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Section 8. Economic theory
Mose Naftaly, University of Eldoret, Kenya E-mail: ngmoce@uoeld.ac.ke
Were Lawrence, Jepchumba Irene, Muthoni Jane, Egerton University, Kenya
DRIVERS OF GROWTH IN THE AGRICULTURAL SECTOR ON THE DEVELOPMENT PLAN
Abstract. Agricultural sector contribute about 36% of the East African Community's Gross Domestic Product (World Bank, 2009), 80 per cent of the populace depend on agriculture directly and indirectly for food, employment and income, while about 40 million people in EAC (East African Countries) suffer from hunger and the agricultural sector still retains a lot of untapped potential, specifically for commercial farming. However, economic growth target for agriculture sector can be achieved by stimulating three factors; capital, labor and total productivity of capital and labor through R&D. This study applied panel random effect model on EAC countries data, 2000-2014. Random effects regression results showed that all explanatory variables had a significant and positive relationship with the dependent variable. From the findings the study recommends: R&D to be allocated more funds; and more research scientists and agricultural labourers to be employed in EAC.
Keywords: Agricultural Sector Growth, Labour, Capital, Research and Development, EAC, Economic Growth.
1. Introduction
Economic planning of economic decisions in the long-term accomplishes to directing and controlling the Economic development plans are formulation at the level and growth of a country's basic economic variables. Sector planning is performed rationale and relying on the quantitative variables and factors influencing growth tools, resources and economic potentials of each section, (macro and sector levels), in planning and formulation of in order to achieve development goals at the macro level. However,
studies have shown that the size of government methods is used (with statistics and data); one of these has significant effect on economic growth of the agricultural sector and labor productivity in agriculture. One of the important steps in the process of has a direct relationship with investment of the public planning (FAO [2]; Khaledi and Shirazi [6]; Sertoglu et al., [14]).
Further, Matahir took a different stand on his study on the role of agriculture on growth and how it interplays with other sectors in the economy. Time se-
ries Johansen cointegration techniques was employed to investigate the non-causality relationship between agriculture and other sectors of Tunis. From their findings, it was posited that, policy makers should see agricultural sectors as vital tools in their analysis of inter-sectorial growth policies (Matahir, [8]).
Therefore, the actual investment in the agricultural sector are not limited to the tools of production, machinery and buildings; actually in the agricultural sector part of the earth, trees and livestock units are considered a type of capital. However, share of land and living capital lies in value added of agricultural sector and it is not just the result of employing labor and physical capital.
Labour productivity in East Africa has declined substantially due to labour contraction especially in Kenya and Tanzania. However, it has recovered substantially in Rwanda and Uganda. Given these trends the average yield for East Africa's maj or crops currently fall well below those elsewhere in Africa and even further below global levels. These trends in productivity growth have translated into poor overall agricultural growth rates in individual countries in East Africa and for the region as a whole.
2. Literature Review
Arrow [1] model regarded learning by doing as endogenous in the growth process. The theory hypothesised that at any moment of time, new capital goods incorporate all the knowledge then available based on accumulated experience, but once built, their productive deficiencies cannot be changed by subsequent learning. The theory showed that if the stock of labour is held constant, growth ultimately comes to a halt because socially very little is invested and produced. This was supported by Segura and Rodriguez [13] who said that learning is a product of experience (doing) that takes place during activity, since it usually occurs through the attempt to solve a problem. Rotheli [12] also supported this theory by saying that the observation by Arrow proved the capability of workers to improve their productivity by regularly repeating the same type of action. The
increased productivity is achieved through practice, self perfection and minor innovations. However, Romer [11] criticised this model by saying that for technical reasons, the fact that this model could lead to sustained endogenous growth was not emphasised. Some researchers conducted research on the effect of R&D and other areas related to R&D on economic growth in different countries and regions. All of them have come up with different results hence they have been inconclusive.
3. Methodology
Levin, Lin and Chu [7] developed a unit root test for panel data. When the linear combination of the two variables is I(0), then the variables are said to be co integrated. Differencing leads to lose of long run relationship between variables and so co integration test is being conducted to check whether the variables have got long run relationship or not. Pedroni [10] developed a residual-based panel co integration test statistics based on within dimension and between- dimensions. To ascertain whether to employ fixed effects model or random effects model, the study conducted Hausman Test which was developed by Hausman [4]. The test basically tries to establish whether the error terms are correlated with the regressors, with the null hypothesis stating absence of such correlation. The basic panel regression equation was used to investigate the relationship between R&D and agricultural sector growth. Further econometric estimation tests were carried out.
4. Results and Discussion
From regression result, for the case of agricultural capital, the coefficient is 0.12 and statically significant at 5% level of significance. This implies that a one percent increase in agricultural capital leads to a 0.12% increase in agricultural sector growth (output). The result is positive and conforms to the conventional view. This could be because agricultural capital helps in faster facilitation of agricultural activities for example in faster tilling of land, faster planting, faster weeding, faster harvesting of crops, faster milking of cows, faster spraying of domestic
animals and faster milling of grains hence helps to increase/improve the quality and quantity of agricultural products. In addition, it could be because transportation of the agricultural products or agricultural raw materials is made easier and faster to the markets, stores and factories. There could also be reduced wastage of agricultural products which may lead to increased productivity as raw materials could be easily transported to the factories for processing. The finding of this study on the effect of agricultural capital on agricultural sector growth is in agreement to the finding of Kim [5].
For the case of agricultural labour, the coefficient is 0.16 and statically significant. The positive relationship may be attributed to the presence of a healthy and energetic agricultural labour force who could actively participate in the various roles assigned to them like driving of tractors for tilling land, planting, weeding and harvesting and this could lead to increased agricultural productivity. The other factor that could have contributed to this positive relationship between agricultural labour force and agricultural output growth could be a good work environment for the agricultural labour force through better wages, provision of security and working tools, appropriate working hours, proper laws and regulations that were protecting their rights and which were being implemented and these could have prevented things like strikes and go-slows and instead boosted their morale in their work and hence increased agricultural output. In addition, the positive coefficient could have been because of the presence of trained, skilled and experienced agricultural labour force which implies that they had the capability to use the farm tools and equipment and were also well versed with the way the farm tools and equipments were being used in the production process and hence led to increased agricultural output. Further, the above finding agrees with the result of Kim [5].
From the regression results, the coefficient of agricultural R&D expenditure is 0.85 and statically significant at 5%. The endogenous growth theory says
that R&D leads to increase in the stock of knowledge which in turn has got spill over effects hence leads to economic growth. This positive relationship could be because allocating funds for agricultural research leads to increased agricultural research which causes increased knowledge about high yielding crops, the invention of drought resistant crops which helped in preventing crop failures in the event of a drought, better ways of improving soil fertility which leads to increased yields, introduction of advanced machines in production which made the production process to go faster hence high quality and quantity of products within a short period of time. These advanced machines may include machines for tilling land like tractors, milking machines, harvesting machines and planting machines. Agricultural research and development could have also led to the discovery of crop and livestock diseases, what causes them, how they can be prevented and even a solution should they occur. This boosts crop productivity and hence increased agricultural growth. The positive and significant effect of agricultural R&D expenditure could have been as a result of proper dissemination of knowledge generated through agricultural R&D and thus increasing agricultural productivity in EAC. The above finding agrees with the previous studies of Pardy et al. [9]; and Gutierrez and Gutierrez [3].
5. Conclusion and Recommendation
Agricultural capital influenced agricultural sector growth positively and the influence was statistically significant. To accelerate this effect, the governments of EAC states should subsidize the cost of farm tools and equipment and also make loans easily accessible to farmers by lowering the interest rates to enable them acquire agricultural capital. Taxation on agricultural products that serve as raw materials to the agro-based industries should also be lowered to make raw materials easily available to these industries. Agricultural firms should also invest properly on farm tools and equipment and ensure that they are well serviced and maintained as these efforts will make the agricultural sector not to be capital deficient.
Further, agricultural labour was found to influence agricultural sector growth positively and the influence was significant. To enhance this influence, the governments should subsidise health services for easy access and this will make people to be healthy and energetic and hence more productive in the agricultural sector especially the agricultural labour. In addition, the governments should ensure that there are laws in place that protect the rights of workers in terms of their minimum wage rates and the working
hours and also ensure that the laws are adhered to and this will make workers productive as strikes and go slows will not be experienced when the laws are adhered to. Lastly, R&D funding should be increased every year to facilitate agricultural R&D. In addition, more agricultural research scientist should be trained and employed for serious agricultural research to be carried out. Also, the government should do more in disseminating the research result to farmers and agricultural institutions.
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