Research Activities Under the Project “Rural Markets, Natural Capital and Dynamic Poverty Traps in East Africa” Presentation to BASIS CRSP Technical Committee October 11, 2002 College Park, MD Chris Barrett, Cornell University and Festus Murithi, Kenya Agricultural Research Institute on behalf of the project team

Contemporary Poverty Reduction Strategies in East Africa The PRSP process is focusing government, donor and civil society efforts on poverty persistence. Efforts particularly directed at chronic poverty and vulnerability in rural areas. Thus, PRSP in Kenya based heavily on KRDS (Kenya Rural Development Strategy) and new Malagasy government has made rural poverty reduction is top priority. Soils degradation and market access widely viewed as most important limiting factors in improving agricultural productivity and rural incomes

Contemporary Poverty Reduction Strategies in East Africa Effective, policy-relevant research must therefore target the core question of poverty persistence in rural areas, with special attention to market access and soils degradation/rehabilitation. Our BASIS CRSP project aims to integrate research, training and outreach activities to address this need.

Toward A Theory of Poverty Traps Existing, largely macro-level theories of poverty traps (“new” growth theory) The multidisciplinary literatures on livelihoods and on technology adoption point toward an alternative approach that seems especially well-suited to rural Africa and our cases in Kenya and Madagascar.

Toward A Theory of Poverty Traps Opportunity set mappings/ density plots (conditional on quality-adjusted productive assets) T1 T2 T3 T4 Labor Land

Toward A Theory of Poverty Traps Activity choice and productivity/income differences T1 T2 T3 T4 Output/Income Ex Ante Assets

Toward A Theory of Poverty Traps Implied wealth dynamics: distinct classes emerge T1 T2 T3 T4 Wealth t+i Wealth t W*1W*1 W*2W*2 W*3W*3 Chronically Vulnerable Chronically Poor Poverty line Non-Poor Dynamic eqln

Implied causality of poverty traps Four key sources of poverty traps: -Meager stocks of productive assets -Rudimentary production/processing technologies and nonfarm opportunities -Weak markets and nonmarket institutions -Risk exposure and limited risk management Research design implication: Need household-level data to establish asset/income/productivity dynamics, measures of shocks, livelihood strategy choice, and market access

Empirical Tasks Project objective 1: 1)Describe welfare and resource dynamics empirically 2)What is happening over time to the poor? Who climbs out of poverty? Who is trapped in poverty? 3)What is happening to the natural resource base on which the poor in particular depend for rural livelihoods?

Empirical Tasks Project objective 2: Test four hypotheses about poverty traps in East Africa: (i) High return production strategies (e.g., livestock) exhibit increasing returns at low production levels, with a minimum efficient scale of production beyond the means of the poor lacking adequate financing. (ii) Poor market access creates significant fixed costs to market participation, giving larger producers net price advantages and inducing poorer producers in areas of weak market access to opt out of markets in favor of low-return self-sufficiency.

Empirical Tasks Project objective 2 (continued): (iii) Poorer households lacking access to capital to finance productive investments may be unable to undertake lumpy investments, regardless of their expected returns (iv) Risk and subsistence constraints impede long-term investment for asset accumulation and productivity growth among poorer, more risk averse households.

Empirical Tasks Project objective 3: Use dynamic process modeling methods to replicate observed patterns and then to explore how the existence of poverty traps conditions natural resource conservation, particularly soil quality dynamics that affect future agricultural and labor productivity and food security. “The soil said to man, ‘take good care of me, else when I get hold of you I won’t let your soul go free.’ ” -Kipsigis proverb

Empirical Tasks Project objective 4: Through bioeconomic model simulations and both qualitative and quantitative empirical work, identify and document effective policies, technologies and programs to combat dynamic poverty traps in this setting. Examples: - new agroforestry technologies - restocking herds after droughts - contract farming schemes that address multiple factor market failures

Preliminary evidence Objective 1: Describing welfare/resource dynamics Examples: herd dynamics in northern Kenya land transitions in western Kenya

Preliminary evidence Objective 2: Explaining observed poverty traps Increasing returns and minimum efficient scales of adoption: i) SRI adoption in Madagascar ii) Education and nonfarm earnings in C/W Kenya iii) Herd mobility in N Kenya

Preliminary evidence Objective 2: Explaining observed poverty traps Market access : Market access comparisons from - central-western Kenya - south-central highlands Madagascar (education, nonfarm, dairy cattle, market access, vertical integration of input/output marketing systems)

Preliminary evidence Objective 2: Explaining observed poverty traps Access to finance: SRI adoption in Madagascar Education in rural Kenya (N/W Kenya in particular) Microfinance in northern Kenya Irrigation investments

Preliminary evidence Objective 3: Bioeconomic modeling tool CLASSES model prototype near completion. Short course begun in Kenya in June and will complete this month in Ithaca. NSF Biocomplexity project will enrich and extend CLASSES significantly in the Kenya sites

Thank you! We welcome your comments and suggestions on this project