Evaluating impacts of agriculture-led investments on sub-Saharan African countries’ growth and poverty

Our main objective in this paper is to evaluate the economy-wide effects of alternative ways of financing expanded government spending on agriculture investments in selected African countries, with a particular focus on inclusive growth. Many African countries are typically, fiscally constrained and underinvest in agriculture despite its high share in economic growth as well as the high proportion of poor people residing in the rural sector. We use macroeconomic models that are then linked sequentially to a microsimulation model to understand the macro-poverty effects of interventions for each country. Government extra-spending on agriculture is financed successively by direct taxes, cuts in other expenditures and external financing. The results reveal that for countries to increase inclusive economic growth, they need to invest aggressively in agriculture and source the concessional finance externally where this option is available. However, it is also worthwhile for countries to explore combined mixes of external and domestic fiscal sources in order to optimise the impacts on inclusive economic growth. Our main contribution to the literature on poverty-growth-inequality triangle lies in the consistent modelling of the general equilibrium effects of the alternative financing mechanisms of agricultural investments for selected African economies.