structural transformation in Africa seems to be taking quite a different form from Asia
o Much less movement out of agriculture into manufacturing
✓In an ambitious paper, Diao & McMillan revisit structural transformation to take into
account the role of the in-between sector in Africa.
o Movement out of agriculture is frequently not into modern formal manufacturing
o But rather into more informal firms that account for 85% of non-agricultural
jobs in Tanzania
o Most have higher productivity than agricultural firms
o Many have higher productivity than trade or manufacturing firms
✓Need to better understand this process if we are to provide advice to policy makers
about agricultural productivity growth & structural transformation

12. Insight 4:
Regarding nutrition, the advantage is more context specific
Headey (2013): x-country
“Ag growth is most effective way to reduce malnutrition, possibly b/c it
increases incomes of the poor”
Kirk/Kilic/Carletto (this issue): micro/panel data from Uganda
Effect of source of income on HAZ, controlling for total income
✓ HAZ negatively correlated with share of income from crop production,
especially among the older and poorer children
✓ This holds especially, if crops are produced for own consumption and
especially if they are low-protein crops cassava and plantain
Effects are small, highlight context specificity, and channels remain poorly
understood

13. Insight 5:
Agricultural productivity reduces poverty in small & large-countries
✓Many agricultural economists worry that widely-adopted innovations will drive
down food prices and impoverish farmers
✓It’s true that food prices fall if innovations are globally-adopted
▪ Farm profits fall because food price declines outweigh productivity gains
▪ Lower food prices benefit poor net-buyers of food, including small farmers
✓Compare the small-country case w/ a case where productivity gains are global
▪ The poverty reduction gains are similar
▪ But their sources have changed considerably

14. Insight 5:
Poverty redn similar when prices constant & for global productivity gains
Individual small economies Global simulation
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
190 760 3,040
GDP/cap
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
190 760 3,040
Agriculture
Industry
Services
Log. (Agriculture)
Log. (Industry)
Log. (Services)
GDP/person
Productivity gains of 1% of GDP in each case
Source: Ivanic and Martin

15. Insight 5:
Sources of poverty redn when prices constant & for global prod gains
-1
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
Small economies World

16. Insight 6:
Agric productivity pulls in underutilized household labor (Bangladesh)
✓Emran and Shilpi examine the impacts of higher agricultural productivity on
wages, labor supply and employment of hired labor in Bangladesh
▪ Interested in labor supply changes, b/c household labor supply often fixed
▪ And to explain a paradoxical reduction in the importance of hired labor
✓Use a 3-yr panel data set for 486 subdistricts from 2000, 2005 and 2010.
✓For a 1% increase in yields, rural wages up 0.9%, labor supply up 0.4% &
consumption up 0.5%
✓Bigger labor supply response in farm households
✓Results in a decline in the importance of hired labor

17. Insight 7:
Faster when the elasticity of output to labor & transport costs lower
✓As agricultural productivity rises, less labor is needed to meet food demand.
How much labor can be freed up depends on the elasticity of agricultural
output with respect to labor
▪ If the elasticity is low, agricultural output is insensitive to labor input
• So lots of labor can be liberated by raising TFP with little reduction in
output
▪ If the elasticity is high, then agricultural output is responsive to labor input
oAnd little labor can be liberated by raising TFP
✓Key question is whether (labor) production technology is similar across
countries?

18. Insight 7 contd:
Faster when the elasticity of output to labor & transport costs lower
✓Eberhardt & Vollrath use a panel of 128 countries over a 40 year period to
estimate the elasticity of agricultural output to labor inputs
✓Find elasticities 2 to 3 times higher (eg 0.5 vs 0.17) in tropical regions than in
temperate regions
much greater challenges for tropical countries to transfer labor out of
agriculture
Or, gaining by transferring labor from agriculture to other, more productive,
sectors likely more difficult in tropical countries

19. Insight 7 contd:
Faster when the elasticity of output to labor & transport costs lower
✓Adam, Bevan and Gollin use a stylized CGE model of Tanzania to explore
several key issues for economies with high transport costs
▪ They find that the benefits of infrastructure investments often accrue to
people distant from the intervention
▪ As in Ivanic and Martin, they find that investments that raise agricultural
productivity often provide large benefits to urban consumers

20. Insight 8:
Importantly, it depends on the financing source, a much neglected fact.
✓Adam, Bevan and Gollin They find that the benefits of infrastructure
investments are highly sensitive to how they are financed
▪ Tariffs are generally worst, but even funding by foreign aid changes real
exchange rates
✓Diao and McMillan find that foreign funding to finance infrastructure
investment reduces productivity gains in the modern sector by appreciating
the real exchange rate; the closed, informal, in-between sector gains

21. Eight insights
1) Overall, growth in agriculture more poverty reducing than growth elsewhere
2) This poverty-reducing advantage disappears when countries (and people) get richer
3) Extent of agriculture’s edge varies by the non-agricultural subsectors
4) Regarding other welfare outcomes (nutrition), the advantage is more context specific
5) But it is not limited to landlocked countries
6) It can work by pulling in underutilized household labor (Bangladesh)
7) And it works faster when the elasticity of output to labor & transport costs are lower
8) Importantly, it critically depends on the financing source, a much neglected fact.

22. Agriculture, Structural Transformation and Poverty
Reduction, World Development Vol 109, 2018
https://www.sciencedirect.com/science/article/ab
s/pii/S0305750X1830175X