Public spending on agricultural productivity and rural commercialization: A comparison of impacts using an economy‐wide approach

Abstract

Motivation: Many developing countries have identified a set of strategic objectives and a longlist of investment areas to promote agricultural production and ensure food security. However, most of these countries lack the financial and technical capacity to execute all of the strategic objectives and investment areas, calling for a robust comparison of their effects. Purpose: Taking the case of Ethiopia as an example, this study employs an economy-wide model and assesses the relative efficiency of alternative investment options on agricultural performance and household welfare. These agricultural investment policies are evaluated under three alternative funding modalities: budget reallocation, donor financing and tax revenue. Approach and methods: To account for the linkage, and direct and indirect impacts of alternative public expenditure policies, this study adapts an economy-wide general equilibrium model for Ethiopia calibrated to a well disaggregated social accounting matrix representing the economic structure in 2010. Findings: Results show that the public expenditure options examined could cause significantly different production and welfare responses. Productivity-enhancing interventions such as input subsidy and irrigation development have superior output and welfare consequences, while policies aimed at smallholder commercialization such as infrastructural development aimed at cutting marketing margins have the least effect, suggesting a need to first prioritize relaxing supply constraints. This ranking of the agricultural policies is robust to the investment financing modalities considered. We, however, observe that financing these projects through income tax could be detrimental to the welfare of urban households. Policy implications: Results show that in a supply-constrained economy like that of Ethiopia, governments should focus on agricultural production and productivity-enhancing interventions (at least in the short run). Reallocation of public funds towards the policies examined should be a principal funding source as this results in superior outcomes. On the other hand, governments should avoid using income tax as a source of finance since this can be highly detrimental to the welfare of urban households.

Using PEST analysis to explore the impact and mechanism of Chinese and American breeding patents on the development of agricultural science and technology

“…Aragie, E applied economic modeling in economics to assess the relative efficiency of alternative investment choices for agricultural performance and household welfare. To explain the linkages, as well as the direct and indirect impacts of alternative public expenditure policies, the study used a general equilibrium model of Ethiopia calibrated according to a well-decomposed socio-accounting matrix representing the structure of the economy in the year 2010 [10]. Gurnovich, T. The innovation and investment processes in the agricultural economy were studied by using system analysis methods taking into account the manifestations of the trend of digitization of the agroindustry.…”

Effect of Palm Oil Subsidies on Productivity and Well-Being of Independent Smallholders

“…Empirical evidence has shown that certain smallholder agricultural subsidies can significantly enhance productivity. For example, Aragie and Balié (2021) discovered that subsidies for inputs and irrigation development were more effective in improving farmers' productivity than subsidies for infrastructure development. Martey et al (2019) reported that fertilizer subsidy programs resulted in a substantial 55% increase in land productivity, primarily due to the increased use of mineral fertilizers.…”

“…Furthermore, offering higher subsidy rates for crop insurance can incentivize greater participation among farmers, ultimately leading to increased productivity (Connor & Katchova 2020). Productivity in these studies is often measured through indicators such as output (Aragie & Balié 2021;Martey et al 2019) and crop yields (Connor & Katchova 2020;Fearon et al 2015;Holden & Lunduka 2010;Woittiez et al 2018). In the context of this study on oil palm plantations, many scholars have chosen the FFB as a proxy for productivity, as observed in works by Ismiasih (2018), Juyjaeng et al (2018), andPuruhito et al (2019).…”

“…Many studies have discussed the factors that affect well-being. Some empirical studies have shown that agricultural subsidies can positively affect smallholders' well-being by impacting various indicators such as their income (Martey et al 2019;Mason et al 2020) and poverty reduction (Aragie & Balié 2021;Awotide et al 2013;Li et al 2022). Additionally, years of education are also determinants of smallholder well-being (Awotide et al 2013).…”