Investment and Pro-Poor Growth Shenggen Fan, IFPRI

1
Investment and Pro-Poor Growth Shenggen Fan,
IFPRI

• Phnom Penh, June 27-30, 2005

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Outline of the Presentation

• -Trends in Government Investment
• -How Investment Reduces Poverty
• -Case Studies
• -Public-private Partnership
• -Conclusions

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Why Public Investment

• - Market Failures
• - Distribution and Poverty Reduction
• - Enabling the Investment Environment

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Agriculture Expenditure
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Composition of Expenditure ()
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Investment and Rural Poverty
7
Returns to Rural Investment, India
Returns in Rupee per Rupee Spending
Number of Poor Reduced per Million Rupee Spending
8
Effects of Rural Investment, China
Education
No. of poor reduced /10,000 yuan
RD
Roads
Power
Phone
Irrigation
Loans
yuan per yuan spending
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Regional Effects, China
Returns in Yuan per Yuan investment
Number of poor reduced per 10,000 Yuan invested
10
Effects of Rural Investment, Uganda
Returns in shilling per shilling Investment
Number of poor reduced per million shillings
investment
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Ranking of Investment Effects
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Effects of Low and High Quality Roads, China
No. of Urban Poor Reduced per 10,000 Yuan
No. of Rural Poor Reduced per 10,000 Yuan
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Highlights of Results

• The three most effective public spending items
  in promoting agricultural growth and poverty
  reduction
• Agricultural research
• Education
• Rural infrastructure

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Highlights of Results

• Trade-off between agricultural growth and poverty
  reduction is generally small
• - For agricultural research, education, and
  infrastructure development, they have large
  growth impact as well as large poverty reduction
  impact
• - Regional analysis more investments in
  less-developed areas lead to largest poverty
  reduction and high growth per unit of spending in
  Asia. In Africa, lack of investment in all types
  of regions.

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Highlights of Results

• Returns vary over time
• Initial subsidies in credit, fertilizer, and
  irrigation might have been crucial for small
  farmers to adopt new technologies. But as more
  and more farmers have adopted new technologies,
  continued subsidies have led to inefficiency of
  the overall economy
• However, returns to agricultural research,
  infrastructure and education have high returns
  throughout the whole period

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 Reforming Institutions PPP

• Public and Private Partnership (PPP). Public
  sector will be still the major player in
  providing infrastructure services in rural areas.
• But privatizing certain component can improve
  efficiency and service
• Unbundling is a necessary part of
  privatization.

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Feasibility of Private Sector Delivery
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Unbundling and Degree of Competition
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Centralization vs. Decentralization

• Scale of economy
• New technological innovations
• Community and users association
• Strengthening public institutions
• Improving human capitals

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Conclusions

• National governments and donors need to increase
  investment in rural areas
• More resources are needed to less
  developed/favored areas
• Instead of high quality/high cost, low
  quality/cost investment can be more
  cost-effective and more pro-poor
• Reforming institution is equally important
• Privitization of certain components of the whole
  system can improve efficiency
• Public institutions and human capitals need to be
  improved