Rethinking Agricultural Support: The Role of Public Policies in Productivity Growth

Diana Victoria Tadeo Ruesta, Natalia Tellez-Lara, Lina Salazar, Carmine Paolo De Salvo and Gonzalo Rondinone

No 14837, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: This paper examines whether the composition of agricultural support matters for productivity growth in Latin America and the Caribbean. We use an annual panel of 17 countries over 1995 to 2023. The analysis links agricultural total factor productivity to policy support measures constructed under the OECD Producer Support Estimate framework and extended to the region through the IDB Agrimonitor initiative. The paper distinguishes between market price support, direct transfers to producers, and general services support, and estimates dynamic panel models using System GMM. To address the potential endogeneity of support, the analysis combines internal instruments with an external instrument based on rural voter turnout. The results show that aggregate support is not positively associated with agricultural productivity. However, this relationship masks substantial heterogeneity across instruments. Market price support is negatively related to TFP under USDA and FärePrimont indices, and significantly so under the FärePrimont index, while direct transfers display a positive, though less robust, association. Contemporaneous general services support is not significantly associated with current productivity, consistent with the delayed nature of public goods investments. When public research and development is modeled as a long-lived stock of agricultural knowledge, its association with TFP becomes positive under both productivity indices and statistically significant under the USDA index. These findings suggest that the productivity effects of agricultural policy depend less on the total level of support than on its composition and timing. For LAC, where producer support remains heavily tilted toward price-based interventions, the findings underscore the importance of reducing reliance on distortionary market price support, improving the design of budgetary transfers, and strengthening sustained investment in agricultural public goods, particularly R&D.

Keywords: Agricultural productivity; Agricultural Policies; agriculture support (search for similar items in EconPapers)
JEL-codes: O54 Q10 Q18 (search for similar items in EconPapers)
Date: 2026-11
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Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:14837

DOI: 10.18235/0014595

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