Investment priorities for economic growth and poverty reduction

Abstract

P ublic investments have contributed significantly to agricultural growth and rural poverty reduction in rural areas and also to urban poverty reduction through growth in the national economy and lower food prices. Without such invest-ments, agricultural and national economic growth would have been much slower, and many more rural and urban people in developing countries would be poor. Yet despite these successes, the poor still number about 1 billion, 1 and many governments of developing countries still face severe budget constraints. Thus, public resources need to be more effectively targeted to the sectors and regions that can generate the largest amount of economic growth and poverty reduction. This chapter presents a synthesis and review of several case studies conducted by the International Food Policy Research Institute and its national collaborators to quantify the effects of government spending on both growth and poverty reduction in India, China, Vietnam, Thailand, and Uganda—countries representing different stages of economic development and, hence, the need for different spending priorities. The Impact of Public Spending in India Using state-level data spanning 1970–1993, the India study clearly shows that addi-tional government expenditure on roads has the largest poverty-reducing impact, as well as a significant impact on productivity growth (Table 40.1). For every 1 million rupees spent on roads, 124 poor people could be lifted above the poverty line—the largest rate of poverty reduction among all types of investment. Furthermore, 1 rupee invested in rural roads would generate more than 5 rupees in returns from