Academic journal article Asian Social Science

Fiscal Policy, Labour Productivity Growth and Convergence between Agriculture and Manufacturing: Implications for Poverty Reduction in Cameroon

Academic journal article Asian Social Science

Fiscal Policy, Labour Productivity Growth and Convergence between Agriculture and Manufacturing: Implications for Poverty Reduction in Cameroon

Article excerpt


This paper examines the factors that drive labour productivity convergence between agriculture and manufacturing activities in Cameroon over 1969-2005. It is supposed that whenever one sector grows in terms of labour productivity it will also bring benefit to other industries. For instance, agriculture plays a significant role in reducing poverty. The bulk of the poor are engaged in agriculture and so an increase in agricultural productivity has a significant potential for reducing such poverty. Our findings indicate that while government spending on education, health, and road infrastructures promotes convergence, agricultural spending reinforces inequality in sectoral labour productivity by disproportionately increasing non-agricultural sector productivity. Furthermore, increases in manufacturing and service productivity levels both have a positive impact on agricultural productivity in the long-run, with manufacturing equally contributing in the short-run.

Keywords: Convergence, Labour productivity, Agriculture, Manufacturing, Poverty reduction

(ProQuest: ... denotes formulae omitted.)

1. Introduction

Productivity growth appears to have become one of the surest routes to growth and poverty reduction. The literature provides strong evidence that growth reduces poverty (Dollar and Kraay, 2002; CSLS, 2003) and in dynamic economies most economic growth comes from productivity growth (Note 1). There are indications that productivity growth is important for poverty reduction and even appears stronger than the link between growth and poverty reduction (CSLS, 2003) (Note 2). This issue is important especially for African countries that have higher levels of poverty and inequality (World Bank, 1995) and in the light of the first United Nations Millennium Development Goal envisaging the reduction of developing world poverty by half over 1990-2015.

The most popular notion of productivity is that relating to labour and that compares production to the quantity of labour employed in the production process. In this paper, we examine the effect of public expenditure on sectoral labour productivity and also find out if there are spillover effects (i.e., diffusion of productivity or technology between sectors). In sub-Saharan Africa, labour productivity is low especially in agriculture compared to manufacturing. To this end, developing an understanding of the relationship between productivity growth in agriculture and manufacturing, and on the impact of policies on sectoral productivity convergence can provide insights to government policy action.

The Lewis (1954) theory of structural change is important here, where labour productivity growth and the intensive use of labour can occur either via reallocation of labour or spillovers in production techniques between sectors resulting to productivity convergence. However, convergence may take a long time to occur especially in a low-income, agriculture-based economy such as Cameroon, expected to be in the midst of the transformation process, far from full commercialisation of all labour markets. Based on Rostow's doctrine, this also involves a transition from underdevelopment to development which should pass through a series of stages and as a matter of time (Rostow 1958). This paper has determined that fiscal policy partly explains the convergence of agriculture and manufacturing productivity levels and much time is required for convergence to actually take place. The remainder of the paper is organised as follows. In the next section we present the economic situation of Cameroon, followed by methods and nature of data used and the empirical strategy adopted. The discussion of results follows with a summary of findings and policy implication.

2. Overview of Cameroon economy

Economic growth in Cameroon has been uneven during 1960-2007 both at the aggregate and the sectoral level. After gaining independence in 1960, the country experienced, first, a period of modest, but balanced economic growth, followed by an episode of growth acceleration over 1977-1985-averaging 7 per cent per year. …

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