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Agricultural price distortions, inequality, and poverty
For decades, the earnings from farming in many developing countries have been depressed because of a pro-urban, anti-agricultural bias in own-country policies and because governments in more well off countries are favoring their farmers by imposing import barriers and providing subsidies. These policies have reduced national and global economic welfare, inhibited economic growth, and added to inequality and poverty because no less than three-quarters of the billion poorest people in the world have been dependent directly or indirectly on farming for their livelihoods (World Bank 2007). The purpose of the rest of this chapter is to outline the analytical framework and the common empirical methodology adopted in the global and national case studies reported in subsequent chapters, to summarize and compare the modeling results from the global and national models, and to draw some general policy implications. The findings are based on three chapters (part two) that each use a global model to examine the effects of farm and nonfarm price and trade policies on global poverty and the distribution of poverty within and across many of the countries identified, plus ten individual developing-country studies (parts three-five) spanning the three key regions: Asia (where nearly two-thirds of the world's poor live), Sub-Saharan Africa, and Latin America.
eBook
Agricultural price distortions, inequality, and poverty / Kym Anderson, John Cockburn, and Will Martin, editors
Trade policy reforms in recent decades have sharply reduced the distortions that were harming agriculture in developing countries. Yet global trade in farm products continues to be far more distorted than trade in nonfarm goods, and in ways that reduce some forms of poverty and inequality but worsen others, so the net effects are unclear without empirical modeling. Using a new set of estimates of agricultural price distortions, this book brings together economy-wide global and national empirical studies that focus on the net effects of the remaining distortions to world merchandise trade on poverty and inequality globally and in various developing countries. The global LINKAGE model results suggest that removing remaining distortions would reduce international inequality, largely by boosting net farm incomes and raising real wages for unskilled workers in developing countries, and would reduce the number of poor people worldwide by 3 percent. The analysis based on the Global Trade Analysis Project (GTAP) model for a sample of 15 countries, and ten stand-alone national case studies from three continents, suggest even larger reductions in poverty. This is especially so if only the non-poor are subjected to increased income taxation to compensate for the loss of trade tax revenue. The volume draws out the implications for policy reforms in developing countries, pointing to ways in which complementary domestic policies can increase the likelihood that freeing markets for farm products and other goods would reduce both poverty and inequality.
eBook
The world bank group and the global food crisis
The unanticipated spike in international food prices in 2007-08 hit many developing countries hard. International prices for food and other agricultural products increased by more than 100 percent between early 2007 and mid-2008. Prices for food cereals more than doubled; and those for rice doubled in the space of just a few months. The food price increases were particularly hard on the poor and near-poor in developing countries, many of whom spend a large share of their income on food and have limited means to cope with price shocks. An estimated 1.29 billion people in 2008 lived on less than {dollar}1.25 a day, equivalent to 22.4 percent of the developing world population. In addition, the Food and Agriculture Organization estimated that 923 million people were undernourished in 2007. Simulation models suggested that poverty rose by 100-200 million people and the undernourished increased by 63 million in 2008. The World Bank organized rapidly for short-term support in the crisis, launching a fast-track program of loans and grants, the Global Food Crisis Response Program (GFRP). The GFRP mainly targeted low-income countries, and provided detailed policy advice to governments and its own staff on how to respond to the crisis. The Bank also scaled up lending for agriculture and social protection to support the building of medium-term resilience to future food price shocks. The International Finance Corporation responded by sharply increasing access to liquidity for agribusinesses and agricultural traders in the short and medium term, as well as new programs to improve incentives for agricultural market participants. This evaluation assesses the effectiveness of the World Bank Group response in addressing the short-term impacts of the food price crisis and in enhancing the resilience of countries to future shocks.
eBook
Selection, Agriculture, and Cross-Country Productivity Differences
Cross-country labor productivity differences are larger in agriculture than in non-agriculture. We propose a new explanation for these patterns in which the self-selection of heterogeneous workers determines sector productivity. We formalize our theory in a generalequilibrium Roy model in which preferences feature a subsistence food requirement. In the model, subsistence requirements induce workers that are relatively unproductive at agricultural work to nonetheless select into the agriculture sector in poor countries. When parameterized, the model predicts that productivity differences are roughly twice as large in agriculture as non-agriculture even when countries differ by an economy-wide efficiency term that affects both sectors uniformly.
Journal Article
Environmental shocks and agriculture: implications of floods on labor market outcomes
Floods often displace people and exacerbate their access to finance, affecting the livelihood of daily wage workers in least-developed countries. In August 2017, Nepal experienced the heaviest rainfall in more than 60 years, severely flooding about 80 per cent of the land in the southern part of the country. Using the two-way fixed effects approach and an event study design, we evaluate the impact of severe flooding on the wages of agricultural workers. We show that the 2017 floods resulted in a 9–10 per cent decrease in cash wages among agricultural households while in-kind wages of agricultural laborers increased significantly after the floods, implying that in-kind wages helped mitigate the adverse effects of floods on cash wages. We also investigate changes in assistance, loan-seeking behavior, loan repayment, and collection behavior as mechanisms leading to the risk-mitigating behavior by farmers.
Journal Article
GENERAL EQUILIBRIUM EFFECTS OF (IMPROVING) PUBLIC EMPLOYMENT PROGRAMS
Public employment programs may affect poverty both directly through the income they provide and indirectly through general equilibrium effects. We estimate both effects, exploiting a reform that improved the implementation of India’s National Rural Employment Guarantee Scheme (NREGS) and whose rollout was randomized at a large (sub-district) scale. The reform raised beneficiary households’ earnings by 14%, and reduced poverty by 26%. Importantly, 86% of income gains came from non-program earnings, driven by higher private-sector (real) wages and employment. This pattern appears to reflect imperfectly competitive labor markets more than productivity gains: worker’s reservation wages increased, land returns fell, and employment gains were higher in villages with more concentrated landholdings. Non-agricultural enterprise counts and employment grew rapidly despite higher wages, consistent with a role for local demand in structural transformation. These results suggest that public employment programs can effectively reduce poverty in developing countries, and may also improve economic efficiency.
Journal Article
Of maize and men
We examine the question of whether China was trapped within a Malthusian regime at a time when Western Europe had all but emerged from it. By applying a difference-in-differences analysis to maize adoption in China from 1600 to 1910, we find that cultivation of this New World crop failed to raise per capita income. While maize accounted for a nearly 19 % increase in the Chinese population during 1776–1910, its effect on urbanization and real wages was not pronounced. Our results are robust to different sample selection procedures, to the control of variables pertinent to Malthusian “positive checks”, to different measures of economic growth and to data modifications. Our study thus provides rich empirical support to the claim that under the conditions in eighteenth- and nineteenth-century China, new agricultural technologies led to the Malthusian outcome of population growth without wage increases and urbanization.
Journal Article
Capital market distortion, agricultural producer service and wage inequality in the small-scale agriculture
Agriculture in developing countries operates on small-scale plots in general, which makes the direct utilization of durable capital equipment difficult. An intermediate sector is needed to facilitate the usage of capital. By accommodating the agricultural producer service sector, this paper builds three-sector general equilibrium models and investigates the impact of mitigation of capital market distortion on wage inequality between skilled and unskilled labor. The paper highlights the agricultural producer service sector and substitution between service and unskilled labor and arrives that mitigation of capital market distortion may widen wage inequality. The main conclusion is different from existing literature and provides new insights into this issue.
Journal Article