You are on page 1of 18

Development Policy Review, 2001, 19 (4): 449-466

Agricultural Productivity Growth and Poverty


Alleviation
Xavier Irz, Lin Lin, Colin Thirtle and Steve Wiggins
How important is agricultural growth to poverty reduction? This article
first sets out the theoretical reasons for expecting agricultural growth to
reduce poverty. Several plausible and strong arguments apply including
the creation of jobs on the land, linkages from farming to the rest of the
rural economy, and a decline in the real cost of food for the whole economy
but the degree of impact is in all cases qualified by particular
circumstances. Hence, the article deploys a cross-country estimation of the
links between agricultural yield per unit area and measures of poverty. This
produces strong confirmation of the hypothesised linkages. It is unlikely
that there are many other development interventions capable of reducing
the numbers in poverty so effectively.
How important is agricultural growth to alleviating poverty in a world in which
farmings share of total output is in decline?
We can assess the impact of agricultural growth on poverty in general and rural
poverty in particular, in two ways. One draws on theory, building plausible arguments
about how changes in agricultural production may affect the numbers of poor and the
depth of their poverty. The other takes an empirical approach, by observing directly
changes in agricultural productivity and poverty, and then estimating the degree to
which they are related. This article deploys both approaches.

Theoretical expectations of the effects of agricultural growth


on poverty
The arguments are summarised in Table 1. They have been classified by the scale at
which they are expected to apply: that of the agricultural economy at farm and village
level, the (local, regional) rural economy as a whole, and the national economy. The
arguments, and some of the evidence cited in support of them, are then reviewed.

Xavier Irz and Steve Wiggins are in the Department of Agricultural and Food Economics, University of
Reading; Lin Lin is in the Department of Environmental Science and Technology, Imperial College of
Science, Technology and Medicine, London University; and Colin Thirtle is in the Department of
Environmental Science and Technology, Imperial College of Science, Technology and Medicine, London
University, and the University of Pretoria, South Africa.
Overseas Development Institute, 2001.
Published by Blackwell Publishers, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA.

450

Xavier Irz, Lin Lin, Colin Thirtle and Steve Wiggins

Table 1: The consequences of agricultural growth


Effect of agricultural growth
F1

Farm economy
Higher incomes for farmers, including
smallholders

Qualifications and necessary conditions

Extent to which poor have access to


farm land & their production levels.
Extent to which output prices are
sustained & do not fall as output
increases.
Input prices may rise more than
proportionately to output.
Increased land rents may offset higher
gross earnings for tenant &
sharecropping farmers. Distribution of
land ownership & abundance of land
affect ability of rich to capture rents.
Ability of poor to adopt improved
technology scale biases in
techniques, increased exposure to
risks, access to inputs, complementary
services & credit.

F2

R1

More employment on-farm as labour


demand rises per hectare, the area
cultivated expands, or frequency of
cropping increases. Rise in farm wage
rates.

Rural economy
More jobs in agriculture & food chain
upstream & downstream of farm

Degree to which rural poor depend on


farm labouring for their incomes.
Nature of technical change labourdisplacing technology (machinery,
herbicides, etc.) may reduce labour
demand per hectare.
Changes in output mix. A move to
crops & livestock that use less labour
per unit output might reduce
employment.
Changes in supply of rural labour
affected by population growth, outmigration, availability of non-farm
jobs, etc.
Strength of linkages much affected
by technology of production & need
for processing.
Location of linked activities.

Agricultural Productivity Growth and Poverty Alleviation

451

R2

More jobs or higher incomes in nonfarm economy as farmers & farm


labourers spend additional incomes

Kinds of goods & services demanded.


Local linkages are especially strong
when demand is for non-tradables.
Supply elasticity of goods & services
produced by non-farm rural economy.

R3

Increased jobs & incomes in rural


economy allow better nutrition, better
health & increased investment in
education amongst rural population.
Lead directly to improved welfare, &
indirectly to higher labour
productivity.

Distribution of incomes & marginal


propensities to spend on food, health
care & schooling.

R4

Generates more local tax revenues &


demand for better infrastructure
roads, power supplies,
communications. Leads to secondround effects promoting rural
economy.

Local tax regime, quality of local


government & support from central
government.

R5

Linkages in production chain generate


trust & information, build social capital
& facilitate non-farm investment.

Nature of linkages & social


characteristics of actors.

R6

Reduced prices of food for rural


inhabitants who buy in food net.

Rural economy sufficiently isolated by


distance from national & international
markets.

National economy
Reduced prices of food & raw
materials raise real wages of urban
poor, reduce wage costs of non-farm
sectors.

Extent to which economy is closed to


international markets. If economy is
open, increased farm production will
not affect price levels.

N2

Generation of savings & taxes from


farming allows investment in non-farm
sector, creating jobs & incomes in
other sectors.

Institutions & conditions that mediate


these flows, & extent to which they are
channelled into productive
investments.

N3

Earning of foreign exchange allows


import of capital goods & essential
inputs for non-farm production.

Degree to which farm production is


tradable, either as export crop or
import substitute.

N4

Release of farm labour allows


production in other sectors.

Willingness of labourers to migrate, &


their skills and capabilities for
employment in other sectors.

N1

452

Xavier Irz, Lin Lin, Colin Thirtle and Steve Wiggins

The farm economy


The most direct contribution of agricultural growth is through generating higher
incomes for farmers (F1). Two conditions affect the influence of this on poverty. First,
there is the degree to which the poor are engaged in farming. Even if the majority of the
worlds poor live in rural areas estimates vary from around 60% (CGIAR, 2000) to
75% or more (IFAD, 2001) that does not mean they necessarily farm. Jazairy et al.
(1992) found that, for a sample of 64 developing countries, 64% of the functionally
vulnerable (that is, in this case, the rural poor) were smallholders who can gain directly
from on-farm production growth and 29% were landless. The extent of involvement in
farming varies geographically, so that in sub-Saharan Africa smallholders typically
account for 77% of the poor, whereas in Asia the comparable figure is less than half
(reported by Cox et al., 1998). But even when the poor do typically farm, their
production is often small: indeed many smallholders, even those who grow food crops
mainly for their own consumption, may have to buy in food. In Madagascar in 1990, for
example, 63% of smallholders growing rice were net buyers of the grain (Barrett, 1998).
Incomes from farming may thus make up only a small fraction of their total income.
The second condition is the extent to which output growth raises incomes. Should
increased output drive down product prices, or costs of production rise as the demand
for inputs increases, the rise in gross margins may be small. In particular, if land is
scarce, increased returns to agriculture may be reflected in higher land rents. In cases
where the poor till land belonging to others, the capitalisation of benefits into higher
rents could seriously undermine the contribution to poverty reduction.
When output increase is due to technical innovation, benefits to the poor who farm,
and for whom farming provides the majority of their income, may be limited for several
reasons. First, adoption by the poor can be limited (see Hazell and Haddad, 2001) by a
lack of access to inputs and to the knowledge necessary to use the technology, as well as
by a scale bias in the new technology as, for example, when inputs are indivisible,
such as with some machinery. Secondly, it can also be explained by market
imperfections or policies that limit the access of small farmers to inputs, including
credit. Poor farmers may be more risk-averse than wealthier ones and therefore unlikely
to adopt techniques that increase the variance of yields. Finally, new technology might
not suit the agro-climatic conditions typical of many smallholdings. The adoption of the
first wave of green revolution cereal varieties was largely confined to irrigated areas
with good soils, and even then required major inputs of pesticides and fertiliser (Barker
and Herdt, 1985). In contrast, many of the rural poor live in rainfed areas and arid and
semi-arid zones (Lipton, 2001).
When technology and policies are biased against smallholders, agricultural growth
can even have perverse effects on poverty. For example, technical change can result in
an increase in landlessness as large farmers and landlords expand their cropped area by
taking in land previously rented out (Hazell and Haddad, 2001) or by appropriating
previously common land (Dasgupta, 1998).
The other contribution within the farm economy is through the labour market (F2).
The effect of this on poverty reduction depends in part on the degree to which the rural
poor depend on labouring. In South Asia, it is common to find one-third to one-half of
village households without access to land and depending very heavily on farm labouring
for their incomes. Even in rural Africa, where landlessness is uncommon, households

Agricultural Productivity Growth and Poverty Alleviation

453

with only small plots or that lack working capital may still depend significantly on
labouring for their incomes.
Greater agricultural production is likely to boost the demand for farm labour as the
amount of labour used per hectare rises, either as the area cultivated expands or as the
frequency of cropping increases. How much more labour is demanded depends largely
on the technology used to increase output or the changes in the composition of output
experienced. A new crop technology may reduce input use, raise yields, raise labour
productivity, or, in the case of, say, a short-season maize variety, allow the cultivated
area to be expanded. The first will increase profit but not output, and may reduce
employment; the second will increase output and probably employment, but not
necessarily profits; the third will raise the remuneration of labour, but possibly at the
expense of employment, and the output effect is indeterminate. The last may raise
output, employment and profits, but could well lower yields. A new technology may
also induce a change in the composition of output towards more or less labour-intensive
crops.
If no general outcome can be predicted a priori, the evidence suggests that
agricultural growth driven by yield increases raises the demand for farm labour. Hayami
and Ruttan (1985) review the literature on the effect of modern varieties of rice and
wheat in Asia to conclude that their introduction typically resulted in an increase in
labour requirements per unit of land, and, in some cases, in higher cropping intensity.
Lipton and Longhurst (1989) suggest that, in its initial stage, the green revolution
technology boosted the demand for labour per unit of land by 20%, but that this gain
slowly eroded owing to the subsequent adoption of labour-displacing inputs such as
herbicides, mechanical threshers and tractors. In a similar vein, Binswanger and Quizon
(1986) find a relatively low but positive output elasticity of agriculture with respect to
labour.
Agricultural growth, then, is likely to create some more jobs for farm labourers:
whether this results in higher rural wages is another matter. The impact of agricultural
growth on labour earnings is more difficult to establish, since the agricultural wage rate
is determined by factors both within and outside agriculture. In some cases, wage rates
have risen for example, on central Luzon by 39% to 58% during the adoption of the
green revolution rice technology from 1966 to 1986 (Estudillo and Otsuka, 1999), or in
Bihar where agricultural wage rates in 199091 in prosperous farming areas were more
than twice those in stagnating regions (Thakur et al., 1997) whereas in other cases
such as West Bengal in the late 1980s (Beck, 1995), wages hardly increased as
irrigation and the green revolution were adopted. Indeed, agricultural growth driven by
modern varieties resulted in a decrease in the factor share of labour in several countries
(Jha, 1974; Mellor and Lele, 1973). Interpretations of this observation, however, vary.
Hayami and Ruttan (1985) consider that this cannot be attributed to the factor-saving
bias of the new technology; instead, it is explained by the growing supply of labour
associated with population growth and by the slow adjustment of the wage rate to its
new equilibrium value. Lipton and Longhurst (1989) suggest that, without the
agricultural growth of the green revolution, farm wage rates would have declined
further.

454

Xavier Irz, Lin Lin, Colin Thirtle and Steve Wiggins

The rural economy


Increased agricultural production should have effects on other sectors in the rural
economy through a series of linkages.
These include production links, both upstream from the farm in demand for inputs
and services for agriculture, as well as downstream from the farm in the demand for
processing, storage, and transport of produce (R1). There are also consumption links as
farmers and farm labourers spend their increased incomes on goods and services in the
local rural economy (R2).
The precise degree and form of these linkages are likely to be affected by factors
such as the amount of rural infrastructure, rural population density, the need for
immediate and local processing of farm produce, the nature of technical change in
farming, and the tradability of both farm output and the goods and services demanded
by farming communities.
Since the early 1980s models have been built to estimate the first two of these
1
multipliers for specific regions. These studies show high multipliers (see Table 2).
Most of these studies show that the bulk 75% or more of the effects arise through
consumption linkages.
Some studies show greater effects in areas with more infrastructure and well
developed rural-urban links, and correspondingly lower multipliers for cases from
Africa where these conditions do not usually apply. On the other hand, Delgado and
colleagues (1994) have produced equally high if not higher linkages for African cases,
arguing that isolation in rural Africa means that any exogenous increase in farm
earnings will be spent disproportionately on locally produced goods and services.

Table 2: Multipliers from increases in farm output to other sectors


Study location and time

Multiplier estimated

Source

Muda Valley, Malaysia, 1972

1.83
[1.71]

Haggblade et al., 1989


[Haggblade et al., 1991]

North Arcot District, Tamil


Nadu, India, 19823

1.87

Hazell and Ramasamy 1991

Sierra Leone, Rural, 19745

1.35

Haggblade et al., 1991

Burkina, 198485
Niger, 198990
Senegal, 198990
Zambia, 198586

Ranging:
From 1.31 to 4.62

Delgado et al., 1994a


Delgado et al., 1994b

These findings have, however, been disputed. As with most models, the
assumptions may be questioned. In particular, the strong multipliers for rural Africa
reported by Delgado and his colleagues have been criticised by de Janvry (1994) as
being based on unlikely assumptions about the perfect elasticity of supply of nontradables.
1. See Haggblade et al. (1991) for a discussion of these models. They favour using semi-input-output models.

Agricultural Productivity Growth and Poverty Alleviation

455

Hart (1989) comments that the Muda Valley study underplayed the extent to which
increased spending went on goods that were imported into the region. She also focuses
on how capital has been exported from the Muda Valley. In similar fashion, HarrissWhites detailed studies (1997) of a market town and its hinterland in North Arcot
suggest that capital is being siphoned out of the rural areas to the urban economy. She
also casts doubt on the extent to which the farm economy stimulates the non-farm
economy. Her work suggests that the growth of rural industries in the town of Arni
owes more to links with the urban hierarchy of India as a whole, than to the fortunes of
the surrounding rural areas.
But there are other possible links. For example, there may be gains both to welfare
and to rural human capital (R3) as increased food production and farming incomes
allow better nutrition of rural workers and investment in health and education (Timmer,
1995). Increased agricultural output may generate more tax revenues, allowing more
public investment in infrastructure, the demand for which may be stimulated by the
growth of the farm sector (R4). A final linkage may run from a more dynamic farm
sector to social capital formation, as increased interactions between farmers, input
suppliers, processors and banks generate the confidence and trust needed to mount new
non-agricultural businesses (R5).
Little research has been done into the strengths of these three linkages. Almost
certainly, however, their applicability and importance will vary greatly between
different contexts.
The last impact on the rural economy may be that of reducing food prices (R6).
Since this usually applies when national food prices have been lowered, this issue will
be discussed together with effect N1 below.

The national economy


Nationally, it is argued that an increase in output tends to drive down the price of food,
hence benefiting consumers and all net purchasers of food (N1). Since the poor, both
urban and rural, spend a greater proportion of their incomes on food than better-off
households (see, for example Musgrove (1985) on the case of the Dominican Republic),
they benefit relatively more (Pinstrup-Andersen and Hazell, 1985).
The strength of this effect depends a great deal on the degree to which farm
production is tradable and the associated price elasticity of demand. Alston and his
colleagues (1998) show that, following an increase in supply, the price decrease
determining the distribution of benefits between producers and consumers depends on
the elasticity of demand of the commodity considered. The more inelastic the demand,
the greater the fall in price and hence the share of the benefits accruing to consumers.
On the other hand, if demand were perfectly elastic, only producers would gain. The
elasticity of demand that producers face depends largely on the size of the market
supplied and hence on tradability. Thus, recent liberalisation of trade probably means
that producers are capturing an increasing share of the benefits from agricultural
growth, while any consumer gains become increasingly global. That said, where
markets are poorly integrated and infrastructure underdeveloped, farm produce becomes
effectively non-tradable so that increased output is likely to cause substantial falls in
output prices with consequent gains to consumers. It is thus likely that the poor in sub-

456

Xavier Irz, Lin Lin, Colin Thirtle and Steve Wiggins

Saharan Africa and South Asia should benefit more from domestic agricultural growth
than the poor in Latin America, West Asia and North Africa (Byerlee, 2000).
Evidence suggests that this mechanism has been quantitatively important over the
last few decades in the fight against poverty. At the most aggregated level, Grilli and
Yang (1988) establish that the world price index of cereals exhibited a downward trend
between 1900 and 1987, a trend that has been maintained subsequently (Johnson, 1997)
with only a short-lived interruption in 19967. Otsuka (2000) and Binswanger and
Quizon (1989) conclude that much of the positive effect of green revolution technology
on inequality and poverty came from lower food prices because of output expansion.
Schuh (2000) also suggests that the greatest achievement of world agriculture in the
fight against poverty has been the supply of affordable food to the masses.
Agricultural growth can contribute to overall national growth and through this to
poverty reduction. The dual-economy models of Lewis (1954) and followers (Fei and
2
Ranis, 1961) stress the importance of capital formation and wage costs for
development. Furthermore, in spite of the recent liberalisation of capital markets,
investment in developing countries still relies largely on domestic savings (Ventura,
1997).
Agricultural growth can thus facilitate development by allowing a sustained
transfer of resources from agriculture to the rest of the economy, including through the
supply of capital to other sectors (N2). Although this transfer of resources can rely on
voluntary savings by the agricultural population, given the right set of incentives
(Griffin, 1979), many governments have accelerated the process by taxing agriculture
directly or indirectly. Hence, early industrialisation in Japan in the last decades of the
nineteenth century was largely financed by a land tax, representing over 80% of fiscal
revenues at the time (Ghatak and Ingersent, 1984). In many developing countries,
agriculture still makes a substantial net contribution to government revenue (Schiff and
Valds, 1992).
Similarly, scarcity of foreign exchange in low-income countries may restrict the
purchase of capital goods and other imports essential to investment. Here again, growth
in output of tradable farm commodities can make a contribution by either substituting
3
food imports or increasing exports (N3).
Finally, growth of agricultural productivity per labour unit at a rate higher than
agricultural production can allow the release of labour to other sectors where there are
higher productivity jobs (N4). This transfer, central to Lewiss theories of development,
has been an important element in the very high rates of growth experienced in East
Asian economies since the 1980s.

2. More recent work suggests that capital should be understood in a broad sense to include human aspects
and knowledge, as argued by the endogenous growth literature (Romer, 1986; Lucas, 1988).
3. In Taiwan during the 1950s and 1960s, exports of agricultural commodities, primarily rice and sugar,
provided the foreign exchange for at least half of the countrys imports and were essential in launching the
industrialisation process (Mao and Schive, 1995). Henson and Loader (2000) report that during the period
198097, agricultural and food products typically accounted for over 25% of total merchandise exports
from sub-Saharan Africa.

Agricultural Productivity Growth and Poverty Alleviation

457

Theoretical effects summed up


The sixteen different effects identified here do not necessarily apply in all cases. Indeed,
some are contradictory for example, R6 and N1 depend on falling food prices that
would offset any increased incomes to farmers (F1) and consequent effects such as N2,
R3, and R4. Those benefits that might arise from absorbing labour (F2) conflict with the
contribution of releasing labour (N4). Which effect applies, and how strongly, depends
on circumstances specific to particular cases. There is thus ample scope for increases in
agricultural output to generate very different outcomes in different circumstances.
That said, the literature suggests that some of these effects apply more commonly,
or tend to have greater strength, than others. For the poor, extra farm jobs and higher
wages (F2) may be the single most obvious benefit; followed by the impact of
additional spending in the rural economy (R2); and the value to the national economy
and social welfare of reduced costs of food (N1, R6).
If net outcomes can be difficult to determine a priori, this justifies an empirical
investigation of the relationship between agricultural growth and poverty. This is what
we examine in the next section.

Empirical estimates of the relationship between agricultural


output and poverty
Previous studies
Several country studies reported in the literature demonstrate convincingly the pro-poor
bias of agricultural growth. Datt and Ravallion (1996) establish that the sectoral
composition of economic growth is a key determinant of poverty alleviation in India.
First rural growth reduces poverty in both rural and urban areas, but urban growth does
not alleviate poverty in rural areas. Second, a decomposition of growth by sectors
demonstrates that growth in agriculture benefits the poor in both urban and rural areas,
while growth in manufacturing has no impact on poverty in either. In their 1998 paper,
the same authors explain further the pro-poor character of agricultural growth by
estimating a simultaneous equation model of poverty determination. The results show
that land yield is inversely related to a variety of poverty measures, with an elasticity
ranging from one to two. As expected, yield growth contributes to poverty alleviation
both directly and by inducing a rise in the wage rate as well as a decline in the price of
food, although these price effects take several years to materialise.
Wodon (1999) also establishes the superiority of rural growth over urban growth
for poverty alleviation in Bangladesh. His simulations suggest that a pro-rural
development strategy would probably bring down the poverty headcount in the country
by 3 points by 2008, compared with a baseline scenario of no policy change. Moreover,
analysing poverty in Indonesia, Thorbecke and Jung (1996) reach the conclusion that
the bulk of poverty reduction is achieved by growth within agriculture.
Rangarajan (1982, reported in Hazell and Haddad, 2000) estimated that a 1%
addition to the agricultural growth rate in India stimulated a 0.5% addition to the growth
rate of industrial output, and a 0.7% addition to the growth rate of national income. For
Kenya, Block and Timmer (Timmer, 1995) obtained a multiplier from an exogenous

458

Xavier Irz, Lin Lin, Colin Thirtle and Steve Wiggins

shift in farm output of 1.64 for the rest of the economya higher value than that arising
from industrial growth, where the multiplier was estimated at 1.23.
Coxhead and Warr (1991) used a computable general equilibrium (CGE) model,
loosely styled on the case of the Philippines, to show how, in a small open economy,
technical improvements in farming are likely to benefit labour, especially if the
technical change is labour-using or land-saving. Taking the case of a 10% improvement
in farm output, applicable to irrigated areas, with technology that saves land but uses
labour, their work predicts almost an 8% increase in the incomes of landless labourers.
For Bolivia, de Franco and Godoy (1993) also built a CGE model to show that
technical improvements to crops generate all-round benefits in the economy, stimulating
growth and employment. But improvements to the main non-tradable crop, potatoes,
have greater effects than improvements to traded crops such as wheat or soybeansin
large part because the price of potatoes falls, raising real incomes in a country where the
poor spend large fractions of their household budgets on foodstuffs.
Cross-country examinations of the relationship between growth and poverty
confirm the previous results. Gallup et al. (1997) find that a 1% increase in agricultural
GDP leads to a 1.61% increase in the incomes of the poorest quintile, while the
corresponding values for the manufacturing and services sectors are only 1.16% and
0.79%. Other cross-country studies, reviewed in Hanmer and Naschold (2000), provide
further evidence of the pro-poor bias of agricultural growth, with only the results of
4
White and Anderson contradicting this view.

The estimates made here


In this section we examine the proposition that agricultural productivity has a direct
5
impact on poverty headcounts and other poverty measures. This relationship, supported
by the work of Datt and Ravallion in India mentioned above, does not appear to have
been investigated in a cross-section of countries. It is similar to the notion of estimating
poverty elasticities for growth.
Agricultural output is measured by its value added, that is, gross output net of the
costs of intermediate inputs, hence removing the costs of intensification using
increasing amounts of modern inputs. It is not clear whether labour or land productivity
should be included as the explanatory variable in the poverty regressions. Therefore
several models are estimated, using the following identity:
VALUE ADDED
PER UNIT LABOUR

VALUE ADDED
LAND

LAND
PER UNIT LABOUR

(1)

4. White and Anderson (2001) find a negative effect of agricultural growth on poverty. Their data are from
the same source as Timmer (1997) and Gallup et al. (1997), but they retain only high quality data, thus
dropping many developing countries, and all of SSA except Zambia. Thus their result seems to come from
the fact that half the sample is developed countries, with agricultural sectors that are too small to affect
poverty. This is of little interest for the current study, where the emphasis is on the poorer developing
countries.
5. The poverty measures are not discussed here, but they can differ considerably. See Wodon (1997) for
some comparisons of poverty indicators in Bangladesh that give inconsistent results.

Agricultural Productivity Growth and Poverty Alleviation

459

Equation (1) decomposes labour productivity into the product of two components:
land productivity, or yield, and the land labour ratio, which can be viewed as an
indicator of a countrys resource endowment. Thus, the yield contribution to labour
productivity can be separated from the relative scarcity of land, which it is not possible
to change. This relationship is exploited to specify three simple models:

1 :1n POVERTY INDEX = a + b 1n [VALUE ADDED/LAND] +

2 :1n POVERTY INDEX = + 1n [VALUE ADDED / LABOUR ] +

(2)
(3)

3 :1n POVERTY INDEX = + 1n [VA / LAND] + 1n [ LAND / LABOUR] + (4)


Both double-log and non-log forms of the relationships presented in equations (2)(4)
were tested, leading to very similar results. The double-logarithmic form was therefore
chosen since it makes interpretation of the regression results straightforward,
coefficients and representing the elasticities of poverty with respect to yields and the
land-labour ratio. The data for the independent variables were obtained from the World
Development Indicators (2000) data set.
Several sets of regressions were run using alternative poverty indices and different
sample sizes. The analysis begins by fitting equations (2)(4) with the available crosssection of US$1 per day poverty percentages as the dependent variable taken from the
World Development Report 2000/2001. The results are reported in Table 3. Model 1 has
only 40 observations because the yield data end at 1995 and many of the 72 poverty
estimates are for later dates. However, the 40 countries constitute a reasonable sample
6
of the developing world.
2
The adjusted R of 0.20, in model 1 of Table 3, means that yield explains only 20%
of the variance in poverty, which is not satisfactory, since it suggests that other, omitted
variables explain the majority of the differences. The productivity measure, however, is
significantly different from zero at a high level of confidence. The poverty elasticity of
-0.37 means that a 1% increase in yields reduces the percentage of the populations
living on less than US$1 per day by 0.37%.
Model 2 explains just over 50% of the variance, which is far better, and the poverty
elasticity, which is again highly significant, rises to -0.83, so a 1% improvement in
labour productivity reduces the poverty count by 0.83%. The sample increases to 66,
but the problem with this model is that the effect could all be coming from the landlabour ratio component of the labour productivity index.
Thus, following these preliminary tests, Model 3 separates the two terms. The model
explains 62% of the variance in poverty, and the large increase in the F statistic
indicates that it is statistically preferred to the two previous attempts. A 1% increase in
the landlabour ratio reduces poverty by 0.82%, which is surprisingly low relative to the
6. The countries are Algeria, Botswana, Bulgaria, Burkina Faso, Central African Republic, Chile, Cte
d'Ivoire, Ecuador, Egypt, Estonia, Guatemala, Kenya, Korea, Lesotho, Madagascar, Mali, Mauritania,
Mexico, Mongolia, Morocco, Namibia, Nepal, Niger, Paraguay, Poland, Portugal, Romania, Rwanda,
Senegal, Sierra Leone, Slovenia, South Africa, Sri Lanka, Tanzania, Tunisia, Turkey, Uganda, Uruguay,
Uzbekistan and Zimbabwe. The greatest weakness is that the largest countries of Asia, such as China and
India, are missing, so a huge proportion of the worlds poor people are not included. Also, some would
omit the central and eastern European countries.

460

Xavier Irz, Lin Lin, Colin Thirtle and Steve Wiggins

effect of the land productivity term, which indicates that a 1% improvement in yields
7
decreases the percentage of the population living on less than US$1 per day by 0.91%.
Again, the variables are highly significant and this is the preferred model.

Table 3: Regressing agricultural productivity on poverty count:


cross sectiona
Explanatory variables

Expected sign

Estimated coefficients
Model 1
b
-0.37

Model 2
Model 3
b
VA/LAND
Negative
-0.91
b
VA/LABOUR
Negative
-0.83
b
LAND/LABOUR
Negative
-0.819
b
b
b
Constant
4.26
8.06
8.48
R square
0.20
0.506
0.625
b
b
b
F Test
13.35
13.35
53.42
Sample Size
40
66
40
a) dependent variable is % of population with less than $1 per day; b) significant at the 1% level,
two-tailed test.

The implications of these results should be assessed in view of the yield increases
that the world has experienced over the last few decades and the potential for future
yield growth. Mitchell et al. (1997) report that between 1950 and 1990 cereal yields in
developing countries grew at an annual rate of 2.17%. Using the elasticity computed
above, such a growth rate reduces a poverty head count of 40% typical of a least
developed country to 30% in only ten years. Further, the green revolution demonstrates
that much faster yield growth can be achieved, given investments in agricultural R&D
8
and rural infrastructure. The results therefore suggest that agricultural growth driven by
yield gains can provide a particularly effective way of fighting poverty. This claim
could be tested further if an elasticity was calculated to link R&D expenditure to yield
gains. Then, the cost of generating a 1% decrease in poverty could be inferred. Since
R&D expenditures are quite modest, we expect that this could appear as a very costeffective means of reducing poverty.
The sensitivity of the results to sample size was tested by applying the same
9
methodology to the data used by Hanmer and Naschold (2000) that have scattered
observations from 1985 to 1995 for 58 countries, thus increasing the number of
observations to 109. Table 4 is totally consistent with the previous analysis: the
specification decomposing labour productivity into yield and land-labour ratio (model
3) is preferred; the poverty reduction from a 1% increase in yields still appears to be
about 0.7% and the relationship is again highly significant.
7. Interestingly, the equivalent figure for African countries alone is 0.96, an even stronger linkage (see
Thirtle et al., 2001)
8. Hence, wheat yields in India doubled from 1967 to 1983 (FAO-STAT database), implying an annual rate
of growth of almost 4.5%. It should be noted, however, that some believe that yield growth is slowing
down (Pinstrup-Andersen et al., 1999) and that marginal yield gains are becoming increasingly difficult
and costly to achieve (Ruttan, 2000).
9. We thank them for making these data available.

Agricultural Productivity Growth and Poverty Alleviation

461

Table 4: Regressing agricultural productivity on poverty count:


pooled samplea
Explanatory Variables

Expected sign

Estimated coefficients
Model 1
b
-0.299

Model 2
Model 3
b
VA/LAND
Negative
-0.72
b
VA/LABOUR
Negative
-0.629
b
LAND/LABOUR
Negative
-0.605
YEAR DUMM
-0.014
0.117
0.1066
c
c
c
Constant
4.498
7.177
7.616
R square
0.088
0.3095
0.328
b
b
F Test
6.44
20.2
14.79
Sample Size
109
113
109
a) dependent variable is % of population with less than $1 per day; b) significant at the 1% level,
two-tailed test; c) significant at the 5% level, two-tailed test.

The earliest observations for the US$1 per day poverty index are for 1985, whereas
the Human Development Index (HDI) from the UNDP dataset goes back to 1975, so the
HDI was used in the place of the US$1 per day poverty measure in an attempt to cover
the effects of the green revolution period. Only the preferred model 3 is reported in
Table 5. The two agricultural productivity variables alone explain 76% of the variance
in the HDI and both are highly significant. Thus, this regression confirms the apparently
solid link between agricultural productivity growth and poverty reduction. Raising
yields by 1% increases the HDI by 0.12%, which is the right direction, but an increase
in the value of a composite index is more difficult to interpret than a reduction in the
numbers of poor falling below US$1 per day.

Table 5: Explaining the Human Development Index


Variables

Expected sign

VA/LAND
Positive
LAND/LABOUR
Positive
Constant
R square
F-statistic
Sample Size
a) significant at the 1% level, two-tailed test.

Estimated coefficients
Model 3
a
0.1226
a
0.1011
a
-2.39
0.759
a
328.48
280

In summary, the regressions presented strongly suggest that agricultural


productivity is an important determinant of poverty, and that increases in yields have
the potential to lift a large number of individuals out of poverty. However, although
these results appear to be robust, they should be analysed with caution. There are
obviously other variables affecting poverty, such as the provision of public goods or the
level of inequality, and they should ideally be included in the model. Otherwise,

462

Xavier Irz, Lin Lin, Colin Thirtle and Steve Wiggins


10

variable omission may bias the elasticities. To ensure that the elasticities presented did
not only reflect gross mis-specification of the model, a system of equations explaining
simultaneously inequality, poverty and income per capita was estimated. The results
11
confirmed the significance of the poverty elasticity with respect to land yield.

Conclusion
Theoretically there are reasons to expect agricultural growth to relieve rural poverty, but
these depend on all manner of qualifications dependent on specific circumstances.
Empirical work, however, tends to show strong poverty-alleviating effects of
agricultural growth. Indeed, the strength of these is potentially remarkable. It seems, for
example, that a yield increase of one-third might reduce the numbers in poverty by a
quarter or more.
This implies that the hypothesised linkages from agricultural production to poverty
probably operate significantly and strongly in many circumstances. In particular, it is
likely that the ability of agriculture to generate employment, to stimulate the rural
economy through linkages, and to reduce the real cost of food accounts for much of the
poverty-reducing effects observed.
The question then arises: how many other comparable development efforts are
likely to have greater impact on reducing poverty than those that help raise agricultural
production? This requires additional analysis, but if the linkages really are as strong as
our estimates suggest, it is a fair guess that rather few alternatives will show a better
return.

References
Alston, Julian M., Norton, George W. and Pardey, Philip G. (1998) Science under
Scarcity. New York and Wallingford: NAR and CAB International.
Barker, R. and Herdt, R. (1985). Who Benefits from the New Technology?, in The
Rice Economy in Asia. Washington, DC: Resources for the Future.
Barrett, Christopher B. (1998) Immiserized Growth in Liberalized Agriculture, World
Development 26(5): 743-53.
Beck, Tony (1995) The Green Revolution and Poverty in India. A Case Study of West
Bengal, Applied Geography 15 (2): 161-81.
Binswanger, H.P. and Quizon, J.B. (1986) What Can Agriculture Do for the Poorest
Rural Groups? Report No. 57. Washington, DC: Agricultural and Rural Development
Department, World Bank.
Byerlee, Derek (2000) Targeting Poverty Alleviation in Priority Setting for
Agricultural Research, Food Policy 25: 429-45.
Carney, D. (ed.) (1998) Sustainable Livelihoods: Lessons from Early Experience. London:
DFID.
10. Specifically if a variable that is positively correlated with the explanatory variables is omitted, this will
tend to bias the elasticities upwards, since the contribution of the omitted variable will tend to be picked up
by those that are included. The reverse will be true if the omitted variable is negatively correlated with the
regressors
11. The results are reported in Lin et al. (2001), available from the authors on request.

Agricultural Productivity Growth and Poverty Alleviation

463

CGIAR (2000) A Food Secure World for All: Toward a New Vision and Strategy for the
CGIAR. Washington DC: CGIAR Secretariat.
Cox, A, Farrington, J and Gilling, J. (1998) Reaching the Poor? Developing a Poverty
Screen for Agricultural Research Proposals. ODI Working Paper 112. London:
Overseas Development Institute.
Coxhead, Ian A. and Warr, Peter G. (1991) Technical Change, Land Quality and
Income Distribution: A General Equilibrium Analysis, American Journal of
Agricultural Economics 73: 34560.
Dasgupta, Partha (1998) The Economics of Poverty in Poor Countries, Scandinavian
Journal of Economics 100 (1): 41-68.
Datt, Gaurav and Ravallion, Martin (1996) How Important to Indias Poor is the
Sectoral Composition of Economic Growth?, World Bank Economic Review 10
(1): 1-25.
Datt, G. and Ravallion, M. (1998) Farm Productivity and Rural Poverty in India, Journal
of Development Studies 34 (4): 62-85.
David, C. and Otsuka, K. (eds) (1994) Modern Rice Technology and Income
Distribution in Asia. Boulder, CO: Lynne Rienner.
De Franco, Mario and Godoy, Ricardo (1993) Potato-led Growth: The Macroeconomic
Effects of Technological Innovations in Bolivian Agriculture, Journal of
Development Studies 29 (3): 56187.
de Janvry, Alain (1994) Farm-nonfarm Synergies in Africa: Discussion, American
Journal of Agricultural Economics 76: 1183-5.
Delgado, Christopher, Hazell, Peter, Hopkins, Jane and Kelly, Valerie (1994a)
Promoting Intersectoral Growth Linkages in Rural Africa through Agricultural
Technology and Policy Reform, American Journal of Agricultural Economics 76:
1166-71.
Delgado, Christopher L., Hopkins, Jane C. and Kelly, Valerie A. (with Peter B.R.
Hazell, Anna Alfano, Peter Gruhn, Behjat Hojjati and Jayashree Sil) (1994b)
Agricultural Growth Linkages in Sub-Saharan Africa. Washington, DC: IFPRI.
Estudillo, Jonna P. and Otsuka, Keijiro (1999) Green Revolution, Human Capital, and
Off-farm Employment: Changing Sources of Income Among Farm Households in
Central Luzon, 1966-1994, Economic Development and Cultural Change 47: 497523.
Fei, J.C. and Ranis, G. (1961) A Theory of Economic Development, American
Economic Review 51 (4): 533-65.
Gallup, John, Radelet, Steven and Warner, Andrew (1997) Economic Growth and the
Income of the Poor. CAER II Discussion Paper No 36. Cambridge, MA: Harvard
Institute for International Development.
Ghatak, Subrata and Ingersent, Ken (1984) Agriculture and Economic Development.
Brighton: Wheatsheaf Harvester Press.
Griffin, K. (1979) The Political Economy of Agrarian Change. London: Macmillan.
Grilli, Enzo R. and Yang, Maw Cheng (1988) Primary Commodity Prices,
Manufactured Goods Prices and the Terms of Trade of Developing Countries: What
the Long Run Shows, World Bank Economic Review 2 (1): 1-48.
Haggblade, Steven, Hammer, Jeffrey and Hazell, Peter (1991) Modeling Agricultural
Growth Multipliers, American Journal of Agricultural Economics (May): 361-74.

464

Xavier Irz, Lin Lin, Colin Thirtle and Steve Wiggins

Haggblade, Steven, Hazell, Peter and Brown, James (1989) Farm-nonfarm Linkages in
Rural Sub-Saharan Africa, World Development 17 (8): 1173-1201.
Hanmer, L and Nashchold, F. (2000) Attaining the International Development Targets:
Will Growth be Enough?, Development Policy Review 18 (1):11-36.
Harriss-White, Barbara (1997) Regional Growth Linkages from Agriculture and
Resource Flows in Non-farm Economy, Economic and Political Weekly 22 (12):
3146.
Hart, Gill (1989) The Growth Linkages Controversy: Some Lessons from the Muda
Case, Journal of Development Studies 25 (4): 571-75.
Hayami, Y and Ruttan, V. (1985) Agricultural Development: An International
Perspective. Baltimore, MD: Johns Hopkins University Press.
Hazell, Peter and Ramasamy, C. et al. (1991) The Green Revolution Reconsidered: The
Impact of High-yielding Rice Varieties in South India. Baltimore, MD and London:
Johns Hopkins University Press for IFPRI.
Hazell, Peter and Haddad, Lawrence (2000) CGIAR Research and Poverty Reduction.
Draft paper prepared for the Technical Advisory Committee of the CGIAR.
Washington, DC: IFPRI, September.
Hazell, Peter, B. R. and Hojjati, Behjat (1994) Farm/Non-farm Linkages in Zambia,
Journal of African Economies 4 (3): 404-35.
Henson, Spencer and Loader, Rupert (2001) Barriers to Agricultural Exports from
Developing Countries: The Role of Sanitary and Phytosanitary Requirements,
World Development 29 (1): 85-102.
IFAD (2001) Rural Poverty Report 2001. The Challenge of Ending Rural Poverty.
Oxford: Oxford University Press for IFAD.
Jazairy, Idriss, Alamgir, Mohiuddin and Panuccio, Theresa (1992) State of World Rural
Poverty. London: Intermediate Technology Publications for IFAD.
Jha, Dayanatha (1974) Agricultural Growth, Technology and Equity, Indian Journal of
Agricultural Economics 29: 207-16.
Johnson, D. Gale (1997) On the Resurgent Population and Food Debate, Australian
Journal of Agricultural and Resource Economics 41 (1): 1-17.
Johnston, B. F. and Mellor, J. W. (1961) The Role of Agriculture in Economic
Development, The American Economic Review 51 (4): 566-93.
Kuznets, S. (1964) Economic Growth and the Contribution of Agriculture, in C.K.
Eicher and L.W. Witt (eds), Agriculture in Economic Development. New York:
McGraw-Hill.
Lewis, W.A. (1954) Development with Unlimited Supply of Labour, Manchester School
22:139-91.
Lin, Lin, McKenzie, Victoria, Piesse, Jenifer and Thirtle, Colin (2001) Agricultural
Productivity and Poverty in Developing Countries. Extensions to DFID Report No.
7946.
Lipton, M. (1977) Why Poor People Stay Poor: Urban Bias in World Development.
London: Temple Smith.
Lipton, M. (2001) The Changing Face of Rural Poverty, International Development
Assistance and IFADs Role: The Issues, in IFAD.
Lipton, M. and Longhurst, R. (1989) New Seeds and Poor People. London: Unwin
Hyman.

Agricultural Productivity Growth and Poverty Alleviation

465

Lucas, R. (1988) On the Mechanics of Economic Development, Journal of Monetary


Economics 22: 3-42.
Mao, Yu-Kang and Schive, Chi (1995) Agricultural and Industrial Development in
Taiwan, in J.W. Mellor (ed.), Agriculture on the Road to Industrialization.
Baltimore, MD: Johns Hopkins University Press.
Mellor, John W. and Adams Jr, Richard H. (1986) The New Political Economy of
Food and Agricultural Development, Food Policy 11: 28997.
Mellor, J.W. and Lele, Uma (1973) Growth Linkages with the New Foodgrain
Technologies, Indian Journal of Agricultural Economics 28: 35-55.
Mitchell, D.O., Ingco, M.D. and Duncan, R.C. (1997) The World Food Outlook.
Cambridge: Cambridge University Press.
Musgrove, Philip (1985). Household Food Consumption in the Dominican Republic:
Effects of Income, Price and Family Size, Economic Development and Cultural
Change 34 (June): 83-101.
Otsuka, Keijiro (2000) Role of Agricultural Research in Poverty Reduction: Lessons
from the Asian Experience, Food Policy 25: 447-62.
Otsuka, Keijiro and Reardon, Thomas (1998) Lessons from Rural Industrialization in
East Asia: Are They Applicable to Africa? Paper for IFPRI Conference on
Strategies for Stimulating Growth of the Rural Nonfarm Economy in Developing
Countries, Airlie Ho, VA, May.
Pinstrup-Andersen, Per and Hazell, P.B.R. (1985) The Impact of Green Revolution and
Prospects for the Future, Food Review International 1 (1).
Pinstrup-Andersen, Per, Pandya-Lorch, Rajul and Rosegrant, Mark W. (1999) World
Food Prospects: Critical Issues for the Early Twenty-first Century. Food Policy
Report. Washington, DC: IFPRI.
Ranis, G. (1979) Appropriate Technology in the Dual Economy: Reflections on
Philippine and Taiwanese Experience, in A. Robinson (ed.), Appropriate
Technologies for Third World Development. New York: Macmillan.
Ravallion, M. (1995) Growth and Poverty: Evidence for Developing Countries in the
1980s, Economics Letters 48: 411-7.
Reardon, Thomas (1997) Using Evidence of Household Income Diversification to
Inform Study of the Rural Nonfarm Labor Market in Africa, World Development
25 (5): 735-47.
Reardon, Thomas, Crawford, Eric and Kelly, Valerie (1994) Links between Nonfarm
Income and Farm Investment in African Households: Adding the Capital Market
Perspective, American Journal of Agricultural Economics 76: 1172-6.
Reardon, Thomas, Taylor, J. Edward, Stamoulis, Kostas, Lanjouw, Peter and Balisacan,
Arsenio (1998) Effects of Nonfarm Employment on Rural Income Inequality in
Developing Countries: An Investment Perspective. Paper for the symposium on
Rural Diversification in the Developing World, Agricultural Economics Society
Annual Conference. University of Reading, 25-28 March.
Romer, Paul M. (1986) Increasing Returns and Long-run Growth, Journal of Political
Economy 94 (5): 1002-37.
Ruttan, V. (2000). Technology, Growth and Development An Induced Innovation
Perspective. Oxford: Oxford University Press.
Schiff, Maurice and Valds, Alberto (1992) The Plundering of Agriculture in
Developing Countries. Washington, DC: World Bank.

466

Xavier Irz, Lin Lin, Colin Thirtle and Steve Wiggins

Schuh, Edward G. (2000) The Household: The Neglected Link in Research and
Programs for Poverty Alleviation, Food Policy 25: 233-41.
Schultz, T.W. (1964) Transforming Traditional Agriculture. New Haven, CT: Yale
University Press.
Scobie, Grant M. and Rafael, Posada T. (1978) The Impact of Technical Change on
Income Distribution: The Case of Rice in Colombia, American Journal of
Agricultural Economics 60 (1): 85-92.
Stewart, F. (1978) Technology and Underdevelopment. London: Macmillan.
Thakur, S. C. P., Mishra, R. R. and Choudhury, J. N. (1997) Migration of Agricultural
Labourers in Bihar in the Perspective of Underdeveloped and Developed
Agriculture, Economic Affairs 42 (1): 28-37.
Thirtle, Colin, Irz, Xavier, Lin, Lin, McKenzie-Hill, Victoria and Wiggins, Steve (2001)
Relationship between Changes in Agricultural Productivity and the Incidence of
Poverty in Developing Countries. Report to DFID Natural Resources Policy
Research Programme, Project R7946.
Thorbecke, E. and Jung, H. S. (1996) A Multiplier Decomposition Method to Analyse
Poverty Alleviation, Journal of Development Economics 48 (2): 279-300.
Timmer, C. Peter (1995) Getting Agriculture Moving: Do Markets Provide the Right
Signals?, Food Policy 20 (5): 455-72.
Timmer, C. P. (1997) How Well Do the Poor Connect to the Growth Process? CAER II
Discussion Paper No.17. Cambridge, MA: Harvard Institute for International
Development.
Ventura, Jaume (1997) Growth and Interdependence, Quarterly Journal of Economics
CXII (1): 57-84.
White, H. and Anderson, E (2001) Growth versus Distribution: Does the Pattern of
Growth Matter?, Development Policy Review 19 (3): 267-89.
Wodon, Q. (1999) Growth, Poverty and Inequality: A Regional Panel for Bangladesh.
Policy Research Working Paper 2072. Washington, DC: World Bank.
World Bank (2000) World Development Report 2000/01: Attacking Poverty. New York:
Oxford University Press for World Bank.

You might also like