1. Investment and Pro-Poor Growth Shenggen Fan, IFPRI
Phnom Penh, June 27-30, 2005

2. Outline of the Presentation
-Trends in Government Investment
-How Investment Reduces Poverty
-Case Studies
-Public-private Partnership
-Conclusions
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3. Why Public Investment - Market Failures
- Distribution and Poverty Reduction
- Enabling the Investment Environment
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4. Agriculture Expenditure
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5. Composition of Expenditure (%)
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6. Investment and Rural Poverty
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7. Returns to Rural Investment, India
Returns in Rupee per Rupee Spending
Number of Poor Reduced per Million Rupee Spending
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8. Effects of Rural Investment, China
Education
No. of poor reduced /10,000 yuan
R&D
Roads
Power
Phone
Irrigation
Loans
yuan per yuan spending
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9. Regional Effects, China
Returns in Yuan per Yuan investment
Number of poor reduced per 10,000 Yuan invested
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10. Effects of Rural Investment, Uganda
Returns in shilling per shilling Investment
Number of poor reduced per million shillings investment
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11. Ranking of Investment Effects
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12. Effects of Low and High Quality Roads, China
No. of Urban Poor Reduced per 10,000 Yuan
No. of Rural Poor Reduced per 10,000 Yuan
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13. Agricultural research Education Rural infrastructure
Highlights of Results
The three most effective public spending items in promoting agricultural growth and poverty reduction:
Agricultural research
Education
Rural infrastructure
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14. Highlights of Results
Trade-off between agricultural growth and poverty reduction is generally small
- For agricultural research, education, and infrastructure development, they have large growth impact as well as large poverty reduction impact
- Regional analysis: more investments in less-developed areas lead to largest poverty reduction and high growth per unit of spending in Asia. In Africa, lack of investment in all types of regions.
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15. Highlights of Results Returns vary over time
Initial subsidies in credit, fertilizer, and irrigation might have been crucial for small farmers to adopt new technologies. But as more and more farmers have adopted new technologies, continued subsidies have led to inefficiency of the overall economy
However, returns to agricultural research, infrastructure and education have high returns throughout the whole period
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16. Reforming Institutions: PPP
Public and Private Partnership (PPP). Public sector will be still the major player in providing infrastructure services in rural areas.
But privatizing certain component can improve efficiency and service
“Unbundling” is a necessary part of privatization.
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17. Feasibility of Private Sector Delivery
Sector/type of service
Potential for competition
Characteristics of good/service
Potential for cost recovery
Equity concerns
Marketability index
Telecommunications
Local services
Long distance
medium
high
private
few
2.6
3.0
Power
Thermal generation
Transmission
Distribution
Gas production/ transmission
low
club
many
2.4
Transport
Rural roads
Primary/secondary
Roads
public
1.0
Irrigation
Primary/secondary networks
Tertiary (on farm)
1.4
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18. Unbundling and Degree of Competition
Industry
Generation/ storage
Transmission
Distribution/retailing
Power / energy
Competitive
Monopolistic
Large scale irrigation
Monopolistic/ oligopolistic
Medium scale irrigation
Small scale irrigation
Telecommunications
Rural roads
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19. Centralization vs. Decentralization
Scale of economy
New technological innovations
Community and user’s association
Strengthening public institutions
Improving human capitals
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20. Conclusions
National governments and donors need to increase investment in rural areas
More resources are needed to less developed/favored areas
Instead of high quality/high cost, low quality/cost investment can be more cost-effective and more pro-poor
Reforming institution is equally important
Privitization of certain components of the whole system can improve efficiency
Public institutions and human capitals need to be improved
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