Sober presentation

Fitting the Facts and Capitalizing on New
Opportunities to Redesign Rural Development
in Latin America

Alain de Janvry and Elisabeth Sadoulet
University of California at Berkeley

SOBER, Cuiabá, July 25-28, 2004
1

I.

Institutional lags and dysfunctionalities

New Institutional Economics: Lags between institutional
innovations and objective conditions can create costly
dysfunctionalities (North, Akerlof).
Example: Indian caste system based on a division of labor that no
longer corresponds to the current economic structure.
Thesis: Applies to rural development (RD): models pursued lag
relative to current structure of poverty and opportunities.
Reasons for lags and dysfunctionalities:
Imperfect information (costly, asymmetrical).
High sunken costs (path dependency).
Coordination failures (multiple equilibria).
Lack of commitment devices for compensations (farmers).
2

Visible symptoms of dysfunctionalities in RD:
•Lack of coordination between social and productive investments.
•Priority to state-led sectoral and technological approaches (Ag-IRD).
•Priority to CDD (Community-Driven Development, WB $2B/year)
effective for local public goods, but weak for income generation.
•Priority to improving asset endowments (necessary) at neglect of
improving thequality of context where assets are used (necessary and
sufficient).
Thesis: Observe gains in the social conditions of the rural poor
(although still lagging) but little progress in poverty reduction due to:
• Insufficiently noticed changes in the qualitative nature of poverty.
• Insufficiently noticed new opportunities to reduce poverty.
3
• Lack of coordination in pursuing a territorial approach to RD.

Outline of presentation:

1.
2.
3.
4.

Quantitative evolution of rural poverty: evidence of persistence
Qualitative changes in the nature of rural poverty
Emergence of new opportunities for RD
Strategies for RD in a territorial perspective

Evolution of ideas on territorial approaches to rural development
Ricardo Abramovay, José Ely da Veiga, José Graziano da Silva
Julio Berdegué and Alejandro Schejtman (RIMISP)
Ruben Echeverria (IDB)
Gustavo Gordillo (FAO)
Rafael Echeverri (IICA)
IFAD and Inter-Agency Group for Rural Development
European experts (France, Spain, Italy, EU-LEADER).
4

II. Quantitative evolution of rural poverty: a diagnostic of
failure
Four observed continental regularities:
1.

The incidence of rural poverty has generally not declined and
the number of rural poor has increased.

2.

Rural inequality is exceptionally high and increasing.

3.

Social development has improved, even though gaps between
rural and urban social development remain large.

4.

Urban migration has been the great escape valve in preventing
a larger increase in rural poverty. Poverty has been displaced
toward the urban environment.
5

Rural indigence in Latin America, 1970-2000

70

Brazil

60

Chile
Colombia
Costa Rica

50

El salvador
Guatemala
40

Honduras
Nicaragua
Mexico

30

Panama
Peru
20

Uruguay
Venezuela
LA

10

LA pop weight
0
1970

1975

1980

1985

1990

1995

2000

The incidence of extreme rural poverty has remained virtually
constant over the last 30 years.
6

Rural income inequality in Latin America, 1979-2000
0.55

0.5
Bolivia
Brazil
Chile
0.45

Colombia
Costa Rica
El Salvador
Guatemala

0.4

Honduras
Mexico
Nicaragua
Panama

0.35

Venezuela
LA pop weight
LA
0.3

0.25
1975

1980

1985

1990

1995

2000

2005

Income inequality in rural areas has generally increased.
7

III. Qualitative changes in rural poverty: four changes
1. There is increasing differentiation between two types of
geographical areas for rural poverty: MRA (marginal rural areas)
and FRA (favorable rural areas)
MRA = areas with poor agro-ecological endowments and/or isolated
from access to markets and employment centers
• Geographical pockets of poverty, frontiers
• Indigenous territories
FRA = good agro-ecologies and good connections to dynamic product
and/or labor markets. Poor are:
• Individuals with low asset endowments (land, education, and
social capital).
• Individuals with asset endowments, but lacking opportunities
to valorize these assets in the territories where they are located
• Rural youth and elderly people for whom social assistance
programs are needed.
8

Half of the extreme rural poor are in Favorable
Rural Areas (high economic potential and within 4
hrs-drive from Managua). Half in Marginal Rural
Areas.
Municipios with
extreme rural poverty
density >13 poor/ha
are outlined in red
Access time to
Managua is shown by
shading, close in
brown ranging to
remote in blue

Source: Raine et al., 2004, World Bank

9

2. There are major changes in the structure of employment and
sources of income for rural populations
2.1. Changes in employment patterns
% of rural labor force employed in non-farm activities:
Chile: 19% (1990)  26% (1998).
Costa Rica: 48% (1990)  57% (1997).
Honduras: 19% (1990)  22% (1998).
Mexico: 35% (1989)  45% (1996).
Brazil Northeast: increase by 95% 1981  1997
2.2. Changes in sources of income
Mexico changes in sources of income rural population 1992  2002:
Independent farming: 39%  13%.
Agriculture wage labor: 12%  11%.
Non-agricultural employment: 29%  42%.
Public and private transfers, including remittances: 7%  17%.
Other sources: 13%  17%.
10

3. There are important demographic changes in the rural labor
force
•Aging:
Mexico, share of the rural labor force more than 41 years:
32% (1992)  41% (2002).

•Feminization of the rural labor force:
Mexico, share of women in the rural labor force:
22% (1992)  32% (2002).

•Ethnicization of the rural population due to selective migration.
11

4. Inequalities are high and rising due to pervasive mechanisms of local
reproduction of social inequalities in spite of growth
Local inequalities are nearly as high as national inequalities: Ecuador
inequality, 86% within-community, 14% between community.
Mechanisms through which local inequalities are reproduced:
1. Under-investment by the poor in the education and health of their
children due to market failures (inheritance of poverty).
2. Use of child labor detrimental to child human capital due to lack of
other risk coping instruments (short run gain at long run cost).
3. Land distribution has remained largely unchanged due to land and
credit market failures.
4. Land rental markets are atrophied and socially segmented due to
weakness of property rights.
5. Social networks in information and referral for non-agricultural
employment are structured by social status.
6. Local political economy and clientelism make public projects
12
regressive.

1) Distribution of land rental transactions by living standard of tenant
and landlord in communities with and without recent land
occupations, Dominican Republic (Macours et al., 2004): Weak
property rights segment land transactions within social classes.
Living standard
of landlord

Living standard of tenant
Low
Regular
High

Communities with recent land occupations
Low

52%

41%

7%

Regular

21%

52%

27%

High

7%

33%

60%

Communities without recent land occupations
Low

33%

48%

19%

Regular

25%

45%

30%

High

41%

36%

23%
13

2) Role of peer effects (social networks) in accessing off-farm nonagricultural employment for rural households in poor communities,
Mexico: Peer effects reinforce local inequalities (Araujo et al., 2004)
7.00
High education

6.00

Landless
Non-indig.

Male
5.00

Smallholder

4.00

Indigenous

Female

Low
education

Participation
Peer effect

3.00

2.00

1.00

0.00
1

2

3

4

5

6

7

14

8

3) Municipal public works projects funded by Federal deputies are
inequalizing, especially where land inequality is high, but less so
when there is more effective local participation through functioning
social councils

Return to public works projects in Brazilian municipalities
(Source: Finan, 2004)
15

IV. Emergence of new opportunities: Six new opportunities
1.

Globalization and international market integration have led to:

1.1. A serious profitability crisis for small holders in traditional
agriculture (technical change North, OECD farm subsidies)
1.2. Opportunities offered by the “new agriculture”
High value crops such as vegetables, fruits, and animal products;
quality foods required by urban distribution channels and exports
(health standards, organic foods), standardized delivery in
contracts with supermarkets, demands of agro-industry for nontraditional exports, labeling and certification of origin, postharvest value added in commodity chains, etc.
1.3. The industrialization of many rural areas
39% of the rural labor force is currently employed in non-agricultural
activities, of which 2% are in mining, 21% in manufacturing, and
77% in services (25% in trade, hotels, and restaurants; 11% in
construction).
16

2. Rural areas are increasingly integrated economically with urban
areas.
Convergence between rural and urban wages (Mexico): rural/urban
wage ratio: 28% (1992) --> 40% (2002).
Role of proximity to employment centers for rural employment
growth in manufacturing and services:

Annual rate of employment growth
Annual rate of employment growth
7%
14%
Municipalities with population in head less than 15,000
Municipalities with popu
6%
12%
5%
10%
4%
8%
3%
6%
2%
1%
4%
Autonomous manufacturing
0%
Autonomou
0
50 100 150 200 250 300 2%
s services
-1%
0%
-2%
100 150
Kilometers to closestquartiles of municipalities)
manufacture 0
center50 Kilometers to 200 250 300
(vertical lines separate
closest service ce
(vertical lines separate quartiles of
Figure 1. Annual rate of employment growth in manufacturing and services in rural and semi-urban
municipalities by distance to an employment center in Mexico, 1990-2000

17

Role of employment in non-agricultural activities for poverty
reduction

Marginality index
Marginality index
Municipalities with population2.0 head less than
in
Municipalities with populat
2.0
15,000
15,000
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
-0.5
-0.5
-1.0
-1.0
-1.5
-1.5
0 10 20 30 40 50 60 70
0 10 20 30 40 50 60 70
Percentagelines separate quartiles of municipalities) linesactive population em
of active population employed in Percentage of separate quartiles of
manufacture
(vertical
(vertical
Figure 2. Rural non-farm employment and poverty levels in rural and semi-urban municipalities, Mexico 2000

Conclude: Bring rural areas “closer” to urban employment centers
for rural poverty reduction.
18

3. There has been much progress toward decentralization of
governance at the municipal level
•Decentralization has been extensive, but incomplete for fiscal and
financial capacity.
•Bolivia, Colombia: decentralization induces changes in municipal
budget allocation toward urban development, education, health,
water management, communications, transport, water and sanitation
(same as with CDD).
•But decline in income generation expenditures: energy, industry,
tourism, agriculture.
--> Conclude: decentralization for income generation needs larger
economic units: regional development, the missing dimension.
19

4. There has been much progress with local social capital
formation, particularly the expansion civil society organizations
Rapid expansion of CSO especially where:
•
•
•
•

Descaling of the role of the state: Mexico, Brazil.
Rising strength of indigenous movements: Ecuador, Bolivia.
Decentralization of governance calling on local participation:
Bolivia, Peru.
Introduction of local development councils (Brazil, Mexico,
Uruguay, Peru) and open town meetings (El Salvador, Honduras).

Challenge: How to transform this “organizational revolution” into
an an instrument for economic gains for the rural poor?
20

5. There are increasing demands for the provision of environmental
services

Market failures for environmental services compensated by payment
schemes (PES):
Watershed management, water quality, biodiversity conservation,
carbon capture, landscape management.
Examples:
•Costa Rica: payments to forest owners.
•Mexico: pilot scheme for forests in watersheds (80% of forests in
ejido communities).
--> Important new resource flows for RD.

21

6. Localized success stories exist, and they often have a territorial
base, but they have lacked in scale to make a difference in the
aggregate poverty figures
Sectoral/technological approaches have worked where preconditions (assets, context) were in place (Green Revolution,
titling, irrigation).
Territorial approaches are needed when many pre-conditions are
missing that need be put into place jointly:
• LEADER program in European Union.
• Community Empowerment Program of the USDA.
• Petrolina-Juazeiro in the San Francisco Valley (Brazil).
• Cajamarca (Peru): mesas de concertación & local ag.
system.
• Central Valley of Chile: Agro-exports.
• Central Highlands of Guatemala: Non-traditional exports.
• SEDESOL’s Micro-regions strategy in Mexico.
22

Beyond institutional dysfunctionalities in RD:
Move from prom positive to normative analysis, and quickly please!!
23

V.

Strategies for rural development from a territorial
perspective

MRAs: High poverty rate, low population density, low share of the
rural poor. Poverty is geographically concentrated.
Options for MRAs:
1. Migration toward FRA and cities: need prepare migrants by
investing in social development (Progresa, Bolsa Escola).
2. Concentrate populations locally (purely voluntarily) in CECs for
the delivery of social services: Mexico’s Micro-regions strategy.
3. Link MRA to FRA and urban centers through the construction of
integrated regions and economic corridors.
4. Deliver environmental services (forestry, watershed management,
in-situ conservation, eco-tourism).
24

FRAs: Low poverty rate, high population density, most of the rural
poor. Poverty is socially diffused.
Five dimensions of a territorial approach to rural development
for FRAs:
Dimension 1: Define regions
•Municipality for local governance and public goods.
•Ad-hoc association of municipalities in pursuit of particular projects.
•Regions as larger administrative units for economic projects.
•Regions as functional economic units: natural resource (localized
agricultural system), diversified employment basin, or social capital
unit.
25

Dimension 2: Institutional transformation of the region
Element 1: Strengthen and modernize the capacity of local
governments
•Greater economic capacity: Fiscal and financial decentralization.
•Improved administrative capacity and accountability.
Element 2: Strengthen the capacity of local organizations
Strengthen local civil society and private sector organizations.
Element 3: Build institutions to plan and formulate projects for
regional and local development
•Institutions for consultation, coordination, and cooperation among
public, private, and civil society.
•Capacity for regional strategic planning and definition of projects.
•Role of local universities for innovations, training, and technical
assistance.
•Regional institutions for promotion of the region.
26
•Coordination with national programs.

Dimension 3: Productive transformation of the region
Element 1: Regional projects for infrastructure and financial
development (State-region contracts)
•Public investments in infrastructure, link the region to dynamic
national and international markets. Industrial parks and other public
investments in support of private investment.
•Development of local and regional financial institutions.
Element 2: Promote the competitiveness of the region and local
entrepreneurs (Region-driven development projects: RDD)
•Investments in entrepreneurship training, technical assistance, and
public business incubators.
•Subsidies to investments that generate local positive externalities
(decentralization, clustering).
•Support to investments in the region’s comparative advantages:
Promote the “new agriculture”.
Promote the non-agricultural rural economy.
27
Capitalize on transfers and remittances.

Dimension 4: Social transformation of the region
Rural development programs (social and productive expenditures) in
support of the social incorporation of the poor
•Improve the asset position of the rural poor:
Access to land: redistributive land reform and subsidies to land
purchase.
Human capital formation: conditional cash transfer programs
for education and health.
Social capital formation: promote membership to organizations.
•Combat the reproduction and deepening of social inequalities to
insure broad sharing of the benefits of local/regional development.
•Safety net programs to support risk-taking by the poor.
28

1) Access to land reduces poverty

Probability of being poor and access to land in Mexican rural
communities (each point represents 137 observations). Source:
29
Finan et al., 2003.

2) But the effectiveness of access to land in reducing poverty
depends on:
2.1. Complementary assets held by the household: education
2.2. Quality of context where land is used: availability of roads (FRA)
vs. unavailability (MRA)

Marginal welfare value of land by farm size across groups and
areas in Mexico. Source: Finan et al., 2003.
30

3) Conditional Cash Transfer programs (Progresa) can be
effective in raising educational achievements
Continuation rate (%)
100

Lower secondary
school
Progresa villages

Primary school

90

76%

80
70

Control villages
60

Secondary 1
64%
Upper
secondary
school
43%

50
PROGRESA INTERVENTION
40
P2

P3

P4

P5

P6
S1
Entering grade

S2

S3

S4

Impact of Progresa on school continuation rates of poor children in
marginal rural communities (+12% points). It erases the difference
in educational achievement between poor and non-poor, Mexico.
31
Source: Sadoulet et al., 2002.

4) The value of education depends on the context where it is used.
Education in MRAs has low value compared to education in FRAs
and urban environments (migration).
Life time earnings (pesos/month)
2500
)

Migration

2000

1500

1000
Ag. wage

Self-employed
500

Non-ag. wage

0

Primary

Secondary 1

Secondary 2

Secondary 3

Higher than

secondary 3

Returns to education for children from marginal rural
communities, Mexico. Source: Sadoulet et al., 2002.
32

5) Conditional cash transfers programs (Progresa) are good to
keep children at school when parents have an income shock,
avoiding use of child labor as a risk coping instrument with
irreversible long run consequences on their human capital. Source: de
Janvry et al., 2004.
Impact of state dependency, shocks, and Progresa on school attendance
(Dynamic model with child fixed effects)

Dependent variable: Pr(Child at school)
State dependency:
Child at school last semester
Head of household unemployed
* Progresa
Head of household ill
* Progresa
1
Drought severity in locality
* Progresa
1
Natural disaster severity in locality
* Progresa
Number of observations

0.164
-0.018
0.012

0.168

0.173

0.171

-0.017
0.020
0.001
-0.005

65,716

72,752

72,264

33

-0.032
0.040
72,332

Dimension 5: Implementation of territorial rural development as a
national strategy requires:
•Auditing and impact analysis for accountability.
•Results-based management for participatory learning and
improvement, based on monitoring and just-in-time impact analysis.
•Continuity beyond the political cycle and initial leadership (fails in
Cajamarca, Cuatro Pinos Guatemala): importance of broad social
participation in the region and national/international visibility beyond
the regional level (Progresa).
•Scale through coordination to shift to new territorial equilibrium:
Big Push approach to territorial development.
34

With all five dimensions in place: time to experiment!!
35

VI. Summary and conclusion
•Past approaches to RD have been insufficient to reduce rural
poverty and stabilize rural populations.
•The qualitative nature of poverty has changed and new opportunities
have emerged that both require and allow to redesign RD.
•Sectoral/technological approaches have been effective where preconditions (assets, context) were in place.
•Territorial (regional-local) approaches can be effective where more
comprehensive interventions are needed.
•Localized success stories exist, but they need to be scaled up for
impact on poverty/retention.
36

Lessons learned with territorial approaches to rural poverty
reduction suggest the following approach:
•Distinguish between MRAs and FRAs.
•Define regions (integrate secondary cities, link MRAs to FRAs).
•Promote regional development through the institutional and
productive transformation of the region (state-region projects, RDD).
•Promote rural development to assist the rural poor to participate to
the benefits of regional development (assets, link poor to non-poor).
•Successful implementation requires: Accountability, Learning,
Continuity, Coordination for scale.
37

Thank you for your attention!38

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