Aid to Africa's agriculture towards building physical capital: Empirical evidence and implications for post-COVID-19 food insecurity.

ABSTRACT

The formation of physical capital in Sub-Saharan Africa (SSA) in agriculture is imperative to help the continent (1) overcome the effect of the COVID-19 pandemic on food insecurity and (2) still be on track towards achieving the Sustainable Development Goals (SDGs) of "No poverty" and "Zero hunger" in the midst of the COVID-19 pandemic. Using country-level data on 40 SSA countries from 1996 to 2014 and rainfall deviations as an instrument for agricultural official development assistance (ODA) in fixed-effect estimation settings, this paper examines the 'instantaneous' impact of agricultural ODA on agricultural fixed capital formation in SSA. The question here is whether aid to agriculture does translate instantaneously to building fixed capital urgently needed to address the effect of any potential crisis on food insecurity. Measuring agricultural fixed capital as fixed investments in farm machinery, dams, industrial buildings for agricultural and agro-processing, fences, ditches, drains, etc., we find that capital formation in SSA agriculture improves instantaneously with agricultural ODA inflows. Second, we find that even though rainfall deviations are associated with agricultural ODA inflows to SSA, institutions particularly those designed to control corruption and strengthen rule of law, do matter for agricultural aid inflows to SSA. These results suggest that agricultural ODA is necessary to accelerate agricultural investments and achieve food security. Our results are robust to sensitivity analysis on the specification of the instantaneous model.