Agriculture and economic Growth: Conceptual Issues and the Kenyan Experience

This report examines the role of agriculture in economic growth. The particular focus of our empirical analysis is on Kenya, though the report also adds to the existing literature by providing a new conceptual model of agriculture's role in the economic growth of poor countries. Based on the econometric simulation model developed in this study, the economic growth multiplier associated with additional agricultural income in Kenya is nearly three times the magnitude of the growth multiplier for non-agriculture. A dollar of agricultural income generates an additional $0.63 of income outside of agriculture, while a dollar of non-agricultural income generates only $0.23 of income outside of non-agriculture. This and related simulations suggest that economic growth strategies for countries like Kenya should give high priority to supporting the agricultural sector. The conceptual model presented in this study argues that agricultural productivity in particular has beneficial spillover effects for non-agricultural productivity. Previous studies have concentrated on market-based inter-sectoral linkages as the source of agriculture's contribution to economic growth. The present study adds a short list of non-market based inter-sectoral linkages through which agriculture contributes indirectly to economic growth. These linkages arise from governmental learning by doing, increased economic stability, food security, and the relative efficiency of rural household decision-making. Preliminary tests of this model for Kenya indicate that agricultural productivity contributes significantly to non-agricultural productivity.