Employment Multipliers from Agricultural Growth and Poverty Reduction

Poverty is still a major problem in Pakistan. Worse, the excellent progress made in poverty reduction in the 1970s and 1980s has been reversed in the 1990s. That is the bad news. The good news is that Pakistan is unusually well placed to return to rapid reduction in poverty. We have long known that agricultural growth is closely related to poverty reduction. Recent studies by Peter Timmer and by Martin Ravallion and their colleagues provide massive statistical evidence of this relationship. Rural growth and agricultural growth have a major effect on poverty reduction; urban growth and manufacturing growth do not. At first glance that is strange because farmers are not the poorest rural people, and the direct benefits from agricultural growth are distributed roughly proportionately to size of landholding. The poor in rural areas are heavily concentrated in the rural non-farm sector. They produce non-tradable goods and services. That is, local demand is essential to their growth. It is rising agricultural incomes that provide that growth in local demand. Thus, agriculture’s massive impact on poverty is indirect, working through expenditures on the rural non-farm sector. The bulk of those expenditures are for consumption goods. Pakistan has unusually productive resources that are highly responsive to the favourable forces of globalisation and technological change. In the 1970s and 1980s the agriculture of Pakistan grew at better than four percent per year, sufficient to reduce poverty levels rapidly. To return to those growth rates requires several public actions. Institutional reform in the irrigation system needs to reverse the losses that have occurred from poor management. There must be increased expenditure on the agricultural research and extension systems and that expenditure must be subject to a few priorities and increased efficiency. The rural road and education systems need to be massively expanded. Much more emphasis needs to be placed on expansion of the high value horticultural sector for which Pakistan has a strong comparative advantage in international markets. Those actions can be expected to bring a return to high growth rates in the four to six percent range and a resumption of rapid decline in poverty and its virtual elimination in a ten to twenty year period.