Welfare Effects of Agricultural Productivity Growth – A Micro Panel Evidence from Rural Tanzania

This paper uses two waves of nationally representative household-level panel data to examine the welfare effects of agricultural productivity in rural Tanzania. Four measures of productivity and ten indicators of welfare, including multidimensional welfare, are considered. Econometric procedures that take into account potential endogeneity resulting from omitted variables bias are employed. The results show welfare-enhancing effects of agricultural productivity, though the elasticities are marginal, requiring potentially large productivity growth for substantial welfare impact. The analysis of the linkage between productivity growth and welfare transition shows that households that experience growth in productivity are more likely to make welfare-enhancing transitions. Policies that allow for expanding households access to durable goods and agricultural capital, investment in irrigation and erosion control facilities, improving households access to agricultural extension services with the needed know-how, as well as ensuring favorable biophysical environment, are vital for sustained productivity growth.