The Effectiveness of Development Aid for Agriculture in Sub-Saharan Africa

Agriculture is the major source of livelihood for the majority population in Sub-Saharan Africa but its productivity is not only low it has started showing signs of decline since 2012. The paper seeks to find out whether official development assistance for agriculture is effective. The data for development assistance for agriculture are broken down into the major agricultural sectors in receiving countries. The empirical evidence is based on the two-step system Generalized Method of Moments to assess the degree of responsiveness of agricultural productivity to development assistance. There is a positive relationship between development assistance and agricultural productivity in general. However, when broken down into the major agricultural recipient sectors, there is a substitution effect between food crop production and industrial crop production. Better institutions and economic freedom are found to enable agricultural productivity growth, and to increase the effectiveness of development assistance. The structural economic transformation associated with agricultural development assistance is also found to be weak. Allocation of development assistance for agriculture is primarily determined by need, although expected effectiveness also increases the assistance receipts. Agricultural assistance policies could focus more on building productive capacity to reduce the need while boosting effectiveness. Breaking down data into agricultural recipient sectors, and controlling for the potential spurious correlation under the assumption that more development assistance could be allocated where agricultural productivity is already increasing due to some other factors.