Essays on Agricultural Productivity, Agricultural Trade Openness and the Effects of Agricultural Financing on Agricultural Productivity Growth: Evidence From the East African Community

Abstract

Countries in the East African Community are mainly agricultural economies with over 70% of their populations living in the rural areas. Trade amongst them is dominated by agricultural commodities. The importance of agriculture in the region makes it to be a significant contributor in the economy. To expand and sustain its productivity, trade and financing must play a critical role. This is a cross country study with countries being the units of analysis using panel data. The dataset is drawn from World Bank and FAO. Agricultural productivity trends are analyzed using DEA while determinants of agricultural productivity are analyzed using Tobit regression, truncated regression and double bootstrap approach. Effects of trade openness on agricultural productivity is examined using panel cointegration regression methods and bootstrap Granger causality approach. Effects of agricultural financing on agricultural productivity growth is analyzed using the CS-ARDL model and Panel Granger causality. Results indicate that agricultural TFP growth during the study period was 0.5%. TFP growth was mainly determined by technical change which grew at 0.9%. The low growth in productivity was due to negative growth in efficiency change. The agricultural sector in the EAC was also operating at a decreasing returns to scale. Analysis of exogenous determinants of agricultural productivity showed that institutional quality was the main determinant of productivity. Agricultural trade openness positively influenced agricultural productivity. Credit to agriculture and government agricultural sector development expenditure positively influenced agricultural productivity growth. Due to the significance of agriculture in the EAC, this study proposes a number of interventions. Strategies should be put in place to reverse negative growth in efficiency of the agricultural sector. Countries’ policies that restrict trade or unnecessarily increase trade costs should be reviewed. The EAC governments should promote the strengthening of agricultural credit institutions to promote accessibility of affordable credit by stakeholders in the agricultural value chain. As recommended by the Malabo (2014) and Maputo (2003) declarations, EAC member countries should increase their agricultural sector expenditure. The quality and capacity of agricultural institutions should be enhanced to improve and maintain their significant contribution on productivity. The EAC governments should devise strategies to attract more members in order to expand the regional market.