Pro-Poor Public Investment

Background

The Role of Public Investment in Agricultural Growth and Rural Poverty Reduction

Governments use public spending to achieve both economic growth and equity goals. Their public spending often consists of long-term investments in research and development, education, and infrastructure (like roads, electricity, telecommunication, and water), as well as short-term social spending on sectors such as education, health, social security, and direct food subsidies to poor households. Studies have shown that public investments in agriculture and rural areas are major contributors to agricultural growth and rural poverty reduction.

Many developing countries, however, survive substantial budget cuts in agriculture and the rural development sector as a consequence of macroeconomic reforms and structural adjustment, declines in international commodity prices, and reduced private investment in and foreign aid to agriculture. These budget cuts will not only affect future productivity growth and food supplies, but also slow progress in reducing rural poverty and accelerate the degradation of natural resources.

Given this reality, how can governments better target their limited and often declining financial resources to achieve growth, poverty, and environmental goals as well as more efficient provision of public goods and services?