Academic journal article IUP Journal of Applied Economics

Productivity Growth in ECOWAS Agricultural Sector: A Nonparametric Analysis

Academic journal article IUP Journal of Applied Economics

Productivity Growth in ECOWAS Agricultural Sector: A Nonparametric Analysis

Article excerpt

A panel data of 13 Economic Community of West African States (ECOWAS) member nations were used to analyze the Total Factor Productivity (TFP) growth in the agricultural sector of the subregion from 1971 to 2007. The study computed Malmquist productivity indexes and its decomposition using Data Envelopment Analysis (DEA). The results showed an average annual TFP decline in the region in the reference period. The TFP change was more attributable to efficiency change than technological change.

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Introduction

At least, in the medium term, agriculture is still seen as the driver of food security, economic growth and development among the Economic Community of West African States (ECOWAS) member nations. The sector is characterized by millions of small family-run farms that derive their income and livelihood from producing primary agricultural products. At present, the sector contributes about 30-50% of GDP in most ECOWAS countries. For most countries in the region, the share of agricultural value-added exceeds 25% and agriculture provides employment to 50-80% of the population in the region. Moreover, the sector is also an important source of export. Trade in agricultural products is very important for almost all the countries in the region. For countries such as Burkina Faso and Benin, agricultural exports account for over 40% of total exports. As regards the composition of trade, the exports and imports of agricultural products are concentrated on a rather narrow range of products. For instance, cocoa beans, coffee and cotton lint accounted for about 57% of agricultural exports in 2001. In terms of imports, rice, wheat, sugar, milk and chicken accounted for more than 50% of total imports (SWAC, 2006). In addition to being of high priority, agricultural policy also tends to be sensitive in almost all the ECOWAS countries because of the consequences for incomes, poverty alleviation and food security. Poor people, who derive most of their income from agriculture or spend most of it on food, are highly exposed to changes in farm commodity and/or food prices.

Given the importance of this sector in the national economy, an important policy option of ECOWAS from its establishment has been to make agricultural sector more competitive by furthering productivity growth and increasing intra-regional trade. The main thrust of the ECOWAS reforms as they affect agriculture is on the free movement of unprocessed goods and traditional handicraft products, which should be exempted from import duties and taxes. The list of unprocessed goods and traditional handicraft products as well as the nomenclature of non-tariff barriers to be lifted were approved as far back as 1979, which means that trade in these products has, to all intent and purposes, been liberalized. Generally, the issue of how agricultural markets respond to price liberalization is a central issue in development policy and one that has been surrounded by much controversy. One question has been how large would be any response in agricultural output to liberalization. A second concern has been the effects of removing subsidies on inputs which are often an important policy intervention by governments. The third has been whether innovation, in the sense of adopting new techniques leading to a rise in Total Factor Productivity (TFP), is possible by means of liberalization. The agricultural sector of ECOWAS offers an opportunity to explore these questions. The liberalization policy involving substantial devaluation of the nominal exchange rate had been reported to have largely eliminated the black market premium, increased the real producer prices, and eliminated subsidies so that the real prices of inputs rise far faster than the consumer price index. The basic research question is whether liberalization among ECOWAS countries has led to improved productivity of crops relevant to food security in the region. Given the importance of productivity in understanding the outlook for the ECOWAS agricultural market, assessing the unexplored productivity potential is expedient to evaluating the future path of productivity. …

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