Download how it has reduced growth in sub-saharan africa for over 50

FAVOURING MANUFACTURING OVER AGRICULTURE: HOW IT HAS REDUCED
GROWTH IN SUB-SAHARAN AFRICA FOR OVER 50 YEARS
Government policies that favour manufacturing over agriculture have led to
considerably lower economic growth in sub-Saharan Africa over the past half-century.
That is the central finding of new research by Kym Anderson and Markus Brückner,
to be presented at the 2012 Royal Economic Society’s 2012 annual conference.
The study uses a new World Bank database of agricultural policy since 1955 to
examine the effects on economic growth in 14 sub-Saharan African countries –
Cameroon, Ethiopia, Ghana, Ivory Coast, Kenya, Madagascar, Mozambique, Nigeria,
Senegal, Sudan, Tanzania, Uganda, Zambia and Zimbabwe.
The researchers find that an increase in policies that distort the market for agricultural
products – such as placing a cap on the price of staple foods – decreases income
growth in the region by as much as half a percentage point each year. Such policies
have been particularly common in Africa since the 1980s.
Whether poor countries should favour manufacturing or agriculture is a source of fierce
debate in the development community. The authors are clear that their results
‘do not support the view’ that countries should subsidise manufacturing and other
sectors at the expense of agriculture.
Instead they argue that countries that are removing distortions on agriculture could be
more effective targets for economic aid from donor countries. These countries include
Ethiopia, Madagascar and Tanzania, whereas countries where a strong bias against
agriculture has persisted include Zambia and Zimbabwe.
More…
In development economics, a fiercely debated issue is whether subsidising
manufacturing at the expense of agriculture is good for economic growth. This study
contributes to the debate by exploring empirically how policy-induced distortions to
agricultural production affected economic growth in sub-Saharan Africa over the past
half-century.
The empirical analysis shows that, on average, distortions to agricultural production had
a large negative effect on economic growth and on private consumption: a one
standard deviation increase in distortions to relative agricultural prices decreased real
GDP per capita growth in the region by about half a percentage point per annum.
The empirical results do not support the view that there are significant growth benefits
associated with subsidising manufacturing and other sectors at the expense of
agriculture. Instead, they suggest policies that distort relative agricultural prices lower
economic growth and welfare, even in poor and largely agrarian sub-Saharan countries.
Why this matters
The finding of a statistically significant and quantitatively large negative effect of
distortions to relative agricultural prices on sub-Saharan African economic growth is
important for the following reasons:
They imply that reducing distortions to incentives faced by even the world’s poorest
farmers can be growth-enhancing. That suggests policies supporting manufacturing
and other sectors at the expense of agriculture may not boost growth.
They suggest the returns from investments in agricultural development will be greater in
countries with less-distorted relative prices. Since funding for agricultural development
in sub-Saharan Africa is expanding rapidly at present, particularly via development
assistance programmes, these findings provide additional empirical support to those
arguing that aid flows would be more effective in those African countries that have
reduced, or are willing to reduce, their anti-agricultural policy bias.
The results also reveal that the relationship between price distortions and economic
growth is unlikely to be a consequence of the strong ethnic divisions that characterise
many sub-Saharan African countries. This suggests that there are significant factors
that influence African economic growth other than ethnic divisions.
Background
Economic growth in sub-Saharan Africa has been slow for decades. According to data
from the Penn World Table, sub-Saharan African real income per capita grew at less
than 1% over the past half century.
Some countries have enjoyed faster growth in recent years, but the reasons for that
acceleration, and the extent of its sustainability, are still uncertain. Among the
candidates, though, are reductions in distortions to producer incentives, particularly to
farmers who over that time period accounted for more than half of African labour and
between one-quarter and one-third of the region’s GDP.
A database recently compiled as part of a World Bank study on policy distortions to
agricultural incentives since 1955 reveals that there have been numerous price and
trade policy reforms in Africa since the 1980s, although they have not been as
extensive as reforms in Asia or even Latin America.
That raises the question: how much can differences in reforms explain differences in
national economic growth rates within Africa?
To address that question, the researchers have made use of the World Bank’s
distortions database plus other variables to examine econometrically sub-Saharan
Africa's patchy growth performance.
The results reveal that, for the majority of the 14 sub-Saharan African countries in the
sample, there was a strong policy bias against agriculture over the past half-century as
indicated by a negative relative rate of government assistance to the sector.
There is also substantial variation across time and countries in that indicator. For
example, in Ethiopia, Madagascar, and Tanzania, there was a continuous reduction in
policy biases against agriculture, while in countries such as Zambia and Zimbabwe the
strong bias against agriculture has persisted.
ENDS
Contact:
Markus Brückner
National University of Singapore
[email protected]
+65 65166014
Kym Anderson
University of Adelaide, Australia
[email protected]