Dube, Bi u Gelgo; Gobena, Adeba Gemechu; Beyene, Amsalu Bedemo
A icle
Dis o ion o ag icul u al incen i es in Eas A ica: e ec s
on ag icul u al alue added
Cogen Economics & Finance
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Sugges ed Ci a ion: Dube, Bi u Gelgo; Gobena, Adeba Gemechu; Beyene, Amsalu Bedemo (2024) :
Dis o ion o ag icul u al incen i es in Eas A ica: e ec s on ag icul u al alue added, Cogen
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Dis o ion o ag icul u al incen i es in Eas A ica:
effec s on ag icul u al alue added
Bi u Gelgo Dube, Adeba Gemechu Gobena & Amsalu Bedemo Beyene
To ci e his a icle: Bi u Gelgo Dube, Adeba Gemechu Gobena & Amsalu Bedemo Beyene
(2024) Dis o ion o ag icul u al incen i es in Eas A ica: effec s on ag icul u al alue added,
Cogen Economics & Finance, 12:1, 2285068, DOI: 10.1080/23322039.2023.2285068
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DEVELOPMENT ECONOMICS | RESEARCH ARTICLE
Dis o ion o ag icul u al incen i es in Eas A ica: e ec s on
ag icul u al alue added
Bi u Gelgo Dube
a
, Adeba Gemechu Gobena
a
and Amsalu Bedemo Beyene
b
a
College o Ag icul u e and Ve e ina y Medicine, Jimma Uni e si y, Jimma, E hiopia;
b
School o Policy S udies,
E hiopian Ci il Se ice Uni e si y, Addis Ababa, E hiopia
ABSTRACT
This s udy examines he e ec s o dis o ion o ag icul u al p ice incen i es on ag icul-
u al alue added in Eas A ica. The Wo ld Bank, IFPRI, FAO, and CSP a e he sou ces
o da a. The da ase anges om 1981 o 2018, and he e o -co ec ed LSDV model is
used o analyze he da a. The esul s indica e ha ag icul u al p ice incen i es ha e
posi i e and signi ican e ec s on ag icul u al alue-added. Agg ega e nominal assis -
ance coe icien , expo able ag icul u al p oduc s nominal assis ance coe icien , and
nominal a e o p o ec ion ha e inc eased ag icul u al alue-added signi ican ly.
Ag icul u al p ice incen i es a ge ing di e en le els o alue addi ion ha e la ge
e ec s han hose a ge ing agg ega e ou pu s. This implies ha ag icul u al incen i e
policies and ma ke condi ions in suppo o local p oduce s a e i al o enhancing
AVA in Eas A ica. Besides, la ge a eas o a able land, lowe ag icul u al employmen ,
a smalle popula ion size, a la ge GDP, less spending on educa ion, and a be e -pe -
o ming poli y con ibu e o a signi ican inc ease in he egional ag icul u al alue
added. The esul s gene ally imply ha ag icul u al p ice incen i es a e i al o accel-
e a ing ag icul u al alue addi ion in Eas A ica. Go e nmen s in his egion should
hus conside e ising ag icul u al policies in a p o-ag icul u al way o u he accele -
a e egional g ow h in ag icul u al alue-added. Enhancing ag icul u al p ice suppo
needs o be a c ucial elemen o policy e isions in he egion.
IMPACT STATEMENT
In Eas A ica, ag icul u e is he main sou ce o employmen o a la ge sec ion o he
popula ion. Howe e , ag icul u al incen i es ha e been epo edly dis o ed agains
ag icul u e, and sec o al income has been low. Consequen ly, a me s’income om
ag icul u al alue addi ion has been low. This s udy epo s he e ec s o he dis o -
ion o ag icul u al incen i es on ag icul u al alue added in Eas A ica. The s udy
shows ha a o able ag icul u al incen i es enhance ag icul u al alue-added. The
indings ha e s ong implica ions o he egion’s smallholde s, who a e he subjec o
hea y axa ion, ei he di ec ly o indi ec ly. I will ha e a - eaching consequences o
he poo , who ely on ag icul u e o a li ing. In pa icula , he indings in luence
egional an i-ag icul u al policy design, which is i al o he egional goal o achie ing
inclusi e g ow h and s uc u al ans o ma ion.
ARTICLE HISTORY
Recei ed 27 Sep embe 2023
Re ised 27 Oc obe 2023
Accep ed 13 No embe 2023
KEYWORDS
Ag icul u al p o ec ion;
p ice incen i es; p ice
dis o ion; NAC; NRP;LSDVC
REVIEWING EDITOR
Aye Goodness, Uni e si y o
Ag icul u e, Benue, Nige ia
SUBJECTS
De elopmen S udies;
De elopmen Policy; Poli ics
& De elopmen
1. In oduc ion
In A ica, ag icul u e has con inued o play a s a egic ole in he p ocess o economic de elopmen .
Despi e i s dominan ole, public spending in his sec o appea s inadequa e on his con inen when com-
pa ed o he weal hies coun ies (Wo ld Bank, 2022). The Ande son & Mas e s (2009) epo shows ha
du ing he 1960s and 1970s, many A ican coun ies implemen ed p o-u ban, an i-ag icul u al, and an i-
ade policies, while many high-income coun ies es ic ed ag icul u al impo s and subsidized hei a m-
e s. The economic policy landscape o de eloping coun ies has long included dis o ed ade incen i es.
CONTACT Bi u Gelgo Dube [email p o ec ed] College o Ag icul u e and Ve e ina y Medicine, Jimma Uni e si y, Jimma, E hiopia
ß2024 The Au ho (s). Published by In o ma UK Limi ed, ading as Taylo & F ancis G oup.
This is an Open Access a icle dis ibu ed unde he e ms o he C ea i e Commons A ibu ion License (h p://c ea i ecommons.o g/licenses/by/4.0/), which
pe mi s un es ic ed use, dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly ci ed. The e ms on which his a icle has been
published allow he pos ing o he Accep ed Manusc ip in a eposi o y by he au ho (s) o wi h hei consen .
COGENT ECONOMICS & FINANCE
2024, VOL. 12, NO. 1, 2285068
h ps://doi.o g/10.1080/23322039.2023.2285068
In mos o hese coun ies, he p o ision o ag icul u al incen i es has con inued o be un a o able (Bali~
no
e al., 2019; Mukasa e al., 2020), hough p og ess has been obse ed in ecen yea s (Mukasa e al., 2020).
Theo ies no e ha go e nmen in e en ion dis o s ag icul u al ma ke s (Je ha, 1982). E ec i e ag i-
cul u al p o ec ion policies a e based on wha is poli ically accep able (Mas e s, 1993), while hei ag i-
cul u al g ow h implica ions de ia e om he p ede e mined ou comes. Kydland & P esco (1982) a gue
ha ou pu g ow h a ia ion is an e ec i e eac ion o ex e nal changes in he ac ual economic en i on-
men . They s ess ha in e en ion h ough iscal o mone a y policy o smoo h g ow h luc ua ions
would be less e ec i e, pa icula ly in he sho un. An in eg a ed model o iscal policy ins umen s
no es ha aising axes is bene icial only i public spending is e ec i ely di ec ed o p oduc i e sec o s
(B
enabou, 1996). O he wise, i would hampe g ow h. This is well explained in he wo ks o G ossman &
Kim (1997); Alesina & Pe o i (1996); Fay (1993). Acco ding o S igli z (1987), ag icul u al axes and subsi-
dies occu when go e nmen s y o con ol he sec o . Howe e , while subsidies would enhance ag icul-
u al p oduc ion (Sei o , 2023), axing he sec o would be economically unp o i able and des uc i e,
pa icula ly in low-income coun ies.
In A ica, o handle he expanding con inen al ood demand, se e al con inen al amewo ks and decla a-
ions ha e been ini ia ed in he pas en yea s. Some o he key a eas include emo ing un ai ade
obs acles o encou age sus ainable ag icul u al g ow h, ensu ing ood secu i y, and elimina ing po e y and
hunge (AU, 2015;UN,2023). Ne e heless, he majo i y o he na ions’policies emained an i-ag icul u al,
especially he ag icul u al policies o he Eas A ican coun ies (Mukasa e al., 2020;Wo ldBank,2023). Fo
mos o he impo e ished in his egion, ag icul u e is he p ima y sou ce o employmen . Ne e heless, he
dis o ion o ag icul u al incen i es pe sis ed un il ecen ly (Mukasa e al., 2020), and i is s ill unclea how
such dis o ed policies would a ec egional ag icul u al alue added (AVA). Rela ed s udies no e ha ag i-
cul u al p o ec ion in luences c op p oduc ion, li es ock p oduc ion, and household incomes posi i ely
(Das agi i & Vaj ala, 2018;Hemminge al.,2018;Pe eski,2014; Swinnen, 2021). Bollman & Fe guson (2018)
a gue ha subsidies inc ease a m income. They no e ha he educ ions in subsidies esul in lowe a m
alue-added and a m asse alues. Sei o (2023) simila ly a gues ha subsidies sa egua d ood secu i y.
Ne e heless, acco ding o Omeje e al. (2019), a high le el o ag icul u al p o ec ion has a nega i e e ec
on he g ow h o ag icul u al ou pu s. In his line, Chandel e al. (2019) a gue ha subsidies only se e
sho - e m objec i es and would ha e ad e se e ec s on economic e iciency in he long un.
Some s udies gene ally ad oca e o ag icul u al p o ec ion (Bollman & Fe guson, 2018; Sei o , 2023;
Ye e al., 2023), and o he s oppose such incen i es o inc eased ag icul u al g ow h (Chandel e al.,
2019; Heyl e al., 2022; Omeje e al., 2019; Swinnen, 2021). Nume ous s udies ha employ subsidies
(Bollman & Fe guson, 2018; Sei o , 2023; Ye e al., 2023) paid li le a en ion o how complemen a y ax
and subsidy policies a ec ag icul u al g ow h. Fo hose s udies ha u ilize complemen ing ax and
subsidy p og ams, he ou comes a e incong uous (Chandel e al., 2019; Heyl e al., 2022; Omeje e al.,
2019; Swinnen, 2021). None o hem, howe e , a emp o examine he e ec o dis o ed ag icul u al
p ice incen i es on AVA. To con ibu e o illing his gap, he cu en s udy explo es he e ec s o dis o -
ion o ag icul u al incen i es on AVA in Eas A ica.
Using al e na i e c oss-sec ional ime se ies o dis o ed egional ag icul u al policy da ase s, namely
he nominal assis ance coe icien (NAC) and he nominal a e o p o ec ion (NRP), he s udy p o ides
no el insigh s in o he ole ha dis o ed ag icul u al p ice incen i es play in ag icul u al alue addi ion.
These measu es, o cou se, accoun o dis o ions o sec o al p ice incen i es, which p o ide unique
insigh s in his a ea, unlike many p e ious ela ed s udies ha ely exclusi ely on ei he subsidies o ax
measu es (Bollman & Fe guson, 2018; Sei o , 2023; Ye e al., 2023). The indings hus ex end he exis ing
knowledge in he poli ical economy li e a u e by p o iding egion-speci ic, obus indings ha use al e -
na i e ag icul u al incen i e measu es. Fu he mo e, he posi i e esponse o ag icul u al alue addi ion
o ising ood p ices would ha e use ul implica ions o ood p oduc ion. In his line, he indings p o ide
insigh in o Mal husian ea s abou he u u e p ospec s o he ood supply.
2. Li e a u e e iew
G ow h heo ies p esume ha ad ances in p oduc i i y and echnology a e wha d i e ou pu expansion
(Ha is, 2017). Ne e heless, mains eam g ow h models a e widely c i icized o hei ailu e o include
2 B. GELGODUBE ET AL.
poli ical economy pe spec i es in economic analysis. S igli z (1987) no es he impo ance o unde s and-
ing he poli ical economy in he p ocess o ou pu g ow h. Poli icians de e mine he bes le el o in e -
en ion based on hei poli ical in e es s (Je ha, 1982). E ec i e ag icul u al p o ec ion policies a e based
on wha is poli ically accep able (Mas e s, 1993), while hei g ow h implica ions would de ia e om he
p ede e mined ou comes. Fo ins ance, in de eloping coun ies, go e nmen in e en ion in he ag icul-
u al sec o h ough subsidies o axes in luences he choice o p oduc ion esou ces, including he
up ake o a m echnologies (Hemming e al., 2018). In his sec o , as he p ocess o alue addi ion
becomes complex o as he sec o loses compa a i e ad an age, he need o p o ec ion inc eases
(Olpe e al., 2013). Coun ies wi h lowe ag icul u al p o ec ion ea n low incomes om his sec o . Fa m
incen i es acili a e a me s’assimila ion o no el echnologies, a c ucial ac o in ad ancing ag icul u al
p oduc ion and alue addi ion. I augmen s o impedes alue-added pu sui s he ein.
Empi ically, s udies no e ha dis o iona y ag icul u al policies in luence ag icul u al g ow h ei he in
a nega i e o posi i e way. Using a quasi-na u al expe imen o China’s maize pu chasing and s o age
policy e o m, Ye e al. (2023) examine he impac o ag icul u al subsidy ma ke -o ien ed e o m on ag i-
cul u al g een de elopmen using he di e ence-in-di e ence model. The s udy showed ha maize pu -
chasing and s o age policy e o m p omo ed he imp o emen o he g een o al ac o p oduc i i y o
maize wi h a hys e esis e ec . Simila ly, a s udy by Sei o (2023) indica es ha in India, subsidies sa e-
gua d ag icul u al ood secu i y, al hough a subs an ial po ion o hem suppo a me s in weal hie
egions, dis o ing in e s a e ag icul u al g ow h. Ta ge ed subsidies a e no ed o be impo an o long-
e m sus ainable de elopmen . In his s udy, he di ec e ec o subsidies on ag icul u e is posi i e,
al hough i was a gued o be non-sus ainable.
Aiming a examining ag icul u al subsidies in he EU, a s udy by Heyl e al. (2022) no es ha ag icul-
u al subsidies need o be subs an ially downscaled and implemen ed as complemen a y ins umen s
along wi h o he policy ins umen s such as quan i y con ol. A e iew o li es ock p oduc ion sys ems,
subsidies, and hei implica ions by Chandel e al. (2019) indica es ha subsidies se e sho - e m objec-
i es, s a ing ha hey would ha e ad e se e ec s on economic e iciency in he long un. Bollman &
Fe guson (2018) es ima e he impac o emo ing expo subsidies on he local economies o Albe a,
Saska chewan, and Mani oba using a gene alized di e ence-in-di e ence analy ical me hod. In his s udy,
he loss o he subsidy esul ed in signi ican ly lowe a m alue-added and a m asse alues.
Hemming e al. (2018) a gue ha e ilize and seed subsidies ha e posi i e e ec s on consume wel-
a e and o e all economic g ow h. Ag icul u al inpu subsidies inc ease he use o a m inpu s and hus
enhance ag icul u al yields. Howe e , subsidy schemes a e p one o ine iciency, bias, and co up ion.
Acco ding o Omeje e al. (2019), p o ec ion policy ins umen s such as subsidies and di ec ans e s
ha e been widely used o enhance ag icul u al p oduc ion. Howe e , such dis o iona y policies would
educe a socie y’s wel a e by causing in la ion (Swinnen, 2021).
Acco ding o Asano & Kosaka (2017), pa ial a i educ ion policies end o make p oduc ion and con-
sump ion ac i i ies ine icien . The s udy no es ha a comple e emo al o he p oduc ion subsidy has no
e ec on changing he nega i e wel a e e ec s o a i policy in Japan. Acco ding o Das agi i & Vaj ala
(2018), whene e ag icul u al and ood policies a e in place, edis ibu i e e ec s a e always expec ed.
Redis ibu ion h ough suppo ing p oduce s would aise in la ion, pa icula ly when i inc eases agg ega e
demand. Con olling o such ypes o ad e se e ec s, Das agi i & Vaj ala (2018) a gue ha in de eloping
coun ies, s imulus packages a e i al policy op ions o ag icul u al de elopmen .
Malan (2015) examines he de e minan s and e ec s o ag icul u al p ice dis o ions in A ica. By
applying a linea panel model o ag icul u al dis o ion da a ob ained om 22 A ican coun ies, he
s udy no es ha he nominal a e o assis ance (NRA) o ag icul u e does no ha e a signi ican e ec
on o al ag icul u al p oduc ion. I a ec s cocoa and co on yields signi ican ly. The s udy u he a gues
ha a mo e democ a ic coun y ends o ha e a mo e e ec i e policy, and hus he e ec o he NRA
on yield ends o be s onge in mo e democ a ic coun ies. When democ acy is con olled, he NRA has
a signi ican and nega i e e ec on whea . The NRAs a e posi i e o he adi ional cash c ops ha a e
expo able and nega i e o he impo -compe ing ood c ops.
Acco ding o Riesgo e al. (2016), in sub-Saha an A ica (SSA), e ilize subsidies a e among he mos com-
mon and poli ically sensi i e policies. Mukasa e al. (2020) no e ha he amoun o axes paid by A ican a m-
e s has signi ican ly dec eased du ing he pas 40 yea s. Ye , his has no been buoyan in some coun ies. Fo
COGENT ECONOMICS & FINANCE 3
ins ance, in E hiopia, Hassen (2016) a gues ha ag icul u al income ax and land use ees a e no buoyan . He
unde sco es ha he g ow h o he E hiopian ag icul u al sec o has no signi ican ela ionship wi h ag icul-
u al income ax esilience, highligh ing he impo ance o u he s udy on ag icul u al p o ec ion dynamics
in ela ion o ag icul u al g ow h. Examining he impac s o di e en subsidy p og ams on ice p oduc ion in
Ghana, Badu & Lee (2020) no e ha e ilize is mo e e ec i e in ice p oduc ion a e subsidies.
Examining he impac s o emo ing e ilize subsidies on p oduc ion, p ices, income, and consump-
ion, as well as e ilize demand in Leso ho, Ra ii (2016) no es ha dec easing e ilize subsidies educes
c op p oduc ion and inc eases li es ock p oduc ion. The dec ease in subsidies inc eases u ban house-
holds’income while educing u al households’income. This policy also inc eases he p ices o in e -
na ionally non- adable p oduc s, while i does no in luence he p ices o in e na ionally adable goods.
Consump ion demand o adable p oduc s inc eased, while consump ion o non- adable p oduc s
dec eased. The s udy used a mul i-ma ke model based on seconda y da a ob ained in 2012/13.
A s udy by Omeje e al. (2019) no es ha ag icul u al p o ec ion has a nega i e e ec on ag icul u al
g ow h in Nige ia. The s udy in es iga es how mac oeconomic ac o s, including ag icul u al p o ec ion,
a ec ag icul u al g ow h in Nige ia. I employs a mul iple eg ession model and G ange causali y es s
on a da ase spanning be ween 1980 and 2016, and he au ho s a gue agains p o ec ed ag icul u e in
a o o libe alized ag icul u e o sus ained ou pu g ow h. This clea ly con adic s he e idence in
much poli ical economy li e a u e. Fo ins ance, Vincen & Lee (1997) no e ha a m incomes o ce eal
p oduce s inc ease by mo e han 40% due o p o ec ion ende ed o ag icul u e in Ko ea.
The o he s ands o li e a u e conside ed o his s udy deal wi h ac o s in luencing AVA o he han
ag icul u al p ice incen i es. Nug oho e al. (2022) explo e he impac s o exchange a es, o eign di ec
in es men (FDI) in lows, o al ag icul u al expo alues, ag icul u al impo du ies, and e ilize impo s
on AVA in de eloping coun ies. Using a ixed e ec (FE) model on panel da a ob ained om 17 de el-
oping coun ies du ing 2006–2018, he s udy showed ha FDI in lows and ag icul u al expo alues
inc ease AVA in de eloping coun ies.
Onoja e al. (2017) examined he e ec s o ade openness, elec ici y consump ion, educa ion, and
echnology on ag icul u al alue addi ion g ow h in A ica. Using an au o eg essi e dis ibu ed lag
model on a da ase spanning om 1971 o 2011, he exis ence o a s eady-s a e long- un ela ionship
be ween ag icul u al alue addi ion and educa ion, ade openness, elec ici y consump ion, and ech-
nology was addi ionally in es iga ed. The s udy showed ha echnology and elec ici y consump ion a e
he long- un de e minan s o he g ow h o ag icul u al alue addi ion. In he sho un, educa ion, ech-
nology, and elec ici y consump ion explained he a ia ion o ag icul u al alue addi ion in A ica.
Muyanga & Jayne (2012) in es iga ed he implica ions o inc easing popula ion densi y in Kenya’s
u al a eas on smallholde p oduc ion and comme cializa ion. Employing a co ela ed andom e ec s
(RE) es ima o on a da ase ob ained om su eys o panel da a spanning om 1997 o 2010, hey show
ha a ising popula ion densi y is associa ed wi h a decline in a m p oduc i i y. They also no e ha
smalle a m sizes educe he po en ial o p oduce su pluses, limi ing demand o pu chased inpu s and
new echnologies, which would u he discou age AVA.
Ben Jebli & Ben Yousse (2017) examined sho - and long- un ela ionships be ween pe capi a ca bon
dioxide emissions, eal g oss domes ic p oduc (GDP), enewable and non- enewable ene gy consump-
ion, ade openness a io, and AVA in Tunisia. The s udy applies he ec o e o co ec ion model and
G ange causali y es s o a da ase spanning om 1980 o 2011. Coin eg a ion was obse ed be ween
GDP and AVA, whe e sho - un unidi ec ional causali ies we e unning om GDP o AVA. In he long
un, bi-di ec ional causali ies we e obse ed.
Bad i e al. (2017) explo e he e ec s o human de elopmen on he alue added o he ag icul u e
sec o in selec ed de eloping coun ies. Applying he OLS model o a panel da ase spanning om 2006
o 2014, hey show ha human de elopmen has a posi i e and signi ican e ec on AVA. They u he
no e ha educa ion imp o es labo p oduc i i y by allowing one o unde s and, p edic , ecognize, and
add ess business needs, which enhances pa icipa ion in ag icul u al alue addi ion. The s udy also
shows ha inc eased in es men in physical capi al leads o a highe capi al s ock in ag icul u e, which
suppo s long- e m g ow h in AVA.
Allco e al. (2006) ega ded GDP as a c ucial componen o ag icul u al income. Using a da ase o
u al public expendi u es in a panel o La in Ame ican economies, he s udy no es ha non-social
4 B. GELGODUBE ET AL.
subsidies educe ag icul u al GDP. They u he no e ha poli ical and ins i u ional ac o s a e impo an
in dic a ing he size and s uc u e o u al public expendi u es, h ough which hey ha e la ge e ec s on
ag icul u al GDP. Acco ding o Hend icks e al. (2023), policy changes in Sub-Saha an A ica a e d i en in
pa by ex e nal poli ical shocks. Ag icul u al policies subjec ed o such ex e nal shocks a e likely o in lu-
ence ag icul u al p oduc ion, which in u n would in luence alue addi ion in his sec o . In gene al,
al hough a majo i y o he e iewed s udies p esen a numbe o ac o s ha ha e po en ial e ec s on
he g ow h o AVA, none o hem a emp o quan i y he implica ions o ag icul u al p ice dis o ion o
AVA. This s udy hus p ima ily a emp s o con ibu e owa ds illing his gap.
3. Me hods
3.1. Da a sou ces and desc ip ion
This s udy was conduc ed in Eas A ica. Based on he a ailabili y o a numbe o agg ega e ag icul u al
ma ke dis o ion s a is ics, se en coun ies, namely Bu undi, E hiopia, Kenya, Rwanda, Sudan, Tanzania,
and Uganda, we e pu pose ully selec ed o he s udy. The economy o he egion is la gely domina ed by
ag icul u e and has been lou ishing o suppo con inen al ee ade o make mu ual ade cheape and
quicke (UNCTAD, 2022), mo i a ing he choice o his egion as a uni o analysis. The s udy uses second-
a y da a spanning om 1981 o 2018. The choice o his ime ame is guided by he a ailabili y o he
ime se ies o he dis o ed ag icul u al p ice incen i e da ase . We use he NAC and NRP as measu es o
dis o ed ag icul u al p ice incen i es. The NAC’s da a co e s he yea s 1981 o 2010, whe eas he NRP’s
da a co e s he yea s 2005 o 2018. The AVA da a o each o he co e ed yea s is hen ob ained.
The NAC is he a io o domes ic p ices ha p oduce s e ec i ely ecei e gi en he dis o ions in
coun y ia yea (Pe
i ) and he undis o ed bo de p ice (Pi ) (Hend icks e al., 2023). Tha is NAC ¼
Pe
i =Pi :A NAC less han one ep esen s an an i-ag icul u al bias, and a NAC g ea e han one ep esen s
a p o-ag icul u al bias. We compu e he NAC om he NRA. Acco ding o Hend icks e al. (2023), he
NAC is simply a NRA þ1. The NRA da a is ex ac ed om he Wo ld Bank’s upda ed es ima es o dis o -
ions o ag icul u al incen i es by Ande son & Nelgen (2013). Limi ed by he a ailabili y o non- adable
and impo able p oduc s in NRA da a o some o he conside ed coun ies, we ely on adable (speci ic-
ally, expo able) p oduc s NAC
1
along wi h he o e all NAC in ou model es ima ion. O cou se, he
ecen indings o Hend icks e al. (2023) no e he impo ance o expo able p oduc s NAC o ag icul-
u al p oduc i i y g ow h in SSA. Ano he measu e o dis o ed ag icul u al incen i es in his s udy is he
NRP. The NRP is a p opo ional di e ence be ween p oduce p ices and bo de p ices adjus ed o dis i-
bu ion, s o age, anspo , and o he ma ke ing cos s (Tokgoz e al., 2016)(Equa ion 1). I compa es he
p oduce p ice o a locally p oduced good wi h a simila in e na ionally aded good. Tha is,
NRP ¼ðDomes ic p ice −Re e ence p iceÞ
Re e nce p ice 100% (1)
The p ice gap be ween he domes ic and in e na ional p ices is conside ed a wo poin s on he com-
modi y alue chain. The ini ial poin o compe i ion o impo able goods is a he wholesale le el, while
o expo able goods, i is a he exi bo de . A posi i e p ice gap esul s when he domes ic p ice
exceeds he e e ence p ice, indica ing ha domes ic policies and ma ke condi ions suppo local p o-
duce s. I a nega i e p ice gap eme ges, i is an indica ion ha domes ic policies and ma ke condi ions
penalize local p oduce s.
In he econome ic speci ica ion, we also include addi ional con ol a iables ha a e likely o a ec
AVA, as sugges ed by many p io s udies (Bad i e al., 2017; Ba be o & Rod
ıguez-C espo, 2020; Ben Jebli
& Ben Yousse , 2017; Hend icks e al., 2023; Muyanga & Jayne, 2012; Nug oho e al., 2022). A able land,
ag icul u al employmen , educa ion expendi u e, g oss ixed capi al o ma ion (GFCF), GDP, popula ion
size, poli y, and yea dummies o majo global economic shocks a e conside ed.
Land has been widely expounded as an ou pu g ow h a ibu e since he incep ion o classical
g ow h models (A ow, 1962; Lucas, 1988; Rome , 1986; Solow, 1956). La ge a ms encou age he use o
mode n echnologies, which in u n in luences AVA. The a ea o cul i able land may e lec he coun y’s
po en ial o p oduce ag icul u al ou pu s ha would ha e a di ec in luence on AVA h ough he supply
COGENT ECONOMICS & FINANCE 5
o ou pu s ha se e as inpu s in he p ocess o alue addi ion. La ge a m sizes may be associa ed
wi h economies o scale in inpu acquisi ion, which encou ages a me s o pa icipa e in AVA. Acco ding
o Muyanga & Jayne (2012), smalle a m sizes educe he po en ial o p oduce su pluses, which may in
u n cause capi al cons ain s ha impede he demand o pu chased inpu s and new echnologies. Ben
Jebli & Ben Yousse (2017) no e ha la ge ag icul u al land inc eases ag icul u al p oduc ion, allowing
AVA o ise. This also suppo s he indings o Singa iya & Sinha (2015), who claim ha a able land has a
long- e m bene icial and consis en impac on AVA g ow h. In his s udy, land is e e ed o as he pe -
cen age o land ha is a able.
Popula ion size is p oxied by he popula ion aged 15–64 yea s, as p esen ed in Beyene (2022) and
Ga edow (2022). A la ge popula ion p o ides a la ge ma ke base, which encou ages compe i ion and
induces inno a ions as well as echnological ad ancemen s (Fu uoka, 2009) ha in luence AVA. The u al
popula ion is con olled, ollowing Muyanga & Jayne (2012). Popula ions in u al a eas p ima ily p o ide
labo o ag icul u al p oduc ion and alue-adding p ocesses.
Human capi al has been widely acknowledged as a key ou pu g ow h componen , app oxima ed by di -
e en indica o s bounded by da a a ailabili y. Fo ins ance, Beyene (2022)usesschoolen ollmen asa
measu eo humancapi al,whileCole&Chawdh y(2002) use human capi al in es men . In he cu en
s udy, his a iable is ep esen ed by educa ion spending as a pe cen age o g oss na ional income (GNI).
Acco ding o Bad i e al. (2017), educa ion imp o es labo p oduc i i y by allowing one o unde s and, p e-
dic , ecognize, and add ess business needs, which enhances pa icipa ion in ag icul u al alue addi ion.
Educa ed labo akes ad an age o a ious oppo uni ies in he p ocess o AVA (Nug oho e al., 2022).
Gi en he g owing numbe o ag o-indus ies engaged in ag icul u al alue addi ion in de eloping coun-
ies, he impo ance o educa ed labo is c ucial o mee ing he al eady ising ood demands. Educa ion, in
his case, plays a i al ole in c ea ing new capaci ies, bo h quan i a i ely and quali a i ely. The mo e decen
and e icien he educa ion is, he mo e i di ec s he labo employed in he AVA o be mo e success ul in
unde aking alue addi ion. Acco ding o Onoja e al. (2017), educa ion is impo an in ag ibusiness as i
enables one o apply e icien echnologies and skills o b ing abou a quan um leap in he le el o AVA.
GDP is conside ed a po en ial a ibu e o AVA in his s udy, measu ed in he pe capi a cons an o
2015 USD. Acco ding o Gelgo e al. (2023), pe capi a GDP has a posi i e e ec on AVA. An inc ease in
GDP inc eases a coun y’s nominal expendi u e in ag icul u e. Expendi u e in ag icul u e enhances AVA
by p o iding be e oppo uni ies o a me s o use a m echnologies and o he inpu s. Allco e al.
(2006) and Singa iya & Sinha (2015) ega ded GDP as a c ucial componen o ag icul u al income.
Ba be o & Rod
ıguez-C espo (2020) also no e ha coun ies wi h highe le els o economic de elopmen
pa icipa e mo e in AVA.
Following Bad i e al. (2017), GFCF is conside ed a po en ial AVA a ibu e. Inc eased in es men in
physical capi al leads o a highe capi al s ock in ag icul u e, which would suppo long- e m g ow h in
AVA. This is he ne addi ion o he s ock o ixed capi al asse s, including machine y and in as uc u e,
in he economy. A la ge GFCF would hus imp o e a m in as uc u e, encou age he use o machines
and equipmen , and suppo he p ocess o alue addi ion in ag icul u e. Acco ding o Hend icks e al.
(2023), policy changes in Sub-Saha an A ica a e d i en in pa by ex e nal poli ical shocks. In a highly
complex, in e linked, and dynamic global economic a ena, policies a he coun y le el a e usually mo i-
a ed by poli ical in e es s. Ag icul u al policies subjec ed o such ex e nal shocks a e likely o in luence
ag icul u al p oduc s, which in u n would in luence alue addi ion in his sec o . We use he poli y a i-
able o accoun o such poli ical dynamics. As highligh ed by Kose e al. (2020), yea dummies ( he yea
1982, 1991, 2007, 2008, and 2009), ha indica e majo global economic shocks a e inally aken in o con-
side a ion o o ecas AVA in his s udy. Table 1 p o ides a summa y o he a iables used in his s udy,
hei sou ces, and he an icipa ed e ec s.
3.2. Model speci ica ion
Some s udies use simple linea ela ionships o model AVA (Ben Jebli & Ben Yousse , 2017; Melembe,
2021; Nug oho e al., 2022), while o he s, o ins ance, Epaph a & Mwakalasya (2017), use a log-log unc-
ion o educe he se e i y o he eg esso s’he e ogenei y. Fo he p esen s udy, conside ing he me -
i s o accoun ing bo h o log-linea and log-log ela ionships, we ely on he wo ks o Rebelo (1992)
6 B. GELGODUBE ET AL.
while conside ing Bad i e al. (2017) and Epaph a & Mwakalasya (2017) o build an empi ical model o
he ollowing o m (Equa ion 2).
lnyi ¼aþuGi þX
k
bklnZk
i þei (2)
Whe e Pis a summa ion ope a o , lnyi is log o AVA in coun y ia yea ,Gi is a measu e o Ba o
(1990)’s public in e en ion (measu es o dis o ed ag icul u al p ice incen i es in ou case) in coun y i
a yea wi h i s coe icien , and lnZk
i is a ec o o log- ans o med kcon ol a iables in coun y ia
yea . Vec o s a,uand bka e pa ame e s o be es ima ed. ei is he e o e m wi h wo o hogonal
componen s: he ixed e ec deno ed by liand he idiosync a ic shocks (mi Þ(Equa ion 3):
ei ¼liþmi , whe e Eli
½
¼Emi
½
¼Elimi
½
¼0 (3)
Singa iya & Sinha (2015) no e ha AVA in he cu en yea is a unc ion o he p e ious yea ’s AVA.
Wi h his concep , he dynamic exp ession o he esponse a iable in he abo e speci ica ion (Equa ion
1) akes he ollowing o m (Equa ion 4):
lnyi ¼aþhlnyi, −1þuGi þX
k
bklnZk
i þei (4)
Whe e lnyi, −1is he lagged esponse a iable in coun y ia yea -1 along i s coe icien hand all
o he s a e as de ined ea lie . Building on he wo ks o Hend icks e al. (2023) and Singa iya & Sinha
(2015), he ollowing educed econome ic model is es ima ed in his s udy (Equa ion 5).
lnAVAi ¼b0þb1lnAVAi, −1þb2Dis i þb3lnLandi þb4lnAgEmpi þb5lnEduci þb6lnGFCFi þb7lnPopi
þb8lnGDPi þb9lnPoli yi þb10Dy82 þb11Dy91 þb12Dy07 þb13Dy08 þb14Dy09 þei
(5)
Whe e, ln is log ope a o and Dis is NRP and NAC (agg ega ed as well as only o expo able p od-
uc s). O he s, namely AVA,Land,AgEmp,Educ,GFCF,Pop,GDP, and Poli y
2
, a e as explained ea lie (Table
1). Dy82, Dy91, Dy07, Dy08, and Dy09, a e yea dummies showing he yea 1982, 1991, 2007, 2008, and
2009, espec i ely. , i, and e e ain he ea lie explana ions. b
0
is cons an , and b
1
-b
14
a e coe icien s o
explana o y a iables.
3.3. Es ima ion me hod
Equa ion (5)’s e o s uc u e would ollow he cha ac e is ics o mos panel da a models. The model
would be impac ed by s a is ical issues such as he e oscedas ici y, au oco ela ion, and c oss-sec ional
dependency (Ramou a , 2017). Nume ous dynamic panel da a es ima o s, namely he A ellano and Bond
(1991) GMM-DIF es ima o , he Blundell & Bond (1998) GMM-SYS es ima o , and he B uno (2005) bias-
co ec ed leas squa es dummy a iable (LSDVC) es ima o , can be conside ed in his case. Howe e ,
panel da a wi h a small numbe o c oss-sec ional uni s can cause he GMM es ima o s o be signi i-
can ly skewed (B uno, 2005). Despi e he ac ha employing small samples in mac o-panels would help
o educe he e ogenei y, employing GMM in his si ua ion would esul in inconsis en es ima es. The
Table 1. Da a desc ip ion, da a sou ces, and hypo heses.
Va iables Desc ip ion Hypo hesis Sou ces
Dependen a iable
AVA Ag icul u al alue added (Million USD) –Wo ld Bank
Independen a iables
NAC Nominal assis ance coe icien ; agg ega ed and o expo able þ e Wo ld Bank
NRP To al NRP (%) þ e IFPRI
Land A able land (1000 hec a es and % o o al a ea o land) þ e FAO
Pop
Ag ic
% o people depending on a ming − e Wo ld Bank
AgEmp % o people employed in ag icul u e − e FAO
Educ Educa ion expendi u e (% o GNI) þ e Wo ld Bank
GFCF G oss ixed capi al o ma ion (% o GDP) þ e Wo ld Bank
Pop
To al
To al popula ion aged 15-64 yea s − e Wo ld Bank
GDP Pe capi a eal GDP (in USD) þ e FAO
Poli y Ins i u ionalized democ acy and au oc acy index anging om 0 (wo s ) o 1 (bes ) þ e CSP
COGENT ECONOMICS & FINANCE 7
da abank.wo ldbank.o g/. The Land, AgEmp, and GDP, a e ob ained om he FAO da ashee a : www. ao.o g/ ao-
s a /en/. Poli y da a is e ie ed om he CSP da ashee a : www.sys emicpeace.o g/insc da a.h ml.
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Appendix A.
Desc ip i e s a is ics (mean)
Va iable Bu undi E hiopia Kenya Sudan Rwanda Tanzania Uganda O e all
NAC
To al
–0.84 1.00 0.78 –0.74 0.96 0.87
–[0.16] [0.12] [0.26] –[0.21] [0.07] [0.20]
NAC
Expo able
–0.66 0.90 0.63 –0.49 0.75 0.69
–[0.14] [0.13] [0.27] –[0.22] [0.28] [0.25]
NRP (%) −23.63 −32.11 5.90 –−0.09 −3.60 −3.48 −9.50
[40.78] [14.77] [20.55] –[26.87] [28.74] [26.64] [30.02]
AVA (mil.) 995.98 11400.50 12806.09 13973.65 1736.87 7473.86 3949.14 9920.65
[47.18] [6259.05] [3902.51] [8100.45] [365.58] [3477.15] [1409.82] [6327.94]
Land (1000hec) –12342.31 5102.05 16408.97 –10008.73 5643.95 9901.20
–[2183.05] [595.36] [2966.63] –[1948.87] [873.97] [4648.50]
Land (%) 41.67 13.15 9.87 –46.01 13.32 33.26 26.21
[4.81] [0.97] [0.43] –[1.05] [1.17] [1.64] [14.87]
AgEmp (%) 87.77 72.62 58.98 –75.09 69.51 69.41 72.23
[1.51] [3.65] [2.13] –[7.86] [2.53] [2.70] [9.45]
Pop
Ag ic
–49359467 21158100 18478767 –24558033 17049067 26140000
–[9135483] [4277590.20] [2311021.10] –[4938955.10] [4060319.50] [13100000]
Educ (%) 5.06 2.68 5.63 2.05 3.70 2.98 2.76 3.22
[0.73] [0.68] [0.58] [0.73] [0.43] [0.61] [0.86] [1.43]
Pop
To al
4784413.40 67552574 32526313 27327661 5880865.40 34671691 24777938 37400000
[665751.63] [22069213] [10257135] [7981421.10] [697885.61] [10910341] [8701477] [20200000]
GDP (mil.) 2519.94 23672.54 37074.08 44811.29 6852.37 24132.98 11811.68 28300.51
[399.08] [22150.60] [15802.33] [24353.42] [1958.93] [14525.11] [8012.99] [21158.15]
GFCF (%) 12.40 21.75 17.56 14.425 19.80 29.58 20.83 20.83
[1.45] [9.34] [2.17] [4.437] [3.50] [8.22] [6.27] [8.29]
Poli y index 0.70 0.37 0.48 0.29 0.34 0.34 0.35 0.36
[0.16] [0.19] [0.33] [0.21] [0.02] [0.12] [0.16] [0.22]
No e. [ ] s anda d de ia ions.
16 B. GELGODUBE ET AL.
Appendix B.
Tes esul s o he p esence o FE and RE in he models
F– es B –P LM es
Models F– alue p>F 2– alue p> 2
Model 1 113.00 0.000 0.00 1.000
Model 2 106.11 0.000 0.00 1.000
Model 3 23.96 0.000 0.00 1.000
No e. shows signi icance le el a 1%.
COGENT ECONOMICS & FINANCE 17
