The Role of Agriculture in Poverty Reduction : An Empirical Perspective

Abstract

The relative contribution of a sector to poverty reduction is shown to depend on its direct and indirect growth effects as well as its participation effect. The paper assesses how these effects compare between agriculture and non-agriculture by reviewing the literature and by analyzing cross-country national accounts and poverty data from household surveys. Special attention is given to Sub-Saharan Africa. While the direct growth effect of agriculture on poverty reduction is likely to be smaller than that of non-agriculture (though not because of inherently inferior productivity growth), the indirect growth effect of agriculture (through its linkages with nonagriculture) appears substantial and at least as large as the reverse feedback effect. The poor participate much more in growth in the agricultural sector, especially in low-income countries, resulting in much larger poverty reduction impact. Together, these findings support the overall premise that enhancing agricultural productivity is the critical entry-point in designing effective poverty reduction strategies, including in Sub-Saharan Africa. Yet, to maximize the poverty reducing effects, the right agricultural technology and investments must be pursued, underscoring the need for much more country specific analysis of the structure and institutional organization of the rural economy in designing poverty reduction strategies.