Political Economy Determinants of Public Spending Allocations: A Review of Theories, and Implications for Agricultural Public Investment

Abstract

Agricultural public investments in developing countries can have substantial effects on performance in the sector and beyond. In the examination of actual resource allocation decisions by governments and donors, it is striking that strong evidence of the high economic contributions of particular types of public investments seems to coexist with a relative neglect of these public goods provisions in budget portfolios, and vice versa. This article sets out to understand this incongruence, by examining the political economy drivers of public expenditure allocation and composition. It reviews theories and empirical investigations on how (i) the incentives and constraints of key actors – including politicians, bureaucrats, interest groups and donors, (ii) the characteristics of publicly provided goods and services and (iii) country-wide political governance environments affect the prioritisation of public investments.

Abstract

Dans les pays en développement, les dépenses publiques dans le secteur de l’agriculture ont des effets substantiels sur la performance du secteur, et au-delà du secteur même. En examinant les décisions d’allocation des ressources par les gouvernements et les donneurs, on découvre que des investissements publics qui apportent évidemment des fortes contributions économiques coexistent avec un état d’abandon relatif de ces mêmes provisions de biens publiques dans les portefeuilles budgétaires, et vice versa. Le but de cette étude c’est de comprendre cette incongruence, en examinant les effets des leviers de politique économique dans la composition et allocation des dépenses publiques. On examine théories et études empiriques sur comment la priorisation des investissements publiques est affecté par: (i) les motivations et les contraintes des acteurs principaux – y inclus les politiciens, les bureaucrates, les groups d’intérêt, et les donneurs; (II) Les caractéristiques des biens et services de provision publique; (iii) la gouvernance politique au niveau du pays.

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Figure 1

Notes

  1. 1.

    The principles discussed in Mogues et al (2015) include allocating resources to address positive and negative externalities in agricultural activity, the public goods nature in some agricultural investments, equity considerations, and the balance between market and government failures in agricultural interventions.

  2. 2.

    The term ‘agent’ here – as well as elsewhere unless stated otherwise – is meant in terms of ‘actor’ in general, and is not necessarily limited to the notion of ‘agent’ in the principal-agent sense of the term.

  3. 3.

    The survey in this article (from the second to the fourth section) considers only the academic peer-reviewed literature across various disciplines in political science, economics and so on, although interesting working papers and institutional papers also exist on the topic.

  4. 4.

    The extent to which private and public investment in agriculture act as complements or substitutes is discussed in Mogues et al (2015).

  5. 5.

    This study does not capture actual public expenditures, but creates a composite index from information about the presence or absence of various public goods/services outputs such as electricity and irrigation facilities.

  6. 6.

    The attribution meant here is that agents such as farmers, other rural residents and organised rural groups may rightly or wrongly make a connection between improvements they experience and investments or policies the government undertook. That is, this discussion of attribution is not referring to analytical attribution problems by the empirical researcher. However, for readers interested in the challenges that long lag times impose on analytical attribution of agricultural research and development investments, see Alston and Pardey (2001).

  7. 7.

    Harstad and Svensson (2011) uniquely study lobbying activities (discussed above) and corruptive activities in a joint framework. They distinguish these two in that corruptive behaviour seeks to bend the rules, while lobbying behaviour seeks to change the rules. Both types of activities are subsumed under rent-seeking activities.

  8. 8.

    All these studies normalize spending, by considering spending categories as either a share of total spending or a ratio to GDP. Details on how the effect of interest is identified, including how potential simultaneity and other biases are addressed, are not discussed here but can be found by consulting the respective studies.

  9. 9.

    The larger effects of corruption on development outcomes, including on agricultural growth, have been widely researched, and this question goes beyond the scope of the discussion in this review. Clearly, countries such as India and Indonesia have been able to record impressive and sustained agricultural growth, while also suffering from the ubiquitous presence of corruption in the agricultural and wider economy. Correlation, however, obviously does not imply causality, and in fact the question of whether the size, composition and distribution of growth would have been better had corruption been lower in these and other countries is an empirical matter.

  10. 10.

    This study, covering the 1960–1990 period, does not include the post-Cold War period. A re-analysis including time periods after the critical structural break in world politics after 1990 might yield interesting and different results.

  11. 11.

    The analysis includes a dummy for medium political rights and high political rights, with the non-included dummy being that of low political rights. The medium rights coefficient is statistically significant and negative in the model of agricultural research spending, and the high rights coefficient is not statistically significant.

  12. 12.

    Most of the analyses discussed in this article are, however, better contextualised by probabilistic voter theories than by the median voter theory, as the analyses for the most part imply that citizens – for a range of reasons – prefer policy outcomes in a non-deterministic way. ‘Better’, however, does not mean ‘perfectly’: Both the probabilistic voting and the median voter theory presuppose the existence of functional democracies with competitive electoral systems, and these are not the relevant context in the case of agricultural (and other) public expenditure choices in many developing countries.

  13. 13.

    A recent excellent example is Svolik (2012).

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Mogues, T. Political Economy Determinants of Public Spending Allocations: A Review of Theories, and Implications for Agricultural Public Investment. Eur J Dev Res 27, 452–473 (2015). https://doi.org/10.1057/ejdr.2015.35

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Keywords

  • political economy
  • agricultural public investment
  • public expenditure
  • agricultural development
  • governance