Distortion of agricultural incentives in East Africa: effects on agricultural value added

AbstractThis study examines the effects of distortion of agricultural price incentives on agricultural value added in East Africa. The World Bank, IFPRI, FAO, and CSP are the sources of data. The dataset ranges from 1981 to 2018, and the error-corrected LSDV model is used to analyze the data. The results indicate that agricultural price incentives have positive and significant effects on agricultural value-added. Aggregate nominal assistance coefficient, exportable agricultural products nominal assistance coefficient, and nominal rate of protection have increased agricultural value-added significantly. Agricultural price incentives targeting different levels of value addition have larger effects than those targeting aggregate outputs. This implies that agricultural incentive policies and market conditions in support of local producers are vital to enhancing AVA in East Africa. Besides, larger areas of arable land, lower agricultural employment, a smaller population size, a larger GDP, less spending on education, and a better-performing polity contribute to a significant increase in the regional agricultural value added. The results generally imply that agricultural price incentives are vital to accelerating agricultural value addition in East Africa. Governments in this region should thus consider revising agricultural policies in a pro-agricultural way to further accelerate regional growth in agricultural value-added. Enhancing agricultural price support needs to be a crucial element of policy revisions in the region.