Agriculture and National Welfare Around the World: Causality and International Heterogeneity Since 1960

Abstract

Calculations of marginal welfare effects suggest that agricultural development has had important positive effects on national welfare, especially in developing countries. Latin American and Caribbean countries have also benefited from agricultural growth, but non-agricultural production has had marginal welfare effects that are greater in magnitude than those provided by agricultural activities. In contrast, the industrialized, high-income countries experienced marginal welfare gains from non-agricultural activities that are much greater than those derived from agriculture, whose impact is actually negative. These calculations of marginal welfare effects across regions depend on econometric estimates of elasticities linking agricultural and nonagricultural economic activities to four elements in a national welfare function: national GDP per capita, average income of the poorest households within countries, environmental outcomes concerning air and water pollution and deforestation, and macroeconomic volatility. The econometric analyses are motivated by theoretical treatments of key issues. The empirical models are estimated with various econometric techniques that deal with issues of causality and international heterogeneity.