Returns to investment in less-favored areas in developing countries: a synthesis of evidence and implications for Africa

Abstract

A large proportion of world’s population lives in marginal (or less-favored) areas. These areas are of home to the poorest segment of the population, particularly in rural areas. In the past, government has targeted their resources mostly to the high-potential or irrigated areas. These investments have generated rapid growth in agricultural production (for example, the so-called green revolution in South and Southeast Asia in the 1970s and 1980s), which in turn has helped to alleviate rural and urban poverty. However, as investments continue to increase in these favored areas, their marginal returns have begun to decline, and environmental problems are emerging. Evidence shows that it is in the marginal areas (or less-favored areas) where many investments may have higher returns today. These investments may have even larger impacts on poverty reduction and environmental protection, as poor people are increasingly concentrated in the marginal areas, where natural resources have already been severely degraded. This study synthesizes some recent studies from India and China on the relative returns to investments in favored and less-favored areas, and presents some preliminary evidence from Uganda, and offers some policy implications for Africa on how governments and international donors can reprioritize their investment portfolio in order to achieve multiple goals of growth, poverty reduction, and environmental protection.