Human Development Report 2013 - UNDP

BOX 3.4Investing in agricultureStrategic investments in the agricultural sector can have transformativeeffects. Higher crop yields not only lead to improved livelihoods for farmers,they also increase demand for goods and services in rural areas, givingrise to new opportunities for economic development. They may also lead tolower food prices, reducing the share of food in household expenditures andcreating markets for other sectors of the economy.Agricultural research is a public good and tends to be underprovidedby the private sector. Consequently, governments can make usefulcontributions in this area. Recent studies on several African, Asianand Latin American countries show that increased public spending onagriculture is particularly good for promoting growth. Disaggregatingagricultural expenditure into research and nonresearch spending showsthat research spending is especially effective. Provision of other publicgoods, such as agricultural extension services and irrigation systems, isalso beneficial.China has the world’s largest agricultural research and developmentsystem in the world. Its research is based at the Chinese Academy ofAgricultural Sciences, universities and the Chinese Academy of Science,which together comprise of more than 1,100 research institutions. China isbecoming a leader in South–South cooperation with African countries, manyof which are now benefiting from its research.Agricultural technology has also been a strength of Brazil, where anestimated 41% of 2006 agricultural research spending in Latin America occurred.The System for Agricultural Research and Innovation has contributedgreatly to the nearly fourfold growth in agricultural efficiency per worker.The Brazil Agricultural Research Corporation, a state-owned enterprise, hasbeen instrumental in increasing the land area used for cultivation. Similarly,many of Brazil’s agricultural programmes were developed with sustainabilityin mind. For example, to qualify for price support and credit programmes,farmers must respect zoning laws. Another programme, Moderagro, providesfarmers with credit to improve agricultural practices and preservenatural resources, Produsa provides credit for planting on agricultural landthat has degraded soil and Propflora uses credit to encourage the planting offorests (particularly palm oil).Source: OECD 2006, 2011a; Fan and Saurkar 2006; Fan, Nestorova and Olofinbiyi 2010; Stads and Beintema 2009; World Bank 2012a.Each phase thus involved a people- centredapproach in which the growth strategywas modified in response to changingconditions.Enhancing public investmentTraditional economic and social policythinking, as emphasized by the “WashingtonConsensus”, focused on getting economic fundamentalsright as a precondition for economicgrowth, arguing that other human developmentimprovements would follow. A humandevelopment approach, on the other hand, demandsthat improvement in poor people’s livesnot be postponed. Thus, people-friendly developmentalstates are those that expand a numberof basic social services (box 3.5). 20 In this view,investing in people’s capabilities—throughhealth, education and other public services—isnot an appendage of the growth process but anintegral part of it.In addition to the levels of public expenditures,their composition and the efficiency withwhich they are delivered, all taken together, influencethe effective delivery of public servicesand expansion of capabilities. The effectivenessof public expenditure differs across countries.A global cross-country analysis shows apositive correlation between previous publicexpenditure per capita on health and educationand current human development achievement(figure 3.2). Also, higher previous publicspending per capita on health is associated withbetter child survival and lower under-five childmortality rates (figure 3.3). Such outcomesnaturally depend on a country’s stage of developmentand on how well the money is spent.Countries should put in place checks and balancesto prevent reckless borrowing sprees andwasteful spending.There has been much debate about whetherpublic investment crowds in or crowds outprivate investment. Both outcomes are possiblebecause of the many different uses ofpublic capital in developing countries. Fromthe lower levels of health, education andinfrastructure development in South Asiaand Sub-Saharan Africa than in the highperformingcountries of East and SoutheastAsia, it is reasonable to infer that public investment,as well as its composition, performsa critical role.• Bangladesh. Bangladesh has sustainedgrowth in part by increasing the rate of publicinvestment over time while avoiding thefiscal deficits that have plagued the rest of theregion.Investing in people’scapabilities—throughhealth, education andother public services—isnot an appendage ofthe growth process butan integral part of itChapter 3 Drivers of development transformation | 69