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Governance and Agricultural Productivity: A Cross-National Analysis

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This article examines the relationship between governance and agricultural performance by employing the World Bank"s Aggregate Governance Indicators. Based on a cross-country panel sample, two methods are employed to test the hypothesis that better governance fosters agricultural productivity. The empirical results of both methods support the hypothesis. As for the first method, the estimation results of the widely used inter-country aggregate agricultural production function show that a country with better governance can produce more agricultural outputs, given the same agricultural inputs, the same education level, and the same climate conditions. As for the second method, the empirical results of a structural equation model reveal that, given the same amounts of agricultural capital stock and land, an agricultural worker in a country with better governance produces more. Better governance can indirectly improve agricultural productivity by driving agricultural capital accumulation. This empirical work lends support to the claim that governance is a basic factor explaining the poor economic performance of many developing countries. To improve the agricultural performance of many developing countries, apart from physical and educational investments, more emphasis should be placed on improving the governance infrastructure of these countries.