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PR, IFPRI1, DGO; DSGD, Kenya’s economy is diverse, with both agricultural and industrial potential. However, the economy has not performed especially well over the past two decades, and evidence suggests that poverty and inequality has not declined much. Therefore, it is imperative that Kenya’s government foster stronger growth and a process of income generation that benefits the broader population. As discussed in the next section, numerous studies emphasize the importance of rural development in Kenya, largely because a majority of the population, especially poor households, lives in rural areas, where they rely heavily on agricultural incomes. Urban households also depend on rural areas as a source of food and as a market for nonagricultural goods. However, Kenya’s ninth National Development Strategy has not taken a particularly optimistic view of agriculture’s potential contribution to economic growth—it targets an annual growth rate of around 4 percent per year, with agriculture growing at a little more than 3 percent (Kenya 2002).

Non-PR, IFPRI1; Theme 9; Subtheme 9.1;Country and regional food, nutrition, and agricultural strategies, DSGD, "Kenya’s economy is relatively diverse, with both agricultural and industrial potential. However, the economy has performed poorly over the last decade, and poverty and inequality have risen. This paper examines the impact of alternative growth paths and rural investments on poverty using an economy-wide model. It finds that if Kenya continues along its current growth path, its economy will have to grow by more than 10 percent per year over the coming decade to meet the Millennium Development Goal (MDG) of halving poverty by 2015. Therefore, Kenya must search for alternative sources of poverty-reducing growth. The results of the model indicate that poverty is unlikely to decline significantly without an acceleration of agricultural growth. Growth in agriculture is found to benefit both urban and rural households, whereas industry-led growth benefits a smaller segment of the urban population, thus exacerbating inequality. Kenya’s current Economic Recovery Strategy, however, is not optimistic about agriculture’s growth potential, focusing more heavily on industry-led growth. Therefore, as Kenya prepares its new national strategy, the country should place greater emphasis on and direct resources toward accelerating agricultural growth. In assessing the impact of rural investments on growth and poverty, the paper finds that increasing agricultural spending to meet the 10 percent target set by the Maputo Declaration would lift an additional 1.5 million people above the poverty line by 2015. Specific agricultural investments have higher returns in different parts of the country, however. Irrigation favors the lowlands and the poorest segment of the population, while research and extension (R&E) favors the midlands and highlands. Investment in R&E is also found to have the highest returns in both growth and poverty reduction. However, increasing agricultural spending to 10 percent of total spending is insufficient to meet either the MDG or the 6 percent agricultural growth